If the Answer is No, Then Stop Trading With an Ineffective Mindset:
For the majority of traders, the entire process quickly becomes excruciatingly painful – both emotionally and financially. What starts out as a fun and exciting way to “get-rich-quick” rapidly turns into a nightmare. There might have been a streak of beginner’s luck where you stacked up some random wins, but that luck has run out. Your account is basically blown up. And now you have no idea how to get back the money you’ve lost except to take on more risk, bet bigger, and hope for a huge win. Before you know it, you’ve lost thousands of dollars, you’re angry at the market, and blame the “guru” that sent you the “hot stock tips”. Any of this sound familiar?
This is the typical experience of a new trader. They enter the market with bright eyes and high hopes, but then reality eventually sets in. It’s no longer the fun and games that they wanted it to be. They’ve lost a large chunk of money, they’re emotionally wounded, and not entirely sure what to do next. They blame outside sources for all of their trading woes and continue to search for external answers. But the bitter truth is that there’s nobody to blame except themselves. The market never took anything from anyone. It’s completely objective and indifferent. All it does is provide information. If you lost money, it’s because of actions you took. So it’s time to develop a sense of self-awareness and personal responsibility. Your current thoughts, beliefs, perspectives, and behaviors within the market are what led you to the position you’re in now. If you want different and more effective results, it requires a complete paradigm shift.
Understand Why Your Current Mindset is Sabotaging Your Trading Results:
The worst part about seeing the vast majority of traders fail is that oftentimes they don’t even realize the actual reason why. They think the consistency they seek can be found somewhere outside themselves – some outside force. As a result, they follow the crowd in a constant search for some magic foolproof system. But the reality is that trading systems without any losses simply don’t exist. There’s too much uncertainty in the market for any guarantees. And even if they did come across a close-to-foolproof system, they most likely don’t have the proper mindset in place in order to take advantage of that edge with a high degree of discipline, so the system wouldn’t work regardless. The unfortunate truth is that we all have insecurities, denied impulses, biases, bad habits, unrealistic expectations, and defense mechanisms that we tend to bring into the market because we don’t know any better. So without the proper handle on our mindset, all of these factors push us down a path of erratic, impulsive, and irrational trading behaviors.
The reason we need to shift our beliefs, perspectives, and behaviors within the market is because it’s a unique environment. Again, most traders fail to realize it, but the characteristics of the market environment are fundamentally different than anything else that they’re used to in their typical day-to-day lives. We’re born into societies with structure already in place for us, so it’s not even something we consciously think about. There are rules and laws that we follow that just seem natural. We didn’t have to put in any effort of our own to construct these guidelines, but there they are – already in existence for everybody’s well-being. The market environment, however, is completely different. There’s nothing stopping us from taking random trades, removing stop losses, adding to losing positions in direct conflict with our original plans, and the list of impulsive behaviors goes on-and-on. The possibilities are completely limitless. So in order to be consistently successful, it’s entirely on us to create structure for ourselves with rules-based systems and calm, balanced mindsets. Without these components firmly in place, the market environment is nothing but confusion and chaos.
Learn How to Align Your Mindset With the Realities of the Market Environment:
It’s clear that the majority of traders behave based on their fears, anxieties, regrets, doubts, and worries. There’s an agonizing internal struggle due to their constant questioning and second-guessing. Should I take this trade? Is my position size right? Should I exit? Will I miss out on other trades? In order to reduce their never-ending anxieties, they take impulsive and irrational actions. This happens because there’s a dissonance between the personal thoughts, beliefs, and perspectives they have toward the market and the actual realities of the market. Once their mindset is truly aligned with the realities of the market, however, it becomes possible to flow with it instead of fight it. This is how our trading experience can become fluid and smooth instead of erratic and painful.
If more traders focused on cultivating the proper mindset before jumping headfirst into the market, there would certainly be a lot less emotional and financial pain. Unfortunately, most traders choose to learn the hard way. Either out of ignorance or denial, they end up experiencing for themselves how cruel the market environment can really be and the psychological implications that it can have on an unprepared participant. The good news is that these hard lessons can eventually lead them down the right path of changing their mindset. But it doesn’t always have to be this unpleasant. So much pain could easily be avoided if traders just accepted the realities of the market and embraced them from the start. But in order to be effective within an environment with unique characteristics, it requires change. And change is scary for most people, but without a little resistance there can be no growth. We have to take action knowing that the process won’t be perfect, but eventually we’ll develop mental qualities and skills that will serve us much more effectively within the market environment. Ultimately, we are individually responsible for our own trading results.
The proper mindset isn’t nice to have – it’s essential. It’s the foundation for consistent profitability. Cultivate it or continue to struggle.
Learn More in the Trading Success Framework Course
Written by Matt Thomas (@MattThomasTP)
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- Trading Composure Review – Learn the Importance of Mindfulness in Trading
I think about Robert Kiyosaki who have said that the hardest thing in investing is to control your emotion. I raised an eyebrow when you said that people think that many people think that consistency can be found somewhere outside themselves. That’s why they are looking for a magic foolproof system. It’s so true.
So many people think they can find consistency in the market from outside sources. They’ll subscribe to all kinds of services – paying for alerts, foolproof systems, and all kinds of other things – all in an attempt to find consistent success. But true consistency comes from within. They act impulsively and irrationally, but then expect consistent profitability – and it just doesn’t work like that. We have to think, feel, and behave with consistency in order to see consistent results. It’s the basic concept of the mirror – our results in the market are a reflection of our thoughts, emotions, and actions.
It’s interesting to read of the initial naive trader adopting the correct mindset in order to become successful. Do you think that the mindset can be taught prior to starting, as part of a training program (I’m sure people would pay a premium to learn this type of thing) or do you think that the mindset changes due to the experience?
thanks.
Hi Robs – great question. I definitely do think that the proper mindset can be taught prior to placing even a single trade. But I don’t think it happens very often because new traders don’t typically realize the importance of mindset. They either don’t think it matters at all, think it matters a tiny bit, or don’t even think about it, period. But in reality, it’s the foundational element of success. As a result, they jump straight into the market and things don’t go well – this happens pretty much every time. They might get lucky for a little while and hit a stretch of beginners luck, but it quickly fades out. The random, chaotic, erratic, and impulsive nature of their trading approach just leads to incredibly inconsistent and overall negative results. As ideal as attaining the proper attitudes, beliefs, and perspectives in regard to operating effectively within the market environment before placing a single trade would be, it just rarely happens, if ever. At this particular point in time, I don’t know a single trader who really took the time to cultivate the proper mindset before placing any trades – myself included. In fact, I’ve personally made many of the common mistakes that most new traders make as well. But I truly hope to change the starting path for future traders because the unfortunate reality is that most of them end up learning the “hard way” – and the market has been known to teach some extremely tough lessons.
Shortly after starting, there’s usually a point when people realize that trading isn’t quite as easy as they first thought. They expected to just be able to click a few buttons and make some money without much effort, but it turned into an emotionally and financially draining activity instead. At this point, they usually start looking outside themselves for answers. What I mean by this is that they try to find a “guru” that will teach them their “foolproof system” in order to generate “guaranteed profits” – or something similar to this. It’s the classic path of an ameteur trader. And whenever an individual trade doesn’t go in their favor, they blame these outside forces – the guru, the system, and even the market itself – never themselves. In other words, they try extremely hard to cut corners and find endless ways to put the responsible for their trading woes on somebody or something else. They’re in a constant outward search for the “holy grail” of trading success, when they should really be looking inward. The “holy grail” they’re searching for is the proper mindset. It’s not something that’s nice to have as a trader – it’s essential. There are really only 2 things necessary to be a consistently profitable trader: 1) the proper mindset, and 2) a positive expectancy system. And the proper mindset allows them to follow their system with the highest possible degree of discipline, otherwise their system is meaningless if they don’t.
In fortunate cases, traders may experience some difficulties in the market at the start, but are then actually able to pinpoint their primary problem – their mindset. So they take some small steps in a positive direction, but it’s usually just surface-level fixes. For example, they’ll start repeating some axioms to themselves like “cut losses early and let winners run” or “buy low and sell high”. These certainly sound great in theory, but they’re extremely vague and don’t necessarily provide traders with the mental fortitude to trade appropriately. Simply knowing these sayings doesn’t mean traders have the practical tools and emotional self-control to consistently act in their own best interest in-the-moment on a trade-by-trade basis when the pressure is on. Real-life trading experiences can certainly help traders realize that there’s a problem with the way that they’re approaching trading, but it usually comes at a high price both emotionally and financially. Many traders simply never recover because they feel so hurt and usually don’t know exactly what to do next in order to resolve their trading issues. This is why the success rate is so slim and over 90% of traders fail.
The good news is that there are some training programs out there that can certainly help new and struggling traders with their mindset. The best one of I’ve come across so far is The Trading Psychology Mastery Course, which was created by Yvan Byeajee at Trading Composure. In his program, he combines mindfulness with trading for massive results. Too many traders get so caught up in the “thrill of the action”, but that’s not what good trading is all about. They end up sacrificing their ultimate goal of becoming a consistently profitable trader because they can’t help but give into their in-the-moment impulses. They’re too caught up in short-term outcomes and attach their self-esteem to the result of every individual trade – which brings on feelings of absolute euphoria when they win and unbelievable depression when they lose. It becomes an unmanageable roller-coaster ride of emotions. But it doesn’t have to be this way. By cultivating awareness, balance, concentration, and many other amazing attributes, trading can actually become a smooth operation instead of the rugged, jarring one people often make it. The ultimate goal of the program is to allow traders to turn their trading operations from a painful and afflictive experience into a fluid and enjoyable one.