The Best Way to Make Money Trading Stocks is to Understand Yourself First:
There are three specific components of the trading equation (Mindset + System = Results), and unfortunately, most traders tend to focus on the wrong ones. When we first start out on our trading journeys, we’re often consumed by the possibilities of earning tremendous amounts of money (the result). That’s what initially draws us in. Then we turn our attention to locating a “foolproof strategy” in order to achieve that result (the system). But we barely, if ever, take the time to focus on the mindset component, which is an absolutely fatal mistake. Without the proper mindset firmly in place, we will only perpetuate the negative cycles of trading we’re currently experiencing, sabotaging ourselves over-and-over again due to our ineffective identities within the market environment.
The vast majority of traders don’t understand the critical impact that their values, beliefs, perceptions, and overall identities have on their trading results. But this underlying sense of self is exactly what drives their behaviors within the market, thus producing specific results. Typically, these results are inconsistent, erratic, and overall negative because they think and behave inconsistently, erratically, and negatively. In essence, the market is nothing more than a mirror that reflects our behaviors back to us. So if we want to experience consistent, fluid, and overall positive results in the market, then that’s the way we have to behave while operating within it. Doing so requires adjusting our mental resources to align with the true characteristics of the unique market environment.
Why a Paradigm Shift Needs to Be Made If You Want Long-Lasting, Positive Results:
There’s no question that most traders structure their operations in a way that puts their self-worth and happiness in the hands of uncontrollable factors. In other words, traders rely on expert analysts, trading gurus, or the market itself to fulfill their desires. They enter trades hoping and wishing that they work out in their favor, and when they don’t, they deflect responsibility to external forces. This lack of accountability always results in emotional and financial pain. By default, we can’t control the market (only a small number of individuals and institutions have the resources to do so), so if we lack the discipline to control ourselves, then we have absolutely no control at all. When we decide to take responsibility and upgrade our mindset, we gain our power back in the market.
It’s critical that we put the spotlight on mindset because lasting change can only be made at the identity-level. The strongest drive we have as humans is to act in alignment with how we perceive ourselves – it’s hardwired into our brains. So even if we have a great system to follow, our compromised mindset will end up sabotaging our results over-and-over again. It’s not until we develop the proper mindset that we’ll experience the full potential of our systems. Replacing old, ineffective beliefs and perspectives with new, effective beliefs and perspectives will allow us to think and behave in harmony with the market. Focusing solely on our systems or results, while overlooking mindset, is like treating the symptoms instead of the cause – our problems will only continue to persist.
Over 90% of Traders Have an Identity Crisis – Current Identity vs. Desired Identity:
Current Trader Identity
Analyzing your current self is by far the most critical part of this process. Change cannot be made without awareness, and working through some of these questions will provide you with an understanding of the current attitudes, beliefs, and perspectives you hold that don’t align with your goal of being a consistently profitable trader. By knowing who you are at a deeper level, you’ll better understand what currently shapes your behaviors within the market. Be open to this experience of self-analysis because it will allow for growth and development in the future. Most traders take a superficial approach, which explains why over 90% fail, but this deep-dive into your own mental framework is the groundwork required put you in the relatively small group of successful traders.
Now it’s time to define your current self. Take 5 minutes of uninterrupted time to write down as many “I am..”, “I am not…”, “I can…”, and “I can’t…” statements about yourself as you can think of. What are your strengths and weaknesses? Good and bad habits? What are your worries and fears? Are you disciplined or undisciplined? Organized or disorganized? Calm or impulsive? How do you feel about competition and potentially taking money from people with inferior trading skills? How do you feel about taking losses or being wrong? What stories from the past continuously play in your mind? Answering questions like this will give you an idea of what needs to change in order to be a better trader. Most likely, your current self isn’t capable of achieving consistent profitability in the market.
Desired Trader Identity
Defining your desired self is the second part of the process. What type of trader do you want to be? Do you want to be calm, balanced, structured, consistent, and profitable? What does this trader look like in your mind? How does it feel to be this trader? Imagine what it would be like trading your ideal system in an ideal mental state? What good habits does this trader have that you currently don’t? What bad habits doesn’t this trader have? Write down every characteristic this trader should possess in order to achieve your goals. This is the trader that you want to become. Now that you clearly know your current self and desired self, all you have to do is develop a plan of action that reinforces your commitment in becoming this new trader. The only thing stopping you is yourself.
In small and achievable steps, you can start un-identifying with any attitudes, beliefs, and perspectives that don’t serve your ultimate goal of becoming a consistently profitable trader. You can also start identifying with the attitudes, beliefs, and perspectives of the trader you want to become. This will seem difficult at first because there is a clear conflict between your current and desired selves. Your current self is strong due to years of programming and conditioning, and will consistently tempt you to throw in the towel especially at the start, but it wouldn’t be valuable change if it wasn’t hard. Over time, as you continue to think, feel, and behave like the trader you want to be, eventually you will become that trader. This is the stunning power of neuroplasticity to expand your mindset.
Accept Your True Starting Point and Commit to the Process of Growth & Development:
This process of self-analysis can be used over-and-over again to identify and change any conscious beliefs that don’t align with your goal of becoming a consistently profitable trader. The more you do this, the closer you become to having a “shared reality” with the market instead of a “conflicting one”. As a result, your operations will be more fluid, smooth, and enjoyable, instead of jagged, rough, and afflictive. As stated previously, these changes will be hard at first, but eventually your new way of operating will become automatic. Keep in mind that these changes won’t just happen through pure desire and self-talk, it requires action as well. Changing your behavior builds proof in your mind, and your identity as a person that acts a certain way will only get stronger the more you repeat those actions.
A complete understanding of the importance of mindset in trading is something that the majority of traders refuse to learn about or outright resist, which is shocking since it’s the foundation of consistent trading success. They do so much worrying about the results at the expense of their mindset and systems. But if mindset and systems are strong, results take care of themselves. And any system will be fruitless in the hands of a trader with a compromised mindset. The bottom line is that we need to define our current selves, decide exactly who we want to become, and then prove it to ourselves through repetitive actions in a positive direction. The desire to become a consistently profitable trader without taking the steps to grow is like wanting a garden without planting any seeds.
Take full advantage of your potential to adapt and grow into a consistently profitable trader through the power of neuroplasticity.
Learn More in the Trading Success Framework Course
Written by Matt Thomas (@MattThomasTP)
- What is Day Trading Psychology? The Foundation of Day Trading Success
- Can People Make Money Day Trading? It Starts With Self-Awareness
- What is a Day Trading System? Establish Structure in Your Approach
- What is the Cheapest Way to Trade Stocks? Avoid Learning the Hard Way
- What is Trading Composure? Acquire a Heightened Level of Trading Insight