The Focus Should Be on the Inputs, Not the Outputs – Process Over Results:
The soberingly low success rate for stock traders can sufficiently be explained by examining what the typical trader focuses on the most: money. It might sound contradictory to say that focusing less on the money will actually bring you more of it, but it’s the truth. Because when the bulk of your mental resources are focused on potential profits, it’s clear that your process is being neglected. Fixating on outputs without examining inputs is like wanting a sandwich and trying to make it without the necessary ingredients, yet this is exactly what most traders do. If they had the necessary ingredients to combine, however, the outcome would take care of itself.
New traders have a tendency to obsess over the money-making potential before they’ve even developed core trading skills. Even worse, some of them obsess over profits without even having a basic understanding of the market. And since pretty much anybody can open up an account and start trading immediately, there’s no wonder so many traders complain, make excuses, feel frustrated, and ultimately fail. It’s certainly exciting to think about the potential that the market provides, but simply hoping and wishing that it will fulfill your delusional get-rich-quick desires is a definitive recipe for disaster. While unsuccessful traders treat it like gambling, successful traders treat it like a business. Luck might produce limited short-term success, but long-term success is entirely skill-based.
The Only 2 “Ingredients” of Stock Trading That You Should Be Focusing On:
To simplify good trading down to its most basic form, there are only two main ingredients: 1) a system with a statistical edge, and 2) the flawless execution of that system. If you have those two components, then you’ll be a successful trader. Simple as that.
1. System With a Statistical Edge
A system can broadly be described as specific criteria that need to line up in order to trigger a trade. In other words, it’s your particular strategy with accompanying trade plans and rules. Some traders are more discretionary, while others are more mechanical. There’s nothing necessarily wrong with either – it all depends on personality and preference. Just know that the more you lean toward discretionary on the spectrum, the more vulnerable you are to impulsive trading. There’s also an extreme point where discretionary trading becomes random trading. So having a certain level of rule-governance is essential for building consistency and discipline.
a. Think in Probabilities Instead of Possibilities
Novice traders get consumed by the possibilities, pin-balling from strategy-to-strategy trying not to miss out on money-making opportunities. The problem is that there are far too many opportunities to properly focus on them all. In fact, the number of possibilities is limitless. This means that in order to be successful as a trader, you have to reduce your “tradeable universe”. This isn’t to say that you can’t also have diversified long-term investments, but when it comes to short-term trading you simply can’t pursue everything. The best short-term traders tend to have no more than a few systems, but for beginners it should be no more than two.
By reducing your range of possibilities, it becomes easier to track a specific pocket or two of the market. You become a specialist in just one or two areas instead of a generalist market participant. This allows you to better focus and recognize the emergence of patterns. Your immersion within these defined areas leads to better pattern recognition and expertise. Most importantly, it allows you to generate a probabilistic mindset. You’ll start noticing certain trends, patterns, circumstances, and indicators that can put the odds in your favor. Over time, you might even develop gut instincts or intuition within these specific spaces. But above all else, you’ll reduce your focus down to a manageable size, which is the first step required for systematically pulling profits out of the market.
b. Understand Expected Value and the Law of Large Numbers
The key to making money with any system is for it to have a positive expected value. This doesn’t mean that every single trade will be a winner. Trust me, foolproof systems don’t exist. Which is why risk management and mindset are so critical. But over a large number of trades, the statistical edge of your system will produce profits. Most traders never take the time to find or develop a system with a positive expectancy, or they simply give up on it after a few losing trades in a row, resorting back to their impulsive, strategy-hopping ways. But all they’re doing is securing their place as unsuccessful traders. You can’t win long-term by trading inconsistently.
A good example of the law of large numbers is to take a fair coin and flip it 100 times, recording the results of each individual flip in order. What you’ll notice is that there will be quite a few instances of streaks or runs. Even though the probability of the coin landing on heads is 50% for each flip, there will be streaks of five or more heads in a row within the 100-flip series. Just because one flip was heads doesn’t mean the next one will be tails. This is a critical concept for traders to understand since they have a tendency to give up on their validated systems after strings of just a few losses in a row, but this is completely normal. Over a large number of flips or trades, you have to have confidence that your edge will play out. This requires a sense of trust and patience most traders simply don’t possess.
2. Flawless Execution of That System
The flawless execution of your system comes down to having the proper mindset. As much as traders ignore and resist it, this is the true foundation for trading success. It’s the invisible variable that you can’t touch or see, but it has the highest impact on your results. Most traders mindlessly allow their emotional impulses to dictate their behaviors, which produces inconsistent and negative results. And where do those emotional impulses come from? Their ineffective attitudes, beliefs, and perspectives in relation to the market. Those who fail to make the connection between mindset and results end up lost and confused in the market abyss.
a. Recognize That the Market is a Mirror
This is a basic concept that can be used to start developing a sense of self-awareness, but the market is a mirror that reflects your thoughts, emotions, and behaviors back to you. If your thoughts, emotions, and behaviors are disorganized, impulsive, and inconsistent, then your trading results will be muddled, erratic, and unpredictable. There’s no chance of achieving consistency and repeatability without structure and discipline, and that has to start within your own mind. When you use the market as a feedback mechanism for system refinement and mindset mastery, that’s when trading becomes fluid and enjoyable instead of jagged and afflictive.
The classic attitude of a trader that has experienced tremendous losses is that: “the market is a monster that stole my money”. But what they don’t realize is that the monster is themselves. They deflect blame from themselves onto the market as if they didn’t personally choose if and when to enter and exit every single trade they made. The reality is that the market never makes you do or not do anything – it’s completely indifferent. It can’t actually hurt you either, unless you choose to perceive it that way. All the market does is provide information in the form of price fluctuations. In order to have control of your trading results, you have to take responsibility and implement the proper structure into your approach. A disciplined and consistent mindset is the backbone for your trading success.
b. Align Your Mindset With Market Characteristics
If there’s one thing worth repeating over-and-over again to traders, it’s that they must align their mindset with market characteristics in order to achieve long-lasting success. I know it’s hard to hear, but the person you are right now most likely isn’t capable of being a successful trader. You legitimately have to develop a new identity in order to achieve it. Your current attitudes, beliefs, habits, and overall self-image are the source of your inconsistent and negative trading results. As a result, new components of your self-image need to be wired in. With repetition and desire, you can become the consistently profitable trader you want to be, but this is where the real work is. Most people think successful trading is all about market analysis, but it’s meaningless without the proper mindset.
The main characteristics of the market are that it’s dynamic, uncertain, limitless, and impersonal – and these all haves immense psychological impacts on traders. In fact, most mental trading errors can be linked back to at least one of these four characteristics. For example, the dynamic nature of the market makes it seem like the stock price will return back to your entry so that you can exit without a loss, so you decide to remove stop-losses and double-down on positions. The uncertain nature produces anxieties and fears that force you to cut winning trades short. The limitless nature makes it seem like any one trade can make your wildest dreams come true, so you stretch yourself by overtrading and strategy-hopping. The impersonal nature leaves you wondering who to blame for your trading woes. Overall, the recognition of improper mindset and subsequent adaptation process is largely where traders are failing.
Top 2 Online Courses For Optimizing Your Brain For Trading Success:
I’ve personally used and tested numerous stock trading services over the past seven years, and at this current moment in time, these are the top 2 courses I highly recommend. Neither of them are sketchy signal services that just send out “hot picks” for you to dangerously copy. They focus on what actually matters for consistent trading success – building core skills and mindset.
The Advanced Traders Mindset Course – Created By Chris Capre at 2ndSkies Trading
The Advanced Traders Mindset Course by Chris Capre at 2ndSkies Trading is one of the best trading courses I’ve come across in a long time. This course goes way above-and-beyond the usual trading psychology material offered by other programs. After using dozens of other services, not one besides 2ndSkies has offered more than a simple blog post or short video on the topic, which usually just imparts vague wisdom like: “control your emotions”. But if being told to control emotions actually helped traders be effective within the market environment, then the success rate wouldn’t be so soberingly low.
I honestly find it shocking that this is one of the only courses offering legitimate mindset training for traders. But at the very least, I’m glad that it exists somewhere. Having an ineffective mindset is truly the main reason why most traders struggle and ultimately fail, yet it gets overlooked and ignored time-and-time again. You can keep searching for some magical system, setup, guru, newsletter, or alert service that will generate explosive returns like clockwork if you want (but trust me, those things won’t actually help you), or you can focus on developing yourself into a consistently profitable trader without wasting your money on deceptive scams selling false promises. What you initially think is the easy way is actually the hard, more expensive way.
The Trading Psychology Mastery Course – Created By Yvan Byeajee at Trading Composure
The Trading Psychology Mastery Course by Yvan Byeajee at Trading Composure was the first trading psychology course I ever came across. For years afterward, I never came across another course quite like it until The Advanced Traders Mindset Course at 2ndSkies. It’s truly rare to find courses predominantly focused on the mindset component of trading. Even though traders like the thought of being disciplined and consistent, they think it comes from some external source. But it doesn’t – it has to come from within their own mind. This particular course produced a paradigm shift in me that has led to balance, discipline, and consistency in my approach.
What I respect most about Yvan Byeajee, the Trading Composure platform, and The Trading Psychology Mastery Course is that Yvan’s entire focus is on trading psychology. He doesn’t promote any get-rich-quick services or extraneous nonsense. His expertise is in mindfulness and how it relates to trading. If you follow Yvan on his blog or Twitter, you’ll see how focused he is on achieving consistent, long-lasting trading success and making sure his followers follow the right path. The right path is self-sufficiency and self-mastery, not being an impulsive and irrational copy-cat. The most work isn’t in becoming a great market analyst, which is what most people think makes a great trader. The most work is in acquiring the proper mindset in order to effectively execute your systems/plans/rules.
Use the Tool of Neuroplasticity Effectively – Self-Awareness Leads to Self-Transformation:
At this point, if you haven’t already, you’re probably coming to the stark realization that acquiring the proper mindset is critical to your trading success. If there was such a thing as a foolproof system, it would be betting that 90% of traders have ineffective mindsets. They have attitudes, beliefs, and perspectives that simply don’t serve them within the market environment, and it ultimately leads to poor decisions and negative results. Once struggling traders finally wake up and observe themselves, they can open the door for change and improvement. But until then, they keep themselves locked in a mindless world of excuses, blame, and avoidance.
The good news for traders that are serious about achieving consistent success in the market is that self-transformation is most certainly possible. Thanks to neuroplasticity, it’s possible to rewire your brain for success and create a new self-image in the process. Instead of it being hard to stick to your rules, it can become “like you” to stick to your rules and be disciplined. You can develop an entirely new identity that actually equates to consistency in the market. Your systems, plans, and rules will no longer be compromised by your impulsive and irrational tendencies. But it all has to start with self-awareness and a willingness to change.
Are you willing to put the work in by developing core skills and the proper mental framework? Or continue seeking shortcuts?
Learn More in the Trading Success Framework Course
Written by Matt Thomas (@MattThomasTP)
- What is 2ndSkies Trading? Change the Way You Think, Trade, and Perform
- What is the Core of Trading? It Boils Down to a Simple Equation
- Where to Learn How to Trade Stocks – Build Your Foundation Here
- Learning to Become a Stock Trader? Don’t Make These Mistakes
- What is Trading Composure? Acquire a Heightened Level of Trading Insight
I have been reading a lot about advanced trading techniques and skillsets. But I realize how much I need to return to the fundamentals. If my foundation is not solid, then all that I build upon it will collapse. My key focus right now is diving into expected value and the law of large numbers.
Trading is a marathon, not a sprint. Most people take the get-rich-quick (sprint) approach though – and it never ends well.
The concepts of expected value and the law of large numbers essentially tell us that results can be messy in the short-term, but probabilities work themselves out in the long-term – as long as we have a statistical edge and stick to it.
I traded for a very short time but I learned a lot. First you have to get to know things well and how they work, if you do not have the knowledge everything turns into gambling. The psychological aspect is also important as it is an investment and there is always a risk. So it is recommended that you first get detailed information before you start trading.
Completely agree – there’s a base level of knowledge and core skills that traders need to develop in order to be successful, and the proper mindset ties everything together. Even some great market analysts struggle to make consistent profits in the market due to fears, impulses, and irrationalities. Losses in the past can give them problems pulling the trigger, the fear of losing can cause them to remove stop-losses and add to losing positions, and many other destructive tendencies can lead to negative consequences.
The reality is that trading requires a lot of unnatural decision-making. Based on years of programming outside the market environment, we’re simply not used to operating within the market environment because it has unique characteristics. But people tend to be at one of two extremes – they have too much confidence or too much fear – and it negatively impacts their trading results in various ways.
Overall, developing the proper mindset is something that applies to every single trader if they want to achieve long-lasting success. Unfortunately, it’s not something that gets talked about very often. Certainly not as often as basic market knowledge (technical & fundamental analysis, strategies/systems, risk/reward, etc.). But if that was all traders needed to know to be successful, the success rate wouldn’t be so low. Self-sabotage and destructive tendencies are what wipe traders out the most. The tactics are the easy part compared to mindset.
I find this foundation for stock trading so important, educative and interesting. I think every trader should read this information for the success of their operations. There are so many things traders do wrong, and may not be aware of that because of failing to focus where they should. This is helpful.