March 28, 2011

The Traders Mindset

By Bennett McDowell
Developing “The Trader’s Mindset” is a must for trading success and this can take some time. This is not an area where you can take a short cut or learn a formula. You usually develop it by actually trading and the experiences you gain from trading. We will help guide you towards developing “The Trader’s Mindset” and help you handle account draw-downs, losses, and profits. Yes, profits can actually cause you stress!
You can see how powerful psychology in trading is, if you show the same successful trading approach to one hundred different traders. No two of them will trade it exactly the same way. Why? Because each trader has a unique belief system and their beliefs will determine their trading style. That is why even with a profitable and proven trading approach, many traders will fail. They do not have the proper belief system to enable them to trade well. In other words, they lack “The Trader’s Mindset.”
When you encounter psychological issues it is best to recognize the issue, just be aware of it, don’t deny it. In order to “fix” psychological issues we as human beings must first become aware of the problem and issues causing the problem in order to heal and “fix” the problem. This is much of what psychoanalysis is all about. The psychologist or psycho- therapist tries to let the patient first see the problem and then the patient must believe that these issues are causing the problem in order for the patient to heal. The reason this process can take so long, perhaps even years is because the patient needs to not only recognize their problems, but must accept that there truly is a problem. They must take responsibility for their problems to heal.
Success in trading is a direct result of a sound trading system, sound money management, proper capitalization, and sound psychology. All of these must be in sync to be successful in your trading. The “ART” system is designed to focus on all of these areas. The only area where you may need additional help once you have mastered your trading skills, is your psychology.
Psychology is the one area that you may need additional help and can take up to a year or so to resolve personal issues attaining trading success. Our consultation services focus on this aspect and if you find yourself struggling with psychological issues, you owe it to yourself to get help in this area.
Here is a list of common psychological trading issues and their causes:
Fear Of Being Stopped Out Or Fear Of Taking A Loss: The usual reason for this is that the trader fears failure and feels like he or she cannot take another loss. The trader’s ego is at stake.
Getting Out Of Trades Too Early: Relieving anxiety by closing a position. Fear of position reversing and then feeling let down. Need for instant gratification.
Adding On To A Losing Position (Doubling Down): Not wanting to admit your trade is wrong. Hoping it will come back. Again, ego is at stake.
Wishing And Hoping: Not wanting to take control or take responsibility for the trade. Inability to accept the present reality of the market place.
Compulsive Trading: Drawn to the excitement of the markets. Addiction and Gambling issues are present. Needing to feel you are in the game.
Anger After A Losing Trade: The feeling of being a victim of the markets. Unrealistic expectations. Caring too much about a specific trade. Tying your self-worth to your success in the markets. Needing approval from the markets.
Excessive Joy After A Winning Trade: Tying your self-worth to the markets. Feeling unrealistically “in control” of the markets.
Limiting Profits: You don’t deserve to be successful. You don’t deserve money or profits. Usually psychological issues such as poor self-esteem.
Not Following Your Proven Trading System: You don’t believe it really works. You did not test it well. It does not match your personality. You want more excitement in your trading. You don’t trust your own ability to chose a successful system.
Over Thinking The Trade, Second Guessing Your Trading Signals: Fear of loss or being wrong. Wanting a sure thing where sure things don’t exist. Not understanding that loss is a part of trading and the outcome of each trade is unknown. Not accepting there is risk in trading. Not accepting the unknown.
Not Trading The Correct Position Size: Dreaming the trade will be only profitable. Not fully recognizing the risk and not
understanding the importance of money management. Refusing to take responsibility for managing your risk.
Trading Too Much: Need to conquer the market. Greed. Trying to get even with the market for a previous loss. The
excitement of trading (similar to Compulsive Trading).
Afraid To Trade: No trading system in place. Not comfortable with risk and the unknown. Fear of total loss. Fear of ridicule.
Need for control.
Irritable after the Trading Day: Emotional roller coaster due to anger, fear, and greed. Putting too much attention on trading
results and not enough on the process and learning the skill of trading. Focusing on the money too much. Unrealistic trading expectations.
Trading With Money You Cannot Afford To Lose Or Trading
With Borrowed Money: Last hope at success. Trying to be successful at something. Fear of losing your chance at
opportunity. No discipline. Greed. Desperation.
These are by no means all the psychological issues but these are the most common. They usually center around the fact that for one reason or another, the trader is not following their chosen trading approach or system. And instead prefers to wing it or trade their emotions which in trading will always get you in trouble. So, I think you can see how psychology is all important in trading.
Our goal as traders in regards to psychology is to maintain an even keel so to speak when trading. Our winning trades and losing trades should not affect us. Obviously we are trading better when we are winning, but emotionally we should strive to maintain an even balance emotionally in regards to our wins and our losses.
It will happen when it happens and when you achieve this level of mental ability; it will come after working long and hard on your problems, but will come without you knowing it. It usually happens when you least expect it.
Below is a list of what one feels after acquiring “The Trader’s Mindset.”
-Sense of calmness
-Ability to focus on the present reality
-Not caring which way the market breaks or moves
-Always aligning trades in the direction of the market, flowing
with the market
-Not caring about the money
-Always looking to improve your skills
-Profits now accumulating and flowing in as your skills improve
-Keeping an open mind, keeping opinions to a minimum
-Accepting the risk in trading
-No Anger
-Learning from every trade
-Winning and losing trades accepted equally from an emotional
-Enjoying the process
-Trading your chosen approach or system and not being
influenced by the market or others
-Not feeling a need to conquer or control the “market”
-Feeling confident and feeling in control of “yourself”
-A sense of not forcing the markets or yourself
-Trading with money you can afford to risk
-No feeling of ever being victimized by the markets
-Taking full responsibility for your trading
When you can read the list above and genuinely say that’s me, you have arrived!
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