How important is your mindset in trading?
What is all this talk about “psychology” and “mental preparation” when it comes to trading and investing? Books are flowing with advice on the psychological aspects of trading, and how they are key to success or failure. You often encounter figures like 80% or 90% as a description of how important the role of psychology is in trading.
But is this really the case or is it just some fancy excuse for our lack of ability? A vast majority of studies made on the subject seems to illustrate that our mindset really is the crucial factor in deciding our PnL (for instance when looking at the wide distribution of outcomes trading the same strategy for a group of traders).
So, unfortunately, there is no way around taking a good, hard look at ourselves as traders. That’s where the root of all our problems lies but, thankfully, also the solution. Because the fact is that regardless of how “personal” trading often feels – like the market is out there “to get me” – it does not know we even exist and moves on whether we are onboard or not. In fact, the only thing we can control is our own reaction to whatever happens. Besides, of course, training and disciplining ourselves in the use of technical tools.
All of this may sound rather obvious to you, yet why do most of us struggle with psychological shortcomings in our trading? Indeed, a lot of people never learn to manage themselves emotionally and give up trading in the end. Wrong ideas lead to bad decisions, which ultimately can be detrimental to your account.
What can you do about it?
In my online course in the section on Trading Psychology, I look into the different psychological aspects of trading. First there is an explanation of how we are hardwired this way from nature – that is to fear and avoid pain – and then I provide you with a framework for working on yourself.
The material consists of both text, audio, and video – as well as of interactive exercises to determine first your own personality type, then your trading profile in terms of appetite for risk. You are presented with ideas on how to grow as a trader and discover the style of trading that best suits your personality. We go on to explore a broad list of common issues that traders encounter, such as a tendency to cling on to losing positions, taking profit too soon or fear of “pulling the trigger”.
You are given practical tools to start working through your challenges in trading. Among other things this deals with setting realistic goals for yourself – subgoals that are relatively easy to achieve as well as more long-term goals and visions. You learn how to use different breathing techniques and visualization to reinforce better trading habits. Finally, we talk about the importance of evaluating your trading on a frequent basis, and why you should log your trades in a journal for future feedback.
This is all about improving your discipline and making a commitment to getting the most out of the time you spend trading. And, ultimately, it becomes a question of succeeding – or failing – as a trader.
If for some reason you don’t want to do the course right now, I encourage you to start by focusing on your own emotions and reactions when trading. This is where the process starts.