Do you aspire to be a consistently profitable trader? The first step is to cultivate a successful mind-set. Without it, achieving consistent success in trading is impossible.
This article delves into the real-world mental strategies that professional traders use to excel not only in trading but also in life. We will explore specific thought processes and mental routines that you need to start practicing and mastering. These are actionable exercises you can begin today to see tangible results. The key is to stick to them consistently, day in and day out.
The primary difference between a novice trader and a professional is their trading mentality. In fact, the distinction between successful individuals and those still struggling in any field is their mind-set.
In short, if you want to improve your trading, you first need to improve your mind.
Here’s how:
1. Master the Art of Detaching from Live Trades
One of the most defining traits of a professional trader is the ability to mentally detach from live trades. Beginners and struggling traders often find this difficult, which leads to their challenges in the market.
Your aim should be to feel nothing after hitting the buy or sell button on a live trade. Achieving this state greatly increases your chances of success by minimizing emotion-driven trading mistakes.
Avoid the Charts Once a Trade Is Live
Professional traders have discovered that the best way to detach mentally from a live trade is to avoid the charts. After placing the trade, walk away—turn off your computer and leave it alone until at least the next day.
Staring at the charts won’t help; you can’t control the market, only your reactions. It’s crucial to let the trade unfold without interference. For your trading edge to be effective, it must play out naturally over a large number of trades without your constant involvement.
Screen Watching Will Ruin You: Avoid Second Guessing
One of the biggest mistakes in trading is watching live trades tick by for no reason. It’s akin to being on a diet and driving to a fast-food restaurant daily, hoping to resist temptation. It’s not going to work.
You don’t need to experience the market’s ups and downs with a live trade in progress. You shouldn’t want to, either. Save yourself the unnecessary stress.
What happens when traders watch the screens all day with live trades? Several things, but most commonly, it leads to second-guessing. You’ll second-guess your trade idea if the price starts moving against you. You’ll second-guess your profit target if the price rises and then pulls back slightly. There are numerous other scenarios resulting from excessive chart-watching. Ultimately, if you want to mentally detach, you need to physically detach from the charts.
To mentally detach from live trades, set up the trade and forget about it. Just walk away.
How to Do It:
Solving trading problems requires a conscious effort to change your routine, leading to new, positive habits.
- Remove the Problem: Just as removing a problematic person from your life can solve interpersonal issues, removing the charts from your view can prevent over-trading and impulsive mistakes. When you have a live trade, step away from the charts.
- Find a Distraction: Engage in an activity or hobby every time you have a live trade. This helps build a routine and eventually a habit of staying away from the charts.
- Limit Access to Charts: Ensure you can’t access the charts during the day. Delete trading apps from your phone or avoid any device that allows you to check the markets.
- Delegate Trade Management: Consider having someone else manage the trade for you. Give them specific instructions on what to do and what not to do.
The key is to have a plan to intentionally remove yourself from the charts after placing a trade. This will help you mentally detach and start trading like a professional.
2. Think of Trading as a Mental ‘War’
Your competition in the market is fierce. You’re up against players who are better capitalized, better educated, and perhaps more intelligent.
However, you have one advantage they might not: an intense desire to be the best and a commitment to playing the game with more discipline. This is how you will outperform them.
Imagine there’s a gun to your head as you trade, and each click of the buy or sell button is a life-or-death decision. It may sound extreme, but this level of seriousness is required if you want to be in the top 10% of traders. You won’t achieve this by taking trading lightly.
Remember, you are competing against real people. Trading is not just you, a computer screen, and charts. It’s the ultimate mental sport, a true battle of wits. You’re in the arena with hedge fund managers and top professionals. It’s time to get serious and stop pretending this is a get-rich-quick scheme.
Your opponents are your enemies, and you are here to defeat them. You are literally trying to take their money. Without this mind-set, you won’t take trading seriously enough to maintain the discipline required to win.
Don’t Come Unprepared
Never enter the trading arena unprepared. Many traders open their charts after funding their live accounts, resembling a soldier showing up to battle with a pocket knife.
To avoid losing all your money in a week, you need to be fully prepared for the mental challenge that awaits every time you open your trading platform.
Important Note: While we aim to be prepared and extremely self-confident in our trading approach, we are not reckless or foolish. Being well-prepared and confident is different from taking stupid risks and being overly aggressive. Part of being prepared is understanding money management and having everything planned out before you press the buy or sell button.
We are not gambling or playing around. This is serious, and we are ready to take on the competition in all areas: Mind, Method, and Money management—the 3Ms.
How to Do It:
To master anything in life, you must learn, practice, and repeat. Trading is no different. Here are some tips on how to start viewing trading as a competition and how to prepare for it:
- View Each Trade as a Negotiation: Treat each trade like a deal or contract. Take it seriously, ensuring you attend to every detail. Imagine you’re sitting next to someone, and either you lose money or they do. This perspective will sharpen your focus on critical aspects like money management and consistency.
- Train and Prepare: Just like a boxer trains for months before a match, you need to hone your skills and master your craft to build confidence. Preparation is key to avoiding defeat.
- Stay Motivated: Motivation isn’t a trait reserved for the “lucky.” It’s a mind-set you cultivate through reading and consistent practice. Initially, you’ll need to work on staying motivated, but it can become a lifestyle.
- Understand Chart Psychology: Learn to interpret price action bar by bar to understand what your opponent is doing and thinking. This helps you follow the footprint of money and anticipate market movements.
- Get Psyched Up: Boost your enthusiasm before you open your charts. Read trading affirmations, listen to motivational music, or watch inspiring videos on YouTube to get in the right mind-set.
Bottom line: Trading the market is essentially a mental war. Think of it and treat it as such. Otherwise, you will be defeated in battle.
3. Don’t Let Money Make You ‘Funny’
Money can mess with your mind. Whether you’re making it or losing it, there are likely psychological side effects. Professional traders understand that to achieve consistent profits, they must address this issue. If you want to improve your trading, you need to fix your money mind-set.
The primary mental hurdles traders face regarding money are:
- Fear of Loss and Fear of Missing Out (FOMO): Fear of loss causes traders to let small losses turn into big ones because they are afraid to take any loss. It can also lead to avoiding good trades due to the fear of potential loss. FOMO leads to chasing trades you missed, jumping in at terrible entry points, and typically resulting in losses.
- Risking Too Much per Trade: This issue brings numerous problems, including increased stress and larger potential losses.
- Unclear Exit Strategies: Not knowing where or how to exit the market can lead to poor decisions and missed opportunities.
- Lack of a Capital Preservation Plan: Many traders fail because they lack a solid plan for preserving their capital. This leads to irrational behavior influenced by money. Your money management plan is the most crucial part of your trading approach. Skipping this aspect is not an option.
Here’s How to Do It:
Overcoming money management problems requires predefinition, preplanning, and preparation for potential losses before entering a trade. Remember, any trade can lose; there’s a random distribution of wins and losses for any given trading edge. Enter each trade with the understanding and acceptance that it could result in a loss.
- Create a Capital Management Plan: This plan will help you train yourself out of bad habits related to risk management and risk-reward ratios. Your capital preservation and risk management strategy are your lifeline in the market, your oxygen. Without it, you will quickly suffocate.
- Plan Your Exits: Have a clear plan for stops and targets before you enter a trade. Don’t wing it. Know where you will exit for both profit and loss before you hit the buy or sell button.
- Respect Your Account Size: No matter how small your account is, treat it with the same respect and approach you would if it were a $1 million or even $1 billion account. The same principles apply.
- Make Money Feel Real: To counter the cold, abstract nature of electronic digits on a screen, use physical representations. Get some monopoly money or casino chips and two jars. Put some in the winning jar when you win and some in the losing jar when you lose. This tactile approach makes the money seem more real. Withdraw profits regularly and physically handle the cash to reinforce this reality.
- Assess Your Risk Comfort: Ask yourself if you can sleep at night with the money you have at risk. If you can’t sleep because you’re worried about the amount at risk, it’s time to lower it.
- Maintain Discipline and Consistency: Staying disciplined with your money management approach for a year is wasted if you gamble it all on one trade. Consistency in discipline is the only way to make money over time. Never deviate.
- Adopt Mantras: Make these principles into daily mantras. Believe in them and own them like a seasoned pro. This mind-set is crucial if you want to join the ranks of top traders.
Conclusion
The cornerstone of success for all great business people, including traders and investors, is their mind-set. Their achievements are built on the ability to handle pressure and resist temptation while maintaining consistent discipline. The ability to adhere to a plan and remain almost emotionless in their chosen profession—whether trading, managing a company, or being an entrepreneur—is what places someone in the top 10% of their field.