Change can be a daunting prospect for most individuals. Obstacles such as egos, pride, and laziness often hinder the process. However, it is important to acknowledge that change is the initial step towards breaking free from unproductive trading habits that have been detrimental to your account balance, and towards achieving lasting success in trading.
In this article, we will explore the reasons why and the methods by which you can modify your mindset to prosper in trading. By reading the entire article and implementing the recommended changes, you will witness a substantial enhancement in your trading journey and outcomes.
The initial step is to alter your mindset towards trading
To achieve success in trading, it is crucial to shift your perspective. Traders often struggle with becoming too emotionally attached to a specific trade. However, it is vital to develop zero emotional or mental attachment towards any trade you undertake.
Although your trading strategy may have a certain success rate, such as 60%, it is essential to understand what this implies. A 60% success rate indicates that, over a large sample size or series of trades, you can expect to win around 60% of the time.
However, it does not imply that any one trade has a 60% chance of being a winner. Many traders mistakenly believe that a specific trade will be a success or has a 60% chance of succeeding, but this is not the case. It is essential to consider each trade as a random event, regardless of the expected success rate. Understanding this concept will prevent you from placing too much emotional and financial importance on any single trade and facilitate a carefree trading mindset.
The key to success lies in the series of trades executed using our trading edge, rather than individual trades. When you eliminate all expectations and attachments to a specific trade, it allows you to manage your risk adequately and refrain from interfering with trades after they are initiated. By acknowledging that each trade may or may not work out, you avoid over-committing to it and impeding your edge’s performance. You only risk an amount you are comfortable losing and let the market unfold naturally, allowing your edge to play out over a series of trades.
To avoid emotional distress, adopt a probabilistic mindset
Consider a slot machine. You put money in with the knowledge that it’s a game of chance, so you don’t have any specific expectations of winning or losing on each pull of the lever. In contrast, when you see a pattern in the market that worked for you before, you may start to expect that it will work again. However, this way of thinking sets you up for potential disappointment and emotional distress since each trade has a random outcome that is independent of your recent trades.
Although having an effective trading edge increases your chances of winning, the outcome of any one trade remains random. Thus, you cannot let one trade’s result influence your emotional state or future trades. A single trade has no connection to the next trade. A losing trade might be followed by a winner (or a loser), and a winning trade might be followed by a loser (or a winner). If you have a 60% win rate on your edge, it means that you will win about 60% of the time over a large enough sample size, which might include five or ten losing trades in a row. However, you should stick to your plan and strategy and take the trades as they form since you need to trade a large enough sample size to see your edge play out.
To avoid disappointment in the market, you should think in probabilities rather than focusing on being right or wrong. By doing so, you will align your thinking with how the market actually behaves, which will put you in a position to profit from the market instead of being overwhelmed by it. Therefore, your goal should be to eliminate the potential for disappointment by adopting a probabilistic mindset.
Eliminating Trading Mistakes and Starting to Make Money
To stop making trading mistakes and start making consistent profits, it’s crucial to change your mindset. Many traders lose money due to a snowball effect of trading mistakes, where they become too attached to a trade and increase their risk hoping to hit it big, only to experience emotional trauma and frustration when the trade fails. This leads to more mistakes and can quickly deplete your trading account.
However, you can avoid this cycle of mistakes by thinking about your trades in terms of probabilities. When you were demo trading, you probably did well because you didn’t have any real expectations about winning or losing since no money was at risk. To replicate this mindset in live trading, you must not care about any one trade’s outcome and focus on the probabilities over a series of trades.
It’s essential to understand that the outcome of any one trade is random and unconnected to the previous or next trade. Even if you have a winning edge, you may experience losing trades in a row, but that doesn’t mean you panic or deviate from your strategy. By thinking in probabilities, you can eliminate emotional attachment and avoid making impulsive mistakes that can harm your account.
Therefore, to eliminate trading mistakes and start making consistent profits, change your mindset to think in probabilities and focus on the long-term performance of your trading edge.