When you first started to trade did you have aspirations to have a perfect trading record?
Most traders have a perception that professional traders have “perfect” records, and that they make money by never being wrong. This is a fallacy of trading, even the best traders have losing trades.
What creates this mindset and how can you change this mindset to improve your trading?
Obviously, every trader wants to make more money than they lose. Traders have winning trades and losing trades, they make money when the amount they make from their winning trades is more than they are giving back on their losing trades. At some point very early in their trading journey traders begin to relate the two and the equation becomes this: More winning trades = more profit.
Traders attempt to increase the number of winning trades they have, this is usually done by expanding our trading knowledge, buying a fancy indicator, and or joining a website promising infinite wealth. Unfortunately for some the purchasing of new knowledge won’t result in trading perfection either, it could result in frustration and a blown up trading account.
Increasing your percentage of winning trades is like working out, at first you see fast improvement but after a while the incremental gains you make are smaller and take longer to achieve. It is the same with trading, once a trader has a system that they like they try and refine the system so it works correctly 100% of the time, this is not realistic.
CHANGE YOUR FOCUS TO PROFITABILITY
If attempting to make a trading plan perfect is a losing battle, then what can you do as a trader? Rewrite the equation you use to evaluate your trading performance.
Change the association that More Winning trades = More profit.
As a trader you should focus on the following equation: Money Management = More Profits. A trader can have lots of winning trades and a high winning percentage but not be profitable if they are taking small profits and big losses. The converse if true of a trader with a low winning percentage that is taking large profits and numerous small losses. When you change your goals and focus to overall profitability the bigger picture appears and you can start to focus on what matters, the profits you take home.
WHAT DOES THIS SHIFT IN MINDSET DO?
It actually does a lot for traders.
It moves your focus from the need to have individual trades all be winners, it takes the pressure off of getting out of trades, meaning that instead of taking large losses you are comfortable taking a loss when it is small because you are not worried about being perfect or not taking the loss because it might break a long winning streak.
It also allows you to change your psychology and not beat yourself up over one bad trade. When you focus on the winning trades and profitability and not on your losing trades, you will have a new positive attitude towards trading and that positive attitude will do wonders.
In trading losing creates losing, by making us second guess good trades and staying in bad trades for fear of loss, a positive attitude allows us to be nimble and cut our losers short and have confidence in letting the winners run to maximize profit. The market is not perfect, and any attempt to create perfection out of far from perfect situation will just lead to frustration, a negative mind set and beating yourself up over bad trades. In short everything that is engrained in us as humans but is detrimental to trading. Try focusing on the positive aspects and see what happens with your trading.
