My trading reaches back over the last fifteen years of market action and I’ve been a psychologist longer than that. Here are a few things I’ve learned about trading, the mental game, and one of the more important technical skills necessary for trading success.
It’s Difficult to Harness Trading Success
Many would-be traders excel in other professions but find trading daunting. Why is trading success so elusive? Because of our evolutionary history and how it has influenced the development of our brain, we are naturally hard-wired to avoid loss and react to threatening situations in patterned ways (i.e., the fight or flight response). Because trading presents the threat of loss every day, it truly tests our abilities. We also have significant limitations in the way we make decisions when confronted by risk and uncertainty. We easily fall into mental traps that cause us to make poor trading decisions without realizing it. Add all this together and trading is exceptionally difficult. We deliberately have to learn to go against our own nature and overcome natural shortcomings in order to trade well.
Don’t be bamboozled by the “Too Good to Be True”
Traders may want to read a book or attend a weekend seminar and then step right into the markets and begin making money, lots of it. There is nothing wrong with that dream, but like anything that involves skill, more is required. Think about professional-level sport as an analogy. Any successful athlete has a long period of training and competitive experience. Some would-be traders look for an easy system—buy the latest indicator and just follow the green and red signals to make money beyond the wildest of dreams. You know in your heart this can’t be true. If it were, everyone would be wealthy. The path to success requires you avoid those ‘too good to be true’ detours and stick to what works.
You can Achieve Trading Success, but Only If You Work at It
This is true with anything worthwhile. At first, the markets are hard to understand. You see a trade setup that worked wonderfully last week, but this week it fails. How can that be? It is never going to be enough to only learn a trade setup’s criteria. Traders who become successful work very hard at understanding when their trade setups have the best odds of working and when they don’t. They also work diligently on their mental skills.
One Secret to Trading Success: Market Structure
One key to trading success—and it is a very large part of the game—is to learn how to read market context. This is what I call market structure. If the market overall is making higher highs and higher lows, for example, then demand (i.e., buying) is in control. The structure is bullish. Buying pullbacks will work well nearly every time; trying to pick tops won’t. No trade setup works well if the structure is not favorable. Reading structure is all about looking at specific aspects of market action to assess the selling and the buying. From this, you can determine what the market is likely to do next.
It takes time to develop this and other trading skills, but the time spent is well worth it. You can learn more about reading market structure through a free video on the subject as well as a 7-part guide to mental trading skills at my website.
