Many traders have strong aspirations of becoming highly skilled and profitable. When they fail to reach their dreams, however, it’s almost always due to trading psychology. Let’s review three common, dream-killing mistakes and what you can to do instead.
Dream-Killer #1 – Ignoring Trading Psychology Until it is too Late
Most think trading is all about the setup. Possessing strong technical skills is a critical component of trading success. But so, too, are understanding sound money management and developing solid mental skills for trading. Many traders don’t start to learn about trading psychology until their account has significantly shrunk or they have become so fearful of losses that they consistently cut winning trades short. Some can’t even pull the trigger on their setups!
Waiting to learn trading psychology prolongs the learning process and seriously reduces the likelihood of success. Traders who neglect their psychology can pick up bad mental habits that have to be unlearned. This takes additional time and much effort.
What to do instead
While it is never too late, its best to focus on your trading psychology from the outset. Learn the unique mental skills needed to trade well right away. Make time available each week to work on your personal psychology. There are many helpful trading psychology resources available to a trader, including links to my website and blog, which you will find below.
Dream-Killer #2 – Thinking You Must Control Emotions
This just isn’t true. It’s also not possible. Yes, you can influence your emotional state and sometimes override your emotions, but to consistently control fear, for example, just isn’t possible. Even traders with 20+ years of experience can still feel uncomfortable when in a trade. Why? Because trading occurs in an environment of uncertainty. We never have complete information. Every trade is about taking a risk.
We are human. We have innate emotional mechanisms that will absolutely trigger when we take on risk. We don’t have much control over them.
What to do instead
Be open to and accept the fact that, yes, you will feel anxiety, fear and other strong emotions at times. Note that these emotions never last. They feel bad and definitely are uncomfortable, but the fear you felt this morning will be gone by afternoon, if not sooner. Emotions aren’t permanent; they come and go. The real secret to trading psychology is to be open to them and do what matters for the trade. This is not always easy, but there are skills and techniques that you can learn that make it very possible.
Dream-Killer #3 – Struggling with Your Emotions
This is the worst thing to do. When you struggle with your emotions, you take your focus off the market and put it onto your internal state. Precious attention goes to distressing feelings, uncomfortable body sensations (e.g., muscle tension, pounding heart), and a mind that is telling you to get out of the trade or do some other action to reduce the discomfort. Attention is not where it should be. No one can manage a trade without focusing on it.
What to do instead
This builds on being more open to uncomfortable feelings and thoughts: Know exactly what is needed to manage the trade. Know where the profit target is and what the trade will look like if it is working. Also know what it will look like if it is not working and an early exit is needed. Then, keep your focus on these factors rather than your internal state. This is the mental skill of maintaining composure even under pressure.
Keeping composure while trading is one of several mental skills needed by the trader. State of the art psychology offers effective ways to build your mental skills for better trading. You are invited to learn about these methods through the free resources available on the author’s website, including a 7-part guide to key mental trading skills. Just click here.
