Its a funny thing… the information that new and struggling traders need the most, is the information they think they need the least. Its the element of learning to trade that is given the least attention, and often not at all, until its too late – until the bubble bursts, and the worst happens. But by then its often too late, the damage has been done.
What am I talking about? The Trader’s Mindset.
The trader’s mindset is the crux of why so many talented, intelligent people are unable to be successful at trading. Not because they can’t analyze the markets, not because they haven’t found a good trading system – but because the human mind and physiology is designed in such a way as to almost guarantee failure, unless we learn alternative mental and emotional strategies. Because so many traders don’t believe that mindset is important and worthy of focus — quite simply, they fail.
In the heat of the market traders need their objectivity and full faculties of perception the most. And yet at the very same time they are usually dealing with feelings of fear and stress which close down the full range of perception. Traders become quite literally blind to the possibilities. Its why traders so often make poor decisions in the moment – and in hindsight say “Why on earth did I do that?”, or “How on earth could I have missed what was staring me in the face.”
I remember reading the two bibles of trading by Mark Douglas – The Disciplined Trader, and Trading in the Zone quite early on when I began trading. These are both extraordinary books, spot on the mark, which in later years I really appreciated. But at the time it was “yeah, yeah that’s good, now what about my trading method.”
When we’re starting out, reading books, studying up on the markets, we hear the same thing again and again and again – trading is 80% mental and only 20% method. And yet paradoxically most traders ignore this sage counsel – and focus almost exclusively on method.
This is the sad story of a guy I know… a successful business professional, who after one false start at full time trading in which he lost a small fortune, vowed to get it right. He went all out to learn to trade profitably. He spent more than a year researching, back testing, and practicing a method which had a significant edge. He worked like a fiend at his day job to save money to recapitalize himself, and he studied until late at night week nights and all weekend. Finally after extensive testing, fully confident in his edge he began trading….
After three months you would have found this guy sitting on the edge of his bed crying – a grown man reduced to tears because after all that hard work, a year of careful preparation, he’d blown his account. He’d totally under-estimated the impact of his mental state and emotions on his trading. Despite being a smart guy, successful in his career, a highly effective trading method, in the heat of the market he would lose his composure and turn into an over-trading train wreck. His story isn’t unique…by a long shot.
The reason I know this particular guy’s story so well is that he is me. I went through that, and learned my lesson well. I spent and continue to spend a lot of time working on mindset, on developing more effective thinking strategies, and on finding effective ways to clear emotions.
For those of you that are struggling to reach your potential as traders and investors – despite being talented, intelligent and successful in many other regards – I say this – take your mindset seriously. Give it the greatest amount of focus in terms of training yourself for success.
Devour “Trading in the Zone” and read it over and over until your get it. Learn techniques for clearing your emotions. Be persistent – it takes time, courage and willingness to change. At the end of the day, learning to master yourself will pay you back with the success you’re looking for, whether in trading or in any other area of your life.