By Sam Evans, Co-Founder and CEO
One of the things I learned early on in my trading career was that understanding trading psychology and mastering my mindset was going to be the difference-maker. You see, once you’ve found the right education and you’ve got a good strategy in place, the next step is to follow through on that process, time and time again. Taking time to reflect is the key.
This is something that can’t be taught from watching a YouTube video or looking at a chart. It has to be explained and then applied by the student. After all, skill is developed over time, not simply learned. We teach our students to reflect on their own, and look at what they are and are not doing. A great trading plan is nothing without a great mindset. You could take a world-class trading plan. You could take Warren buffet’s plan or Paul Tudor Jones’s plan, but it doesn’t mean you are going to make money trading that plan.
Why might you ask? Because it’s not your plan, and you don’t have their mindset. They don’t have each other’s mindsets. They probably have completely different trading psychologies to each other. Who knows? What I know is my own trading psychology because I have taken time to reflect on it. To sharpen my mental edge to improve my trading.
Your opinion doesn’t matter
We all have our own belief systems developed over time and based on our experiences. One of the things I see a lot of traders run into, is trading based around what they believe to be true. I know some traders that miss out on shorting the market because they don’t think the market could possibly go down. After all, aren’t we in the longest bull market we’ve ever witnessed? Yes, that is true, but there are plenty of shorting opportunities to be had too.
In turn , when you believe that the market can only go up, you only look for buying opportunities. You either miss out or you force yourself to see an opportunity and then hold on to your position because you think you know that it has to go back up at some point. Without a stop loss in place, this can lead to losing a lot on one trade.
Your opinion doesn’t matter. The only opinion that matters is the market. If anything, we teach our students to believe that it doesn’t matter what they believe! We teach them to develop a plan that they can believe in and to look at the charts with no opinion. Approaching the markets with a neutral belief will enable you to trade what you see, not what you think.
FOMO is not the only fear you have to control
I have never been one for acronyms but at the beginning of this year, thanks to GameStop, FOMO was everywhere! Fear of missing out is a strong emotion. After all, didn’t everyone make money from GameStop? No, they did not. In fact, Gamestop is a good example of how fear can drive us to do things other than follow our trading plan. I have seen fear make traders do crazy things. Not getting into a trade because they fear another losing trade. Not getting out of a trade because the fear (not the greed) of the trade going higher without them drives them to stay in the trade too long. Overtrading because they are fearful of starting the next new day from a position of loss… and so on.
To overcome fear you have to first understand what you are fearful of. That’s where journaling comes in. Reflecting on what you did and why you did it. Only when you discover what you are afraid of can you work to address it. Overcoming your natural fear response will take work, but it can be done.
Being a true ‘Cockney’ I do love a slang word and pig is an old slang term for investors who get greedy. The saying goes like this: pigs get slaughtered. Yes, I know it doesn’t conjure nice imagery… but maybe that’s the point. Greed is not good!
Those that know me, know that I believe that greed actually comes from fear. As well. It might seem like greed to want more but often it’s the fear of not doing well. That your trading could be better. You could be getting more winning trades to losing trades.
So just like above, you have to journal and work out what’s driving your greed. Reflect on your actions. Name it and slay your greed, so you aren’t the one getting slaughtered!
Discipline is the key to Mastering Your Mindset
You have to be disciplined when it comes to trading. Being disciplined will help you master your mindset. Being disciplined enough to journal every day will highlight where you are deviating from your plan. Whether your opinion got in the way, or your fear, or your greed.
This will lead you to stick to your trading plan. Follow it and execute it, day in and day out. The discipline you can show to mastering your mindset and sticking to your plan is what will make the difference. Unfortunately, discipline is not something that can be given. It is something which needs to be developed and enforced. That can only come from you. Yes it takes work and yes it can take time,but the very best habits we form always do. Understand that and you will understand yourself more effectively.
I hope you found this helpful.