Learn from your mistakes
Coming to terms with errors (and particularly losses) is the key to success in trading. Many beginners get put off by the losses and mishaps that happen along the way and give up. If you give up then youll never see the upside. The upside is always there but a lot of people will never see it. Inexperience, bad luck and a lot of psychology prevents many traders realising their potential. Itll take time but if you can learn to treat the positive and negative with equal weight, youll be a lot more balanced in your trading emotions. Unfortunately psychology tends to make us focus on the negative. Many people will think that positive thinking is a load of hot air but its not and having a positive mindset (particularly when dealing with failure) is essential for trading success. We need to look at the mistakes we make and the losses we suffer as learning experiences. A good analogy is how you would go about finding your way out of a maze. Can you imagine stopping at the first mistake or giving up because you keep making errors? No, to solve the maze you try to remember where you went wrong and avoid the same mistake until eventually you succeed. Trading is the same; just we get financially punished for each mistake! In my experience though you learn more from a lesson youve paid for than one you got for free.
Mindset
To be successful as a trader you need to adopt the correct mindset and create a core set of beliefs that will set you apart from the norm. The following 12 points are the ones that research has shown are present in the most profitable traders.
1. Take personal responsibility for your trading performance and results
2. Adopt a mastery approach
3. Embrace risk
4. Get comfortable with uncertainty
5. Accept the reality that losses are part of the business
6. Focus on managing risk not picking winners
7. Trade for profits not excitement
8. Emphasise process over results
9. Take a long-term view
10. Enjoy small wins
11. Adopt a positive attitude to money
12. Believe you can be a winner
Over Confidence
A key factor in trading psychology is striking a balance between over and under confidence. Both are equally dangerous but we seem to notice over confidence less, as we are quick to congratulate our trading prowess! When we are under confident we tend to play it safe. We may miss opportunities, exit trades too early or develop a fear of the market but rarely will we suffer heavy losses. When we become over confident, we can lose our focus and over stake as we feel invincible. If we become complacent and start thinking we’ve made it the markets have a nasty habit of kicking you in the teeth. For me this is invariably when I have a huge green that I fail to hedge the moment before the market shifts! With over confidence it is all too easy to write off an error because we were ‘unlucky’ but we need to look at the root cause of that error and the psychology behind it. What really made us commit that mistake? Often, it's easy to tell when it was related to a negative emotion such as fear, anxiety, stress or anger. But when it happens due to over confidence, most people fail to register that emotion as the source of a trading error.
Remove the attachment to money
Our attitude to money is a very emotive issue. We all have differing attitudes, based largely on our experience of money growing up and early in our careers. We’ll tend to fall into one of two broad categories; spenders or savers. Whichever we are doesn’t really matter as attachment to money in trading is generally a bad thing. If we look at a trade in monetary terms then something very odd can happen to our brains. We can mentally start spending our profits or feel the pain of our losses before we’ve realised either. Successful traders are able to put to one side the fact that money is in play. They can do this because they have very carefully structured trading plans and use tight risk controls. They tend to think of achievement in terms of success when compared their trading blueprint rather than the number of pounds taken out of the market. Traders who are attached to money will always be looking at a trade in terms of pounds and pence and will never be able to detach themselves from the fact that the ultimate measure of their market success or failure is the bottom line. This can lead to fear of the markets (particularly for savers) and fear for traders is debilitating. If you feel that that you may be attached to money you need to solve this before you place another trade.
Whatever options you chose (and it may be all of them) you must achieve a mindset shift that moves your perception from making money to executing a disciplined trade. If you consistently use a tradingEDGE (and don’t second guess it) you will generate profits in the long-term.
A wise man once said “if you chase money, it runs away” if you focus on the process instead, the results will come and you’ll have more fun on the way.
Coming to terms with errors (and particularly losses) is the key to success in trading. Many beginners get put off by the losses and mishaps that happen along the way and give up. If you give up then youll never see the upside. The upside is always there but a lot of people will never see it. Inexperience, bad luck and a lot of psychology prevents many traders realising their potential. Itll take time but if you can learn to treat the positive and negative with equal weight, youll be a lot more balanced in your trading emotions. Unfortunately psychology tends to make us focus on the negative. Many people will think that positive thinking is a load of hot air but its not and having a positive mindset (particularly when dealing with failure) is essential for trading success. We need to look at the mistakes we make and the losses we suffer as learning experiences. A good analogy is how you would go about finding your way out of a maze. Can you imagine stopping at the first mistake or giving up because you keep making errors? No, to solve the maze you try to remember where you went wrong and avoid the same mistake until eventually you succeed. Trading is the same; just we get financially punished for each mistake! In my experience though you learn more from a lesson youve paid for than one you got for free.
Mindset
To be successful as a trader you need to adopt the correct mindset and create a core set of beliefs that will set you apart from the norm. The following 12 points are the ones that research has shown are present in the most profitable traders.
1. Take personal responsibility for your trading performance and results
2. Adopt a mastery approach
3. Embrace risk
4. Get comfortable with uncertainty
5. Accept the reality that losses are part of the business
6. Focus on managing risk not picking winners
7. Trade for profits not excitement
8. Emphasise process over results
9. Take a long-term view
10. Enjoy small wins
11. Adopt a positive attitude to money
12. Believe you can be a winner
Over Confidence
A key factor in trading psychology is striking a balance between over and under confidence. Both are equally dangerous but we seem to notice over confidence less, as we are quick to congratulate our trading prowess! When we are under confident we tend to play it safe. We may miss opportunities, exit trades too early or develop a fear of the market but rarely will we suffer heavy losses. When we become over confident, we can lose our focus and over stake as we feel invincible. If we become complacent and start thinking we’ve made it the markets have a nasty habit of kicking you in the teeth. For me this is invariably when I have a huge green that I fail to hedge the moment before the market shifts! With over confidence it is all too easy to write off an error because we were ‘unlucky’ but we need to look at the root cause of that error and the psychology behind it. What really made us commit that mistake? Often, it's easy to tell when it was related to a negative emotion such as fear, anxiety, stress or anger. But when it happens due to over confidence, most people fail to register that emotion as the source of a trading error.
Remove the attachment to money
Our attitude to money is a very emotive issue. We all have differing attitudes, based largely on our experience of money growing up and early in our careers. We’ll tend to fall into one of two broad categories; spenders or savers. Whichever we are doesn’t really matter as attachment to money in trading is generally a bad thing. If we look at a trade in monetary terms then something very odd can happen to our brains. We can mentally start spending our profits or feel the pain of our losses before we’ve realised either. Successful traders are able to put to one side the fact that money is in play. They can do this because they have very carefully structured trading plans and use tight risk controls. They tend to think of achievement in terms of success when compared their trading blueprint rather than the number of pounds taken out of the market. Traders who are attached to money will always be looking at a trade in terms of pounds and pence and will never be able to detach themselves from the fact that the ultimate measure of their market success or failure is the bottom line. This can lead to fear of the markets (particularly for savers) and fear for traders is debilitating. If you feel that that you may be attached to money you need to solve this before you place another trade.
1. Ensure you’re trading with money you can afford to lose
2. Lower your stakes to a level where you feel no anxiety
3. Developer a stronger belief in your tradingEDGE by paper trading for a time
Whatever options you chose (and it may be all of them) you must achieve a mindset shift that moves your perception from making money to executing a disciplined trade. If you consistently use a tradingEDGE (and don’t second guess it) you will generate profits in the long-term.
A wise man once said “if you chase money, it runs away” if you focus on the process instead, the results will come and you’ll have more fun on the way.
MA provides the market's current direction and strength.
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