The psycchology of trading

Psychology in regards to trading is the biggest single reason why so many people fail at this game. Because of the nature of trading, it goes against many hard-wired human emotions that we have developed through the evolutionary process; as a species we our designed to react to such emotions as and when they kick in for survival purposes. The feeling of fear for example is designed to keep us safe and avoid danger. When you relate this key emotion to trading it is a major hindrance.. how many times do traders choose not to take good high probability positions or cut a current losing potion purely down to fear kicking in... yes the trade may well lose but trading is a numbers game if you don’t stick to strategy and nail the setups you destined to fail.

Cherry picking trades does not work …trying to second guess the market does not work, in-fact the most uncomfortable trading setups usually work the best. Markets are rigged to screw people over, how many time have you seen the market stop you out for a hand full of pips only to reverse a few seconds to later go on a hit your intended take profit level . Don’t roll with the masses if theirs clusters of stops forming in a particular area… guess what the markets probably going to make a b-line for that area and take out all those stops, before pushing higher or lower. The markets are not out to get you its just how this stuff works. If you follow all the other sheep or lemming traders by following obvious logic your probaly not going to last very long. Be a contrarian, think outside the box..

Positive Mindset

As explained psychology in regards trading is massive.. rather than telling you about the pitfalls of having a flawed mental state can have in trading I’m going to focus on the positive state of mind I feel is necessary to aspire too, this will not just benefit your trading but will help enhance every area of your life.

Eastern philosophy – Zen

Ever wandered why successes or failures often happen in streaks? My personal opinion… theses anomalies do not happen out of chance… Its all to do with the power and state of the mind, positive/happy thoughts attract positive events, negative/ bad thoughts attract negative events, simple but powerful philosophy. It’s all down to what’s known as the phenomenon ‘laws of attraction’.

Now im not going to start harping on about Buddhism, meditation, spiritual beliefs etc. But I feel a key ingredient to becoming a more successful trader is having a well-centered healthy mind. Being a more positive person will go along way to calibrating you towards success.

This stuff is not easy and you will have to work at it, if you want to challenge yourself take the 7 day positivity challenge… the idea is every time you have a negative/bad thought you have to squash it within 1 minute of having this bad feeling… and replace it with a happy/positive feeling this is not easy most people will find that negative thoughts pop up all the time.. If you fail you must start again back at day 1. The aim is complete 7 days of consistent positive thoughts. The thought process behind this is to manipulate and mold the mind into a natural and positive mind-set.

Subconscious mind & NLP

The subconscious mind is incredibly powerful and is a part of mind that needs to be trained and manipulated this can be done through NLP (neuro linguistic programming); your internal dialog and external enviroment is constantly reinforcing your thoughts, beliefs and ideas directly to the subconscious. If you tell yourself something enough you mind will start to believe it, therefore it is imperative that you feed your brain with positive thoughts (again this relates to Zen) . Give your self a mantra such as ‘I am a successful and profitable trader’ and say it to yourself regularly you’d be surprised how just doing this can give your trading a positive boost.. Telling yourself the same phrase over and over again pings your subconscious and reinforces that in your reality (in this example) you our a successful trader…and the whole self for filling prophecy phrase will start to ring true.

Winning and losing with grace

As my mentor once described to me the analogy from the ‘art of war’ Can be applied to trading.. in order to win the war you must encounter and endure losing battles along the way. If you want to survive to fight another day you need to know when to cut and run. Each trade is a battle if you stick to the plan and strategy for each trade then you will have every chance of succeeding over the long term.

When you win your trades you should be pleased with yourself but running round the room pumping your fist in the air thinking you’re a hero is probably the wrong attitude, likewise when you lose a trade collapsing in a heap or punching walls is also the wrong attitude. You should aim to be indifferent ..not letting external influences disturb your state of mind.. your aim is to be in the ‘zone’ - losing trades will bounce off you and winning trades will not send your ego rocketing sky high. Being humble in your approach will help you remain on an even keel and maintain a healthy attitude.