Mindset is Key
A traders mindset and mental approach to the markets is paramount over anything else. A trader can have the best strategy in the world but if they are unable to deal with looking at a position in a loss or the possibility of losing trade then they will never be successful. They will either close the trade out too early before it has had time to move or will just stop trading altogether.
What makes the mindset of a trader so important?
When trading the markets you have to be neutral to all emotions, as elation and joy can have just the same detrimental effect on a traders performance as being upset and down about a position. The reason for this is that it can easily lead to overconfidence and then to risk more. For example, a relatively new trader on a £1000 account is trading at 0.1 lots risking 1% of the total account per trade. Things go well for them and they win a few trades in a row and they see they are up 4–5%. They then say to themselves “well if that was a 0.2 lot trade I’d be up this much or if it was a 1 lot trade I’d be up this much”. The next trade they take is for 1 lot and that’s the trade that loses and rather than lose 1% they have lost 10%. From here it will go one of two ways, the first being the trader will chase the loses to regain his lost funds or 2nd, go back to 1% risk and need to make 10 profitable trades to make back the loss. This is why mindset is so important, you have to almost be robotic to the wins and loses. If you win, analyse the trading plan and make notes on trade performance. If the trade loses, analyse the trading plan and see if you obeyed all your rules to enter a position.
How do I develop the mindset for trading?
The first rule is if you are trading a live account NEVER trade money you can’t afford to lose! The Markets are an uncertain place and they are susceptible to multiple different factors that can change the direction of any pair at any time. This is proven by simple things like a tweet from President Trump can move the market significantly. Trading funds you can’t afford to lose adds pressure to a trader as they are required to perform day in day out to pay the bills or feed the family. this promotes a bad trading environment and can see a trader look for positions when none are present and also miss positions as they are too focused on a particular aspect. Your Trading account must be seen as disposable income that if the worst happens your not working out how to pay the mortgage. The Second rule is to have a trading plan, have a set criterion of points that you are looking for when placing your trade, then have a set number that a trade has to meet before you enter the trade. Then when you place a trade you will have justification. The only time you should be angry is placing a trade that doesn’t meet the criteria and that is if it wins or loses, as you have broken your trading plan. following these two very simple points will allow you to segregate your self from the market and the money it’s self. Trading discipline is paramount as an undisciplined trader will always lose.
What do I do if I’m in the wrong mindset to trade?
If you question yourself when trading and you’re not in the correct headspace, the simple answer is you don’t trade. You turn the screen off and walk away, take a break, it can be 10 minutes or 10 days, whatever you feel you need. What’s important if you do take a break, is to not then look over what has happened in that time period and see it as missed opportunities. It is the easiest thing in the world to trade off past data.
Summary
Don’t trade money you can’t afford to lose. It only makes trading more stressful. When trading, have a plan and rules that must be followed. Win or lose, asses, re-assess and self-criticise. Don’t be afraid to take time away from the charts.
