Some say that a winning attitude is what mostly sets profitable traders apart from those who don’t make it, but is that really all it takes?
And what exactly constitutes a winning mindset in trading?
In order to develop this frame of mind, here are some psychological traits that you should work on.
1. Accepting that the market moves randomly
As the all-time great rock band Green Day repeatedly asks “Do you know your enemy?” so should you understand what exactly you are working with when it comes to trading.
This isn’t to say that the market is an opponent that is constantly working against you. What I mean is that you must always keep in mind that while you attempt to predict and profit from price action, market movement isn’t something that you can control.
There will be times when the asset prices move almost exactly in line with your analysis, but there will also be instances when the market seems to act without rhyme or reason. That’s just the way it is.
This kind of thinking eases the pressure on you as a trader, making you less likely to be extremely frustrated when things don’t go your way. As a result, you become less prone to thinking irrationally yourself and are able to make more objective decisions.
2. Ability to filter out noise
In line with the first trait above, the ability to determine which market movements are significant and which ones are merely noise is also a key component of a winning mentality.
Besides, it’s also easy to get overwhelmed by all the tips and signals from social media and trader groups that you might wind up ignoring or doubting your own analysis. While it helps to look at market action from a different perspective, it also makes sense to build confidence in your own set of skills!
If you find yourself struggling with analysis paralysis from TMI, figure out if conflicting information is crippling you from making decisions. If so, then it might be time to mute certain trading accounts or unfollow them completely. Review your trading goals and basics, then remind yourself to stick to your own strategy.
3. Commitment to proper risk management
No matter how well you do your fundamental and technical analysis, at the end of the day market price action is simply out of your hands. What you are always in control of, however, is how much you put on the line.
Bad habits like stubbornly adjusting your stops, betting the farm, or doubling down when you’re losing are signs of improper risk management that could ultimately lead to your failure as a trader.
On the other hand, keeping your potential losses limited and aiming for positive expectancy could help you keep your head above water even if you experience a drawdown. Good risk management lets you live to trade another day.
4. Recognizing when you are wrong
In line with managing risk properly, successful traders are also quick to admit when they are on the wrong side of a trade or when they’ve missed something with their analysis.
This allows them to cut losses early or make adjustments as needed instead of holding on to the hope that price will eventually turn in their favor. Of course, this might be a more advanced skill that requires more experience, but it can be developed over time by reviewing price action and trading journals.
Looking back at how the markets behaved during the trade and how your setup fared can help you pinpoint areas for improvement and what you should watch out for next time. This way, if you spot similar movements, you can be quick on your feet in shifting biases when your initial one was off.
5. Openness to learn from losses
Last but certainly not least is the ability to objectively review your losing trades and pick up lessons from these.
As my favorite trading psychologist Dr. Brett Steenbarger writes:
If we can use our losses to study our game in greater detail and make incremental improvements in our processes, then those losses are no longer threats. They are our teachers.
Instead of feeling discouraged by losses, successful traders are able to detach and dissect these instances to figure out what went wrong and how they can do better next time.
This way, you can approach the market with an open mind versus being too hard on yourself.
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