profits (yes, profits and winning can actually cause stress!).
100 TRADERS AND INVESTORS—EACH IS UNIQUE
If you show the same successful financial approach to 100 different people, no two of them will use it in exactly the same way. Why? Because each individual has a unique belief system, and those beliefs will determine hisor her personal style.
Even with a profitable and proven approach, many traders and investors will fail. If they do not have the proper belief system to trade, they will lose. In other words, they lack the trader’s mind-set.
SELF-AWARENESS
When you encounter a psychological issue, it is best to recognize the issue and not deny it. To eliminate psychological obstacles, you must first become aware of the obstacles and the issues causing them. This requires self-awareness.In psychoanalysis a psychologist or psychotherapist helps the client first see the problem. The reason this process can take so long, perhaps even years, is that individuals will have varying levels of denial. After they
see the problems, they must take responsibility for them. There is little room for denial when it comes to financial issues if you want to be consistently profitable.
15 COMMON DESTRUCTIVE PSYCHOLOGICAL TRADING ISSUES AND THEIR CAUSES
1. Fear of being stopped out or of taking a loss. The usual reason for this is that the trader fears failure and feels like he or she cannot take another loss. The trader’s ego is at stake.
2. Getting out of trades too early. The trader relieves anxiety by closing a position. He has a fear of the position’s reversing and then feeling let down or a need for instant gratification.
3. Wishing and hoping. The trader does not want to take control or take responsibility for the trade or has an inability to accept the present
reality of the marketplace.
4. Anger after a losing trade. The trader has the feeling of being a victim of the markets, unrealistic expectations, or caring too much about a specific trade. He ties his self-worth to his success in the markets or needs approval from the markets.
5. Trading with money you cannot afford to lose or trading with borrowed money. The trader feels that this is his last hope at success and is trying to be successful at something. He has a fear of losing his chance at opportunity, no discipline, greed, or desperation.
6. Adding on to a losing position (doubling down). The trader does not want to admit his trade is wrong and is hoping it will come back. His ego is at stake.
7. Compulsive trading. The trader is drawn to the excitement of the markets. Addiction and gambling issues are present. He needs to feel he is always in the game and has difficulty when not trading, such as on weekends. He is obsessed with trading.
8. Excessive joy after a winning trade. The trader ties his self-worth to the markets, feeling unrealistically “in control” of the markets.
9. Stagnant or poor trading account profits,limiting profits. The trader feels that he doesn’t deserve to be successful, that he doesn’t deserve money or profits. There are usually psychological issues such as poor self-esteem.
10. Not following your trading system. The trader doesn’t believe it really works. He did not test it well. It does not match his personality. He wants more excitement in his trading. He doesn’t trust his own ability to choose a successful system.
11. Overthinking the trade, second-guessing your trading. The trader has a fear of loss or being wrong. He has a perfectionist personality, wanting a sure thing where sure things don’t exist. He does not understand
that loss is a part of trading, and the outcome of each trade is unknown. He does not accept that there is risk in trading and does not accept the unknown. He is afraid to pull the trigger.
12. Not trading the correct trade size. The trader is dreaming that the trade will be only profitable and not fully recognizing the risk or understanding the importance of money management. He refuses to take responsibility for managing his risk or is too lazy to calculate proper trade size.
13. Trading too much. The trader has a need to conquer the market. Greed. Trying to get even with the market for a previous loss. The excitement of trading (similar to Number 7, Compulsive Trading).
14. Afraid to Trade. The trader has no trading system in place. He is not comfortable with risk and the unknown and has a fear of total loss, fear of ridicule, need for control, and no confidence in his trading system
or himself.
15. Irritable after the trading day. The trader is on an emotional roller coaster due to anger, fear, and greed, putting too much attention on trading results and not enough on the process and learning the skill of trading. He is focusing on the money too much and has unrealistic trading expectations.
These are by no means all the psychological issues but some of the most common. They usually center on the fact that, for one reason or another, the trader is not following his chosen trading approach or system.
Your goal is to maintain an even keel. Your winning trades and losing trades should not affect you. Obviously, you are trading better when you are winning, but emotionally you should strive to maintain an even balance
regarding wins and losses.
It will happen when it happens. It cannot be forced. When you achieve this level of mental ability, it will come after working long and hard on your weaknesses, but will come without your knowing it. It usually happens
when you least expect it.
HERE IS WHAT YOU’LL FEEL AFTER
ACQUIRING THE TRADER’S MIND-SET
1. Not caring about the money.
2. Acceptance of the risk in trading and investing.
3. Winning and losing trades accepted equally from an emotional standpoint.
4. Enjoyment of the process.
5. No feeling of being victimized by the markets.
6. Always looking to improve skills.
7. Trading and investing account profits now accumulating and flowing
in as skills improve.
8. Opened-minded, keeping opinions to a minimum.
9. No anger.
10. Learning from every trade or position.
11. Using one chosen approach or system and not being influenced by the
market or other traders.
12. No need to conquer or control the “market.”
13. Feeling confident and feeling in control.
14. A sense of not forcing the markets.
15. Trading with money you can afford to risk.
16. Taking full responsibility for all trading results.
17. Sense of calmness when trading.
18. Ability to focus on the present reality.
19. Not caring which way the market breaks or moves.
20. Aligning trades in the direction of the market, flowing with the market.
When you can read the trader’s mind-set list and genuinely say “that’s me,” you have arrived!
One important key in acquiring the trader’s mind-set is to create a sense of balance in your trading and in your life. Each of us is able to reduce trading stress in different ways and you will need to find what works best for you. By reducing stress on a daily basis you are one step closer to the trader’s mind-set.
REMEMBER, THE TREND IS YOUR FRIEND,
FEAR IS YOUR ENEMY!
Trend traders are usually on the correct side of significant market moves. Big trends are what make trend traders profitable. Missing these trends makes trend traders unprofitable. Significant trends usually occur after periods of volatility. This causes the unprofitable traders to second-guess themselves because of the fear of being stuck in volatility again and incurring more losses.FEAR IS YOUR ENEMY!
Missing the next big trend is disastrous!
Fear is generated by a variety of factors personal to each trader. If you feel fear, you must ask yourself why. Your answer will determine your weakness as a trader. Deny your weaknesses and your losses will create
more fear, which will again remind you of your weaknesses, hence the snowball effect.
When this occurs enough, you will either work to overcome your weaknesses, quit trading, or go bust. You will choose the path of least resistance.
A trader’s improperly managed fear can manifest losing trades even with a well-tested and sound trading system or approach.
If you are a countertrend trader, you are looking for markets where there is a correction in the overall trend. The concept behind countertrend trading is to find trending markets that are either overextending and
ready to correct or are in the beginning of a correction.
Countertrend traders make a profit taking trades against the trend. This is risky because you are going against the flow of the trending market, and while many traders can do well with this technique, you will need to
develop your skills. Once corrections end, prices can quickly rebound back in the direction of the trend. You will need to stay alert when countertrend trading.
