Something important is missing
There are a good number of traders and investors who have studied, and learned, solid trading strategies and methods. Sometimes they have fairly good results, but can never seem to reach the plateau of the very best. They know most the proper trading rules, but what really matters, the number in their trading accounts, seems to act like a roller coaster. Obviously, something important is missing. The problem lies not within the rules, strategies, or methods. The problem is from within themselves. Its how they think. Its their trading psychology.
Human nature and emotions
The very best traders and investors, the top 5 to 10 percent, think differently from everyone else. That is why they are consistent winners. The factor that determines their superb trading results is psychological. They understand, and implement correct trading psychology. Normal human nature does not fit well with the characteristics that are synonymous with trading success. A great example has to do with emotions. If you allow emotions, such as fear, greed, and hope to influence your trading decisions, it will cloud your thinking. You must be able to think objectively to be successful in the long run.
Retraining our thought processes
From a very young age, our minds are wired to think in certain ways. As an example, we are taught to look for good deals, or lesser priced items. This line of thinking usually does not work well in the stock market. Cheap, or beaten down stocks, usually go down more in price. On the other hand, stocks that many people believe are too expensive, usually go up higher in price. To become an elite trader, you will have to go through a major retraining of your thought processes. This is the only way you can develop proper trading psychology.
Getting into a winning state of mind
Developing a winning traders mindset is not an easy task to accomplish. You will be going against, what is considered normal human nature. One of the keys is to completely accept the risk you are taking. This will eliminate the fear of losing, which will cloud your judgment. It is wise to practice good money management, by pre-determining your risk before putting on a trade. You also need to understand, and accept, anything can happen in the market. There are no two moments that are exactly the same. It is important to realize all trading is based on probabilities. Implement a trading plan that puts the odds in your favor on each trade you make, and trust your edge to make you successful in the long run.
All of these fundamental beliefs are vitally important to your trading psychology. How you think is synonymous with making a fortune. Basically, you are just waiting until the odds are in your favor, and then repeating the process over and over.
The world’s best traders and investors have a mind-set that makes it easy for them to stay objective. They have no problem remaining disciplined, focused, and confident, even when the market goes against them. Fear, and other emotions are not part of their trading equation. This eliminates most of the trading errors experienced by others. The elite trader can enter, or exit the market with no hesitation or conflict. Their mind stays clear at all times. Once you completely accept certain key truths that exist in the market, you could become very wealthy. Proper trading psychology can take you to the promise land.
Simple, basic, tried and tested rules that all traders of all markets need to implant in their brains so they become a part of their personality.
1. Plan Your Trades And Trade Your Plans. A well organized and specific plan allows you to automatically act as the market unfolds before your eyes eliminating rash and spontaneous decisions which minimizes losses regardless of the trading system being used.
2. Taking Responsibility For Ones Actions. Whether it is a win or a loss assuming full responsibility for your actions allows you to fully accept the true nature of the business. Avoiding emotional decisions in trading is a sign of professionalism and self control leading to more consistent behavior. Without consistency failure is imminent whether it be to eliminate bad habits or to emulate winning habits.
3. Never, Ever Live In Hope Or Fear. With a well organized trading plan such attitudes are eliminated because once you enter a position your trading plan ‘should’ automatically have you acting according to prevailing market action. Hope and fear are a trader’s worse nightmare harboring such emotions are doomed to failure and must be avoided at all cost.
4. Keeping Records. The only way of ever knowing your actual progress in futures trading, stock trading, currency trading or any speculative endeavors is to keep thorough and updated records. Keeping a journal also allows you to monitor every aspect of your trading so you can determine whether it is an internal matter or that of your trading system.
5. Having The Right Attitude. Having a positive attitude to anything in life is always going to produce favorable results. Combined with the appropriate ‘visualization’ technique you can develop winning actions and eliminate losing ones. Working on developing your ‘intuition’ is going to be your most challenging but I assure you most rewarding asset in the long run.
6. Surround Yourself With Winners And Avoid Losers. It goes without saying but it is true the vibrations of those you surround yourself with will transmit onto you. Winners are grinners and losers are whiners.
7. Keep A Distance Between The Market And Your Personal Life. The markets can be all consuming, once you start trading you begin to eat, drink, think currency trading, stock trading, futures trading, forex trading, option trading you name it you start dreaming it. Take a break and get away from it every now and again. Knowing when you are due for a break will be paramount to your success or failure.
The market should be viewed from the perspective that it is a means to an end and not a way of life that dictates your every move.
8. Enjoy The Luxuries Of life With Your Winnings. Understand you still have a life to live and enjoy. Taking profits and diverting them elsewhere, whether it is into a savings account, luxuries or donating to a worthwhile cause the feeling of ‘banking’ profits beats no other feeling in trading the markets. So do it often and make it a habit.
9. Avoid Cockiness. Over confidence allow your ‘EGO’ to get the better of you which will in time lead to your ultimate demise. Confidence needs harnessing and then bottling. No matter how skillful a trader or masterful you are of your emotions we all have our cycles of ups and downs. Knowing thy self is an art on its own so be very wary of complacency and the evil of cockiness.
10. Keep Challenging Yourself. Always try and keep a step ahead with everything you do, avoiding boredom and monotony as it has a decaying effect. Continually challenge yourself to be better at whatever you strive for. Avoid become stale as it will have a decaying effect.
I hope you found these 10 “Must Have” psychological trading rules helpful and a starting point of identifying your own rules of combat.