What does Successful Trading and Trading Psychology have in Common?
Yes, that is correct.
Losing trades plays a huge part in successful trading.
Your trading psychology is shaped by losing trades.
New traders get wrecked because their trading psychology is not robust.
Losing trades are important.
Losing is part of the successful trading process. It is hard to believe isn’t it?
You should understand this plays a vital role in successful trading.
We can be sure of this after we have been trading for over a decade.
You should embrace the fact you will lose if you want to become a consistently profitable, successful trader.
Losing trades makes up a huge part of a winning strategy.
It becomes second nature.
Let us explain more…
When you drive your car, ride your bike or walk you perform without really thinking, it has then become second nature.
This state of mind is what a profitable and successful trader will aspire to have at all times to become consistent in making returns.
There is a caveat though and that is we are human beings.
Therefore, we will make mistakes.
That is where trading psychology comes in.
We make these mistakes because of things called emotions.
The positive of a losing trade is that it will tell us something about ourselves and approach.
One should assess why they lost on that particular trade.
Pull the trigger before it reaching your price level?
Become impatient with the market and thought f*ck it I’m going in at this level anyway.
Did you put too much size on that one position and now you are sweating & uncomfortable with your position?
Set a predetermined take profits price level and ignore it?
You didn’t have a stop loss order in place?
These are of course are just a few examples.
Losing a few trades in a row will test how robust your trading psychology is.
You may of in fact undertaken everything correctly. Entry, risk, position sizing, appropriately applied analysis and you were just plain wrong! Well good for you, that’s a perfectly executed trade.
You stuck to your successful trading plan and didn’t let emotions get in the way.
The strategy you have applied may only be correct 50% of the time the other 50% you will lose! Hey ho, onto the next trade for every loser you are closer to the winner.
There is not a trader living or deceased that has ever been correct all of the time.
In fact most traders will admit they are only correct about 50% of the time.
Such as Colm O’Shea the famous hedge fund manager who explains this in Jack D. Schwager’s book Market Wizards.
Analysis of your losses is paramount to the evolution of your improvement to successful trading and trading psychology.
The positive side of losing trades is multifaceted but on this occasion, I will focus on what it tells you about yourself.
The market will reveal all about your personality, even if you don’t want to know.
Perhaps even emotional traits you never knew you had.
Working on one’s self will improve you until you are successful trading.
It is what we focused on a lot of the time and continue to do so today.
Are you Impatient?
The market will help you lose that hard-earned cash.
Greedy, the market will tease your greed out of you.
Fearing, the market will scare the crap out of you.
Perfectionist, the market is waiting for you to give you a surprise and it won’t be perfection.
What’s that I hear, you have an engineering degree, a PHD I hear you say, you’re an academic?
The market doesn’t care who you are, where you are from or what you have achieved.
It will welcome you with open arms, embrace you and exploit your weaknesses with absolute pleasure.
The most infamous emotions in trading psychology are Greed & Fear
If losing is part and parcel of trading what can we do about it? ACCEPT IT! You have no choice anyway.
Can a football team play an entire season and not concede goals and lose?
No is the answer but they can still win the league.
One of the simplest methods of becoming a successful trader is having enough in your trading account to trade another day.
Keep that little statement in your head and you should do OK.
If you blow your account, you are out of the game. GAME OVER.
Reload. Market will say “Thanks very much! Please come back and play again”
Work on your trading psychology which will aid your survival which is a key ingredient to trading success
Strict RISK parameters must be adhered too.
One word you will hear or read a lot about which I have intentionally not mentioned until now is discipline.
This is a must have weapon in the war on trading success.
Not being right, winning!
There is a difference.
Trading Psychology Tip – Leave your ego at the door.
What did I mention earlier?
The market will eat your ego for breakfast lunch and dinner and continue to digest it as long as it is on offer.
If we go back to what we were writing at the beginning of this article.
We stress about the comfort of losses.
It should be understood that the losses are aligned with a good strategy that has been back-tested.
And the win ratio has been confirmed.
Then the losses will get easier, I promise.
We know from over 10 years of trading.
How did we become so comfortable with losing trades?
We will risk no more than 1-2% of our entire account on any one trade.
Plus, we will only have any number of trades open to limit our overall exposure to the market.
Hedging techniques lowers your account exposure & is a more advanced methodology in reducing your risk and implementing trades.
Through experience confidence is obtained. This is essential in robust trading psychology and trading success.
If you want to become one of the able. Then join us here