i. Psychology of the trader plays a huge role in their success.
ii. Sticking to the trade plan, having confidence in it, and staying committed to it are qualities of successful traders.
How traders should think?
What differentiates a successful trader from a not-so-successful one? Their psychology.
Successful traders have a winning mindset and focus more on the right aspects of trading rather than devoting their entire mental capacity to the secondary aspects of trading.
Now a question might arise as to what is the primary aspect of trading, is it about finding the best trading strategy, or about finding the highly rewarding trades, or has it got something to do with how smart the trader is.
The primary aspect we are referring to here is the mindset, the psychology. If you have taken live trades in any of the financial markets then you most probably would have gone through a rollercoaster of emotions throughout.
It is not a bad thing to feel that way, traders are humans after all and we all have got our emotions, gut feelings, etc. What’s important here is that one must not allow their emotions to take control.
The financial markets do not care about how the traders feel, it is only a place where winners and losers emerge. If you want to be the winner at the end of the day then controlling your mind is the key.
Why is mindset important?
Let us consider two traders, trader A and trader B. Both have the same trading capital and both look to trade in the forex market and look to capitalize on the price swings of the currency pairs.
1. Trader A only trades two currency pairs, the GBPUSD and the EURUSD as he acknowledges the fact that these currency pairs are the most liquid pairs and he has worked out a strategy to trade these pairs.
2. Trader B has a long watch list of currency pairs which includes both major and minor currency pairs. He manually goes through charts of the currency pairs and if he identifies any pattern or setup he will enter the trade.
3. Whenever trader A identifies a trade as per his strategy, he checks if the market fulfills his prerequisite conditions. If yes, he places his entry, stop loss and take profit orders on his broker terminals, and lets the trade play out.
4. Trader B on the other hand takes trades as and when he identifies any pattern. He places orders to buy or sell the currency pair and then keeps watching the charts to see if the price is moving accordingly.
Which trader out of the two will have a better trading experience? Trader A.
Trader A’s trading process is very practical and mechanical. He has a set of rules that gives him the signal for trades. He places his orders well in advance and does not interfere with the process mid-way.
Trader B also might have some rules that he takes his trades based on. But the fact that he still watches the charts after he has placed his trades could be a disadvantage.
The more a trader watches the charts once a trade has been placed, the higher the chances of them acting emotionally. The emotions could lead to them incurring higher losses or closing trades beforehand to lock in profits.
Now you might think what all this has to do with psychology, the manner in which the trader approaches his trading process reflects the mindset he possesses.
If a trader is confident in his system, be it completely rules-based or even completely discretionary, he will not allow his emotions to decide his trades.
The more confidence in the process, the lesser mistakes will be committed and the lesser mistakes committed will result in lesser poor trades taken.
Poor trades will lead to the trader incurring losses. Losses are also of two types, first, the ones that were incurred due to your analysis not playing out as usual, and second, the ones which you had to incur because of your own mistakes.
We cannot control the markets, we just have to identify an edge that will allow us to have the chance to make a profit by having probabilities on our side. But we sure can control the way we behave in the markets.
Losses of the first type are unfortunate, but losses of the second type feel worse as there is no one else to blame other than us ourselves.
All this is well connected like a domino. One-piece falls and subsequent pieces fall too.
How to think like an elite trader?
Now that we know how traders must think and what importance the proper mindset has in the trading journey of a trader. You will never come across a trader that is consistently winning in the market with a poor mindset.
There may be exceptions every now and then, but in the long run, these exceptions will also fail as the markets will suck away their capital and they will be left in the dust.
1. Take responsibility for your actions or be prepared to fail
Do not let your emotions or gut feelings decide your trades. It is very easy to take trades, but it is difficult to take good trades.
The difference between winning traders and the losing ones is that the former takes control of his trading decisions. They know how to behave in the markets.
By taking responsibility also means do not ever think that the market and the universe are conspiring against you and causing you to lose your money.
To put it in simple words, you are just a small person in this mammoth of a business where thousands of traders like you are battling out to be a winner at the end of the day, and they do this round the clock day in day out.
It might sound crude but it is the reality, the market does not reward you for your efforts and just for showing up, it rewards only those individuals that put in the work.
2. Embrace losses and do not let a loss shake you up
Do not treat short terms losses as defeat. Doing so will only make you afraid of being wrong in the market and making a loss.
This mindset of wanting to be a winner all the time is very unhealthy in this business. You cannot be right all the time consistently. Yes, you will have a period during which your accuracy in the markets will be perfect, but over time you will have setbacks.
Treat losses as a means of education rather than a loss. Learn from the losses you incur in the markets rather than trying to run away or avoid them.
Fear of losing will lead to you trying to search for a holy grail strategy, which does not exist. You might come across strategies that haven’t had losses yet but just as you trade it live, you incur a loss.
What do you do then, you jump onto another strategy. This is a vicious cycle that you do not want to be trapped in and the key to avoid it is by embracing losses.
3. Be flexible in everything you do and ensure success
Never become arrogant and think that you have mastered this skill of trading and that the markets will move according to you only.
A strategy that has fetched you decent profits till now might cause decent losses in the future. Nothing is certain in the markets.
By not being arrogant and by being flexible, you will not let your short-term or even long-term success get into your head and put you on cloud 9.
By being flexible we infer that you must be on the lookout for shortcomings in your strategy or your approach to the markets. If there is a change in conditions then adapt to it rather than looking to fight it.
An elite trader always considers himself to be a student in the markets and never considers himself superior to the markets. He will always keep looking for systems that are better than his and does not shy away from accepting changes.
4. Strive for perfection and do not settle for anything less
Nothing is perfect in this world but we sure can strive to get as close to being perfect.
Trading is a serious business and shouldn’t be treated any less than that. In this business, traders are required to be at their best in everything, their trading plan, risk management, and their mindset especially.
Set a high standard for yourself in their trading activities. Everything that you do right from looking for trades, planning it, its execution, and after it is exited, must be done exactly like you planned.
If you feel that you have not been at your best in any stage of the process then work on it. If you feel that one particular aspect can be further improved then work on it.
By striving for perfection and keeping high standards, you can hold yourself accountable.
You can even go one step further by rewarding yourself for every perfect trade you took and also punish yourself for every mistake you commit.
Do you think like an elite trader?
Share this with all the trades you know and put it in every trading group you might be a part of. Trading mindset is very underrated and it must be improved upon.
Apply all that I have discussed in the blog post in your trading activities and let me know the effects it had.
Ask me all the questions or doubts you may have through the comments section and I will revert as soon as possible.