Many Traders will find that when they first start out and are trading on a demo account, or perhaps even relatively small size, they do relatively well. But as soon as they start increasing their size, and things begin to get more ‘real’, the hit an invisible wall and just cannot seem to penetrate through it, significantly hindering their progress. So assuming they are still trading the same system, what has changed?
This scenario, as described above, will be well known to many traders, including myself, in the trading journey. So if you are currently battling through this, whilst it may not be much comfort, just remember that you are not alone. I would hazard a guess that at some point, the majority of traders will have gone through this or something similar.
I have no doubt that so many traders who go through the above will be working hard, will be putting the hours in studying their process, working on their edge, reviewing and journal not only their trades but also their emotional journeys. Many of you will ‘know’ how to trade, and have probably experienced successes in other areas of your lives, be it business, relationships, finance, health/fitness – whatever it may be. Clearly you are an able individual, so why can’t you make trading work for you like you have succeeded in other areas?
Well, one of the area’s most under looked in trading is the mental side of the game. It is probably fair to argue, that whilst being mentally attune to any goal or target you set in any walk of life is very important, the impact your psychology has on trading is probably much more significant that in any other are of life.
When you start trading with live funds, at a size that becomes emotional for you (and for most people, especially when starting out, this doesn’t have to be very much!), well this is a very challenging moment in your trading journey. For the first time ever you are exposed to the emotional roller coaster that can ensue when trading live funds in the market. Even though you may know ‘HOW’ to trade, when you add the swirl of emotions and feelings into this, suddenly trading the markets becomes a whole new, much more challenging prospect that what you initially envisaged. This is especially true for those who have experienced a level of success in other areas of their life. In most cases, this success was created by ‘taking action’, and ‘moving forward’ every day. Thus it’s very easy for these types of people to find that they experience over-trading, or trading on impulse – because in their minds they are pushing hard trying to make things happen. It’s hugely ironic however, that in trading, the fastest way to move forward is to ‘do nothing’ the vast majority of the time.
You need to create a new set of attitudes and behavioural traits in order to succeed in trading – these traits will be different from what most people have grown up with in chasing success in almost all other areas of life. In fact very few, if any, people come into trading ready made to succeed. Most people learn the hard lessons that previous skills and successes many not help, and could in fact become a detriment to many traders’ journeys along the path to eventual success. Using the example above, in most normal business or even other non business goals, you create success by taking action, sometimes significant in size. Many times people will apply these same concepts in trading. To make money in trading, you need to be in a trade. You try to push and force things – however as soon you enter this mindset, you are no long ‘in the zone’ for conducive trading. It is basically the opposite mindset for trading than it is for any other business.
Then as traders follow the above mantra, and they go on a losing run, they work ‘even harder’ (read: take more trades) in order to make up for prior losses and continue on their journey to being a successful trader. This, as you well know, will only compound the problem and make it worse – until the trader stops trading, takes stock of where they are and starts the process of learning about the mental and emotional sides of trading.
If you have ever read about or studied successful traders, one of the most common traits that all successful traders embody is the ability to practice patience in letting the market come to them. They take trades only on their own terms, only at a time when they feel they have an edge in the market and the probabilities of winning are in their favour. They are like a leopard in a tree, waiting for a grazing impala to venture right under the branch on which they sit. The leopard may have to wait for hours before the right impala comes along and steps under that branch. If the situation is not right, then the leopard will not move an inch. However as soon as everything lines up, and the leopard judges that it has a high chance of making the kill, it will pounce. When we take a trade, we have to be the leopard in the tree.
If the leopard tried to kill every impala it saw, it would most likely get tired from chasing very quickly, become exhausted and then when the right opportunity did present itself, it would find that it is not in the right condition to take full advantage of it. In the instance of the leopard, and in the instance of a Trader, Less is More.
This is a vastly differently process and outlook on trading when compared to the ‘take action to move forward mentality. Rather than chase the market and trades, you allow the market to come to you. The ‘take action now’ mentality has been replaced by the ‘stealthy hunter’ or ‘sniper’ mentality. This type of mentality is much more conducive to long term trading success.
To succeed in anything, you need to practice effective action. In some areas of life, urgent/massive action is indeed the required course to take. Equally in other areas, as mentioned above for the case of trading you need to take action in a different manner. You must deem what is most effective for each area of your life.
For trading success, it is imperative that you understand that simply ‘knowing how to trade’ is not enough. To be truly successful, alongside learning to trade on a technical level, you need to develop the mindset that will go alongside this knowledge. Without it, the odds will be heavily stacked against you.
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God bless, and happy trading!