I’m sure you have heard many people talk about it before – To succeed in trading, one needs to develop a probability based mindset. But what does that really mean and how can one go about developing this?
I’ve spoken to many people over the years about trading, and one topic that crops up every now and then is when traders feel like they keep head butting a brick wall that is standing in their way. They cannot seem to break through this obstacle, and of course this inevitably leads to frustration and overtrading, thus taking trades against their processes and rules. So how are you able to push yourself to move on and hit the next level in your trading?
Whether you like it or not, if you are engaged in trading there is never any certainty in the result of any given trade that you may take. Even the best traders, investors, market forecasters or even the ‘gurus’ on your favourite finance television networks cannot say with ‘certainty’ where the market is headed next year, next month, next week, or heck, even tomorrow.
So how can traders deal with the uncertainty that trading in the markets presents?
What is Loss Aversion?
Quite simply, Loss Aversion is where a trader is unwilling to take a loss in a current trade they have on. Rather than take the pre-agreed loss they set at the start of the trade, the trader decides to move, or even remove, their stop loss, hoping and praying that the market will return in their favour. The trader essentially is trying to ‘avoid’ taking the loss.
Many successful people, Traders and Non-Traders, consistently speak of the value of meditation. I’ve highlighted the benefits of meditation in a previous article and how it can help your trading. Despite the obvious benefits it can bring, it is true that many people simply struggle with regularly practicing meditation. So what can you do to help ease in to meditation if you have no experience of it?
How often have you said to yourself, “I need to more grateful. I need to be more thankful for what is in my life. I need to show gratitude to the people around me.”
How often do you perhaps make a point of expressing gratitude for the good in your life? Once a day? A week? A month?
How many times have you tried to instill this habit, but then find yourself falling out of the ‘habit’ and reverting back into your previous routine and busy life?
What does ‘being grateful’ actually mean, and why is it important, not only in terms of trading, but also your everyday lives?
Whether you are relatively young in your trading career or are a seasoned veteran; still unprofitable, or now trading consistently profitably – one thing is for certain – virtually all traders will agree that learning the art of being patient and applying it to your trading is quite possibly one of the most crucial elements to successful trading.
So why is it that many new traders are unable to follow this simple rule…?
In a previous blog post on Fear in Trading, I briefly touched upon the concept commonly referred to as FOMO.
I’ve spoken to a number of traders in recent weeks and one of the biggest concerns they have is not having the patience and discipline to wait for the correct entry signal in fear of missing out on the move they ‘believe’ is about to occur, thereby taking trades against their system – otherwise known as FOMO.
So what is FOMO and why does it occur?
‘Fear’ is something that I bet every trader in the world has at some stage experienced. It could be a fear of loss (losing money), a fear of being wrong (ego), or perhaps even FOMO (Fear of missing out).
What is certain however, is that any traders who have become truly successful within trading have learnt to manage and master their fears. If you cannot do this, then you stand little chance of staying in the game long term.
So how do we combat fear?
How many traders have snatched profits in their trading careers? How many of you have closed trades based on your P&L as opposed to closing based on your charts? Have you closed a trade to ‘protect’ your profits all the while being almost certain that price will still move further in your favour? Conversely, how many of you let losses run to your full stops (or maybe even further!) when you know you are wrong but are ‘hoping’ the market will turn?