I spend a lot of time talking about the psychological side of trading. My recent interview in Traders Magazine focused solely on the mindset necessary for successful trading.
Why do I spend so much time and energy discussing the psychology of trading? Because the longer I’m involved in this game, the more convinced I am that having the right mindset is the most important aspect of succeeding as a trader.
Learning how to trade a proven trading system is relatively simple. The rules laid out in a quality system should dictate the vast majority of your trading decisions. A successful system, with predetermined buy points and sell points, should take the guesswork out of your trades.
Having the mental discipline to FOLLOW a proven trading system is where most people get tripped up. Trading is an emotional battle and when emotions are involved, dumb mistakes get made.
My experience as a trading coach, where I work with traders from all over the world, has hammered home the importance of one’s mindset.
I see the same mistakes repeated again and again by new traders. They tell me how they’re mad at themselves for passing up on a stock that hit its buy point and roared to big gains. Or, they’re mad at themselves for letting big gains turn into minimal gains because they didn’t trust their stops.
What keeps people from pulling the trigger on predetermined entries and exits? Two things mainly: fear and poor self-image.
Again and again, traders pass up on a buy or sell because they “feel like” the stock has already topped or bottomed. Where does this “feeling” come from? It’s not based on their system. It’s not based on changing data. Instead, it’s a feeling or hunch based mostly on fear.
This fear is usually made considerably worse by the chatter they listen to online or on TV. They let other people’s GUESSES scare them into poor decisions. The let their fear overcome the discipline required to follow a proven system.
The other problem is a poor self-image. This is a trickier problem to deal with because it almost always occurs unbeknownst to the trader. On the surface, he or she believes they have the desire and confidence to be successful. But deep in their subconscious mind, they have a poor self-image, which sabotages their chances of success. This poor self-image is usually rooted in feelings of not deserving success.
The first step to conquering either of these trading demons – fear and poor self-image – is recognizing that they do exist and that they are extremely powerful emotions. They are emotions capable of consistently overriding reason. Don’t ignore them.
A simple way to make sure you’re addressing these emotions is to start a trading journal where, after every trade you make, you write down exactly WHY you did what you did. Why did you exit that trade early? Why did you change your stop on that trade? Why did you chase that stock that didn’t meet your system’s requirements?
As you evaluate your motives, you’ll sometimes need to dig deeper to figure out exactly why you did what you did. Make sure you never blame anyone else or “the market” for your results. You – and only YOU – are responsible for your trades.
If you’re completely honest with yourself, you’ll begin to see that poor trades are usually made when they are rooted in fear or a poor self-image.
You want to reach the level where you’re making trades based on well-reasoned discipline instead of fear or self-image. When you reach that level, your portfolio will thank you.
* The key to responding appropriately to market events is to follow a proven trading system. The most powerful trading system I know of is the Darvas System and you can follow this legendary system with a subscription to Darvas Trader PRO. Each issue of Darvas Trader PRO includes our updated portfolio and watchlist of current Darvas Stocks – with EXACT buy points and sell points. Start your 30-DAY TRIAL to Darvas Trader PRO right now and instantly receive my FREE trading course by clicking here.