The psychology behind a successful trader.
We all want the same things in life. We want to be successful, make a lot money, travel around the world, and just simply live life on our own terms. The crazy thing is, so many people are already living like this! So why can’t you? Many of you reading this post today, may be completely discontented with the way you’re living your life each day, but you feel like you just can't seem to get out of the rat race. That can be so frustrating, and trust us, it’s not easy!
In search of solace, many people decide to find their salvation in, well, usually some form of a “get-rich quick” scheme, or another. Others decide, let me learn to trade stocks, or forex, research investments, and real estate. Even the diligent ones who complete the proper training, and research, STILL end up failing in the pursuit of financial freedom! But why? Quite frankly, the largest factor contributing to the failure of potentially great traders, investors, and advisors, is simply the psychology of an individual.
We have narrowed down the 3 most common psychological umbrellas associated with the failure of good traders, to; Greed, Emotions, and Fear.
Many people get anxiety each time they swipe their credit card, because they’re almost unsure if they can make their payments on time, or if they have any room left on their spending limits. The idea of being able to spend money, without worrying about paying it off on the back end, is something everyone dreams about! It’s not just you, it is completely normal. The problem with this, is it creates a heightened sensitivity to greed, when the opportunity to really make some money comes along. As a trader, being greedy causes a lot of traders to take bad trades, think irrationally and even blow their accounts.
Our solution to this? Have a trading plan and stick to it! For instance, a trader could be in substantial profit in an active trade, and rather than simply closing off the trade in profit, the trader’s greed kicks in and they decide to hold the trade a little longer, just to get some extra pips! Good idea? Well, probably not! Why? Because the market could shift at any moment, and the next thing you know, the trader is holding a negative trade just like that! Or at least a highly diminished profit, relative to their position originally! That sucks!
We always preach QUALITY, not quantity. It never hurts to lock in your profits on a solid trade, and then selectively look for the next great set up. Imagine you have spent the entire trading week successful, with a net positive return – then Friday comes around, and your ego is so inflated, you’re ready to beat the crap out of the market, there is no way you’re wrong, because you’ve already booked hundreds of pips this week. At that point, your judgement is wrecked – that trader is the exact type to give all their week’s profits back to the market, in one…lousy…mistake of a trade, because the greed blocked their judgement. This is catastrophic, why be greedy? IT KILLS ALL TRADERS!
As humans, we all have emotions, and in order for one us to become a successful trader, or successful in anything really, one needs to learn how to manage those emotions. Being a trader, especially a novice trader, it’s important to really practice on a demo account to familiarize yourself with how the market behaves. Quite frankly, the market can behave differently from day to day, so we don’t mean spend one to two days on a demo account, then load up and start trading your hard-earned cash! We need you to spend as long as it takes, for you to become familiar with different movements of the market, how you as a trader react to those movements, how you as a trader, react when you make a successful trade, and even more so how you react, when you make a losing trade. You need to realize, that the absolute goal of the market, is to get every trader to commit their funds to a trade, that was encouraged by playing on your emotions, so the market can collect. You are just one person in a multi-trillion dollar a day market, don’t take it personally!
Nobody wants to lose money, and it can really suck if a trader is taking losing trades over, and over again. The truth is, the more losing trades someone makes, the less and less confident they become, and fear sets in. This fear causes a high level of “over-thinking” and “over-analysis” on trades, which causes serious doubt, resulting in more losing trades! It is a very vicious and ugly cycle. Luckily, that fear can be turned into confidence with solid guidance, consistent strategy, and specific criteria.
You’ve heard us say it before, BE HIGHLY SELECTIVE! The problem we find, is that many traders don't stick to their strategy, because they are always watching the charts at times when they shouldn't be, or they are not taking a break from trading, they begin making themselves believe something is there when it isn’t, or vice versa. This can be so detrimental to your success as a trader.
At nVestFx, we really dig into the trader’s psychology in our Expert course, because it truly is one of the most difficult roadblocks in a trader’s path to success. It may seem straight forward, but these items should not be taken lightly. Get the proper training, build a proper strategy, and get your mind right!