In the trading world, you could give 10 different traders a system to use and even though they are all using the same system, at the end of the month, their results will run the gamut of failure and success. So what is it that makes one trader using the same tactics more successful than another? Trading experts suggest that a large part of doing well in trading has to do with your psychology. Don’t worry, you don’t have to get out your voodoo doll, but you could get better by thinking about your mental approach to trading. According to trading guru and instructor Don Dawson, there are three major mental blocks that will keep you from being a successful trader: losing, boredom and winning.
Overcoming the Mental Block of Losing
You may tell yourself that you know that losing is part of trading and that you are certainly braced for it. You know it’s not all roses and sunshine. But the fact is, losing is mentally draining. It can stop us. It can make us second guess ourselves and our investments. Even small scale loss can take a toll on our mental lives. Dawson suggests the best way to avoid the kind of mental blocks caused by losing is to avoid taking on extreme risk. Traders who overextend their resources will feel the shock of loss on a much larger level. This kind of mental block can begin to translate into what Dawson calls “emotional trading” or “revenge trading,” trading done outside of the original more conservative plan because the trader is feeling vulnerable and wants to recover loss. To cope with loss, never trade more than you can handle losing. And never allow loss to serve as an excuse to stray from the plan.
Overcoming the Mental Block of Boredom
Boredom is a challenging mental block because it’s less obvious than the panicked feelings associated with loss. In fact, you’ll probably have been bored for a while by the time you realize that you’re facing that mental block in your trading life. Boredom can actually be a good sign. Pacing one’s trading and exercising patience is an important part of success in trading, but the challenge of this ‘slow and steady wins the race’ approach is that you could get bored. Movies can sometimes represent traders as high-stress risk takers who are losing a million dollars one day and making two the next. But this is rarely the most foolproof plan. Dawson recommends noticing when you’re trying to create interest in your day by deviating from your plan. Stick to the plan. That is key.
Overcoming the Mental Block of Winning
What?! Winning doesn’t seem like a mental block in any world, but it can be a mental enemy in trading. Especially if you score a big success early in your career, winning could become a drug. And we know what happens when it comes to drugs: you can’t control your desire to get more. And when there’s no control, your emotions keep you from making rational decisions. Dawson uses a different metaphor. He says trading is similar to weightlifting. If you gain muscle too quickly, your body doesn’t know how to manage it. Like weightlifting, trading requires the gradual building of muscle that won’t damage the body because it happens too fast. To avoid this mental block, start small and build up rather than trying to master the market on the first day.
Some might say that trading seems to be a game of the intellect, a mathematical endeavor for the left-brained. But there a lot of highs and lows in trading and your emotions can get the best of you and your success. Make sure that you’re prepared for those emotional hurdles so that the left side of your brain is free to work as effectively as possible.
About the Author: Karl Meyers is a writer for Trading Academy, an online trader education site.