Delving Deeper Into Your Trading Mindset

“We trade our psychology - our unseen beliefs and biases… The world the trader sees is colored by the mindset of the trader who observes the world. And this is where traders get in trouble.’’ – Rande Howell

Hello:

Robbie Burns managed to double his pension fund from 40,000 pounds to 80,000 pounds in less than three years; and soon after, he doubled it again, reaching 165,000 pounds. He’s made a tax-free profit of far above 900,000 pounds in several years: he has made a profit every year. Doubling your money in three years means you’re making roughly 33.3% returns on annual basis (something around 2.8% monthly). These are results that merit commendations. But sadly it goes against the thought of many traders. They believe in achieving at least 100% - 1000% monthly for this is the mindset they had when they decided to trade. They don’t want to accept the fact that even if they move ahead by 2% per annum, they’re really great veterans of the financial markets. That’s why many traders don’t survive a losing streak. Once again greedy people won’t accept this; they will never be thankful for small mercies. Marcus de Maria displays the amazing power of compound interest with a profit target of 3% - 7% monthly. Imagine yourself turning ten thousand pounds into millions of pounds in less than a decade! The position sizing increases with subsequence profits since the risk on each trade is constant and proportional to the current equity. The bigger the account grows the bigger the profits. Is the 40% of $500,000 not bigger than the 40% of $100,000?


There are certain so-called professional traders who can never be happy with consistent 150 - 300 pips monthly. What they want is 800 – 1500 pips monthly. They can’t be satisfied with 5% per month either. For many years, they’ve been searching for a magical system that can satisfy their wild imaginations. And for now, they can’t boast of any meaningful consistency. When would people learn their lesson? Don’t we all know better? Anybody who’s reasonably sane knows that they shouldn’t gamble indiscriminately. Is the cogent trading rule not simple? A successful trader uses a sensible, time-tested trading system and adheres to a no-nonsense risk control parameters. When you couple this with patience and discipline, then you’re already on your way to success. Traders know all these rules, yet it doesn’t mean that they’ll stick to them when they trade. They may think that the next trade might be the jackpot they’ve been waiting for. Those who set greedy targets with high lots often expect to win big; but they unfortunately fall into the gambling category simply because the more a trader wagers, the less is their ability to survive on the markets.

Trading results: Last week, I made 80 pips with my EURUSD-USDCHF strategy and over 90 pips with the GBPJPY strategy. With my long-term strategy, there are open profits of 1096 pips on the EURCAD, 165 pips on the AUDJPY and 24 pips on a newly filled order on the AUDUSD. The limit order on the EURAUD is still pending.

Delving Deeper Into Your Trading Mindset
The most important factor in trading success is the trader’s psychology. Psychology is critical to anyone’s success. It must be understood that emotions mean something different in trading than it does in other walk of life. This fact has been learned first hand by successful traders. If emotions are not managed properly when trading, the outcome can be frustrating. We need our power, our energy, in order to keep going in this daunting trading business. Therefore it’s essential to keep negative emotional feelings under control.

Mr. Rande doesn’t mince words when he declares that emotions are biological in nature and take over our psychology. They are not part of our psychology, but rather they are biological. They shape our psychology (our perception of the world). Fear, in particular, is the most primitive of our emotions. It is the mother of biologic survival. That is why a trader must learn how to manage fear, or it will continue to overwhelm the impartial, disciplined, patient, and courageous kind of thinking upon which successful trading is built. Though fear will never be eliminated from a trader’s psychology, its intensity can be regulated so that it does not sweep the mind away in a cascade of negative thinking that leads to catastrophic results. Once managed, fear can be directed to help build an effective methodology for risk management.

Simulation accounts are extremely useful in familiarizing the budding trader with the battle-like conditions on the market – which make the possibility of a margin call real and extant based on the ongoing market situations. The budding trader practices with the clear-cut aim of bringing his irrational emotions to subjection thru judicious trade management and plans. Live trades must be handled in similar fashion. While trading, brilliant minds often fall for the decoy of irrational expectations, and in the kind of thoughts that come out of irrational expectations, they ignore the lasting ramifications of the transiently irrational thoughts. They are intoxicated by covetous fallacies and their judgmental prowess would be diluted. Irrational emotional conditions exuded while trading are viewed in contrast with the sensible inference made from trading results at the end of a period of trading activity.

Traders don’t really apprehend the capability of their faculty and the results it could produce. If the potency of the faculty in managing the thoughts while trading isn’t rightly appreciated; as regards the irrationality of too high expectations and fearful responses, there can’t then be a conclusive technique or formula that can be utilized in harnessing the power of thoughts to produce a result-oriented emotion management. It’s therefore incumbent on any trader who desires consistent survival on the markets to delve deeper into his trading mindset and strategize effectively. You’d be glad you do so.

One more quote from the great Rande Howell ends this article:

“A calmer mind is necessary to develop the powerful skills of discipline, patience, impartiality, and courage that are so important to peak performance trading… With an open mind, you become what you were born to be. And trading is your teacher.”
Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach

Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

Nice trading tips are available at: www.ituglobalforex.com
And my past articles are also available at: www.ituglobalforex.blogspot.com


NB: There is risk of loss in trading, but it is possible to be a successful trader.