Developing a Trader Mentality
To be successful in trading, you should aim to develop a true trader mentality. That means to have the capacity and attitude that allows doing the right calls in trading.
Control your emotions
For instance, how do you react after losing 5 trades in a row? How do you react when your stop-loss is nearly getting hit? Perhaps the most difficult in trading is to accept losses and go ahead to the next trade. This is a difficult decision in your trading, but you need to understand that if you had a loss it doesn’t mean you failed or you were wrong. If you were following your strategy rules, you were doing the right thing. Always following the rules of your (winning) strategy is the necessary attitude to be developed.
When it comes to trading, your emotions are a big part of the equation, primarily when you’re losing. The way you face your losses is crucial to develop a correct trading mentality and achieve better results in the future. Successful traders are the ones able to better control themselves and always act to what they have planned. They also know that losing is part of the game, and the focus should be on improving the strategy, not avoiding losses. Below you can find some key elements that are part of winning and losing mentalities. You can also find out more about how to succeed in trading here.
Winning mentality vs Losing mentality
Probably, the most important thing in trading is to learn from your own mistakes. At the beginning, it’s usual to lose more than you win. The first losses are crucial to understanding what went wrong and improve your strategy. Since it isn’t possible to control the market, it’s important to understand how it works and how you can profit from movements of prices.
It’s impossible to win every trade. The focus should be to maximize profits and minimize losses so that you can have a positive overall result even if you lose more trades than you win. The successful trader is the one who has a higher profit/loss ratio, not a higher win/loss ratio. You can do this by focusing on letting your profitable trades run, and accept small losses. A newbie trader does exactly the opposite – he takes many quick wins, which surely results in a fantastic win-rate. But when he’s losing, he just hopes and prays that the market turns. Of course, this inevitably results in high losses. This is the wrong attitude, one that will make you lose money.
Finally, it’s fundamental to know that you’re the only one responsible for your wins and losses. You shouldn’t trade just because of some tip or an analyst’s opinion. Reading others opinions can, of course, expand your horizons, but try and check if what you were told really works or not. Create your own strategy and always act according to it. If you don’t have a plan, it’s easier to lose control of your trading.
Let’s take a look at 2 common types of traders, to see what are the most usual differences between a successful and losing trader.
1. Doesn’t expect to win every trade, but expects positive results
2. Accepts the responsibility of trading
3. Learns from own mistakes
1. Thinks the market targets him and hunts his stop losses
2. Blames the broker, platform, and even the market, for losses
3. Doesn’t admit own mistakes, and so, doesn’t learn from them
These are two fundamentally different ways of looking at the markets. Trader A accepts his losses and tries to learn from them, while trader B will blame everyone and everything for his losses. Trader A knows trading is a responsibility, whereas trader B looks at trading as gambling. Over time, these differences will make these traders go different ways: trader A will strive to become a better trader, and will likely get there. Trader B will hardly learn anything, and if he doesn’t have a lucky shot, he will eventually lose all of his money.
Practical mental configuration
- Your path to successful trading might be frustrating, not because it’s hard, but because there is a lot to learn and you will make mistakes, as everyone does.
- If you’re paying for your mistakes, then learn from them!
- Any person can reach better results in trading if they place their effort on it. That includes believing in yourself.
A good way to apply these 3 points is through trading in a demo account. Most brokers offer it for free, and it’s the best way to test strategies, improve your trading and control your emotions during trades. Once you start playing in a real account, your money is at risk, so you better know what you’re doing if you don’t want to lose it.
So, what type of trader do you want to become? Which of traders above would you trust your money? Definitely, the answer will be Trader A, right? Then start working on these 3 points, and achieve a true trader mentality.