Many traders have the funds, strategies, and talent to achieve success. However, it doesn’t always turn out the way they expect.
Despite their best effort and resources at their disposal, they fail to accomplish their goals and end up believing that the market is rigged against them. However, more often than not, their mindset is the biggest roadblock to their success.
Successful traders not only have the skills and resources but the mindset to make their efforts goal-oriented. But what exactly makes up a winning trading mindset?
Elements of a Winning Trader Mindset
Here’s what separates winning traders from the rest:
1. Stay focused
Trading is more like a high-performance spot and staying focused is essential if you want to perform at the highest level. Every day, you need to pay attention to key details on charts and numbers from indicators in order to make fast trading decisions. But that’s not all. At all times, you need to keep your eye on the goal of the day’s trade as well as your mid-term and long term goals by completing milestones that push your goals further.
To maintain your focus:
Create a trading checklist
Successful trading involves creating a daily routine that works for you and abiding by it. This can be achieved by creating a trading checklist.
In an environment filled with distractions, a trading checklist streamlines your trading activities so that you only focus on the activities that are most important to your success.
When you create a trading checklist and stick to it, you unconsciously become more organized and disciplined which in turn reduces the risk of executing reckless trades. In addition, it allows you to start trades with a positive mindset and confidence because you have met all necessary conditions before trading.
Don’t wait for the perfect trade.
Some traders try to wait for the ‘perfect’ conditions to execute their trades and end up missing valuable opportunities. Or even worse, the market could move against their ‘perfect’ trade and have a negative effect on their portfolio.
There is no such thing as a perfect trade, and what matters more is how high, and consistent your profitability is and the amount of risk you take each time you trade.
So, rather than allowing perfectionism to affect how you execute trades, you can redirect that attitude towards creating a profitable and reliable trading system and cultivating enough discipline to stick to it.
Never trade under pressure.
When your mind is already preoccupied with other thoughts along with the fear of failing, it could lead to costly mistakes. When you are having a bad day or preoccupied with other thoughts, it stops you from identifying good opportunities and can affect the growth of your forex trading business.
If you are having a bad day or can’t get in control of your thoughts, take time off to meditate and calm yourself. Another alternative is to trade with a demo account so that you can focus your thoughts. This also stops you from making trades that will affect your portfolio.
2. Have control over your emotions
In an ideal situation, traders would analyze trades from an objective standpoint with no emotions involved in decision-making. But most traders are human, so it is close to impossible to completely separate emotions when trading. Traders majorly deal with these emotions:
Fear is perhaps one of the dominant emotions traders deal with. It is also one of the major factors behind losing trades. The fear of losing or missing out on big opportunities can cause you to overreact and make decisions you would normally question or avoid.
There is an innate emotion in humans to get as much as they can lay their hands on ignoring all the warning signs in the process. This is also present in trading. Some traders feel the need to hold on to their positions longer than they should in the hope of getting as much profit as they can. Such trades usually end badly just when you think you are about to make a big win. Like fear, greed is not easy to overcome, and the best way to manage it is to stick to your trading plan and cultivate discipline.
It is good to start your trades with excitement and optimism, but it shouldn’t take the place of logical decision-making. This can turn a good trade into a losing one.
The best way to manage your emotions is to have well-defined rules and trading strategies that work. Have a trading journal where the requirements guiding your entry and exit are well specified. Also, do not implement a strategy that has not been backtested for efficiency and effectiveness.
Remember that it is not possible to completely separate emotions from trading. But if you can learn how to control and channel them in a positive way, those emotions can become your best assets.
3. The risks come with the territory
Never get caught up in the idea of making huge profits and ignore the risks associated with each trade. All financial markets have a degree of volatility associated with it. For instance, one of the most well-known facts about the forex market is its high volatility. As such, no matter how skilled you are, every trader faces a degree of risk whenever a trade is initiated.
Successful traders are well-aware that trading is a risky venture and understand that the market doesn’t owe them anything. So, they look for ways to stack the odds in their favor and take advantage of the various factors affecting the market. These factors include:
Whether you are trading binary options, stocks, or currency pairs, one of the first things you notice is how much liquidity the market has. However, not all assets offer high liquidity. For instance in the forex market, the liquidity of currencies depends on whether they are major, minor, or exotic pairs.
Professional traders can sometimes decide to trade illiquid markets if there is a high chance of profits but most traders tend to favor highly liquid markets. It is also harder to manage risks if the market moves against your position in an illiquid market.
If the prices remain the same, traders won’t make a profit. But the change in price is also what makes traders lose money. When the market’s volatility increases, its potential for profits increases as well. However, higher volatility also means higher risks. If you are disciplined enough with a good skill set, it is possible to take advantage of the high volatility while reducing the risks. To achieve this, you can:
- Focus on trending assets: Market volatility doesn’t necessarily erase trends, and some currency pairs may continue to move in a specific direction. The key is to open a position while the pair is still trading at a steady pace and hasn’t experienced a price acceleration yet.
- Lookout for breakouts from consolidations: Buying the breakout is perhaps one of the simplest ways to make a profit. When the price breakouts from an identified support and resistance, it could indicate that the move in that particular direction is strong with little chance of a pullback.
Still, make sure to confirm the validity of the breakout with indicators and relevant chart patterns before making a move. In addition, implement risk management tools like stop-loss to protect any profits you have gathered.
- Lock in profits as soon as possible: Profit can easily turn to losses if you do not protect it. If your preferred stock or currency pair experiences a sudden spike, it is advisable to sell a portion of your position and let the rest ride. This way, you can still make profits while protecting what you already have. Another approach is to lower the profit target for some of your positions and use a trailing stop.
The trailing stop price self-adjusts and will remain below the market price depending on the percentage you specify. If the market price goes lower than what you specified, the trailing stop freezes at the highest level, thereby protecting your profits.
Leverage is a great tool to increase your position. But successful traders know that it also increases the risk you face every time you trade.
Traders with the right mindset know that trading is all about taking risks, especially if you want to be successful. But they pick and choose their trades. Don’t start trading with the highest leverage your broker provides. Instead, start with a low leverage ratio and gradually increase it as you gain more experience. Even if you decide to use a low leverage ratio, don’t forget to use risk management tools every time you trade.
4. Learning is important for growth
The further you get in the market, the more you need to learn how to make the market work for you. If you are a beginner, take an hour or more every day to learn the basics of technical analysis and fundamental analysis. This will give you a solid foundation to build on as you grow in the market.
Also, there are a variety of courses available on learning platforms like Udemy that you can use to understand the market. If you don’t want to spend money on courses, YouTube and forex forums are excellent places to find relevant information. There are many concepts, terminologies and strategies that are worth learning. So, it is advisable to absorb as much as you can until you find your trading style and trading edge to give you an advantage over other traders.
5. Learn from Mistakes
Traders who doubt their ability and are easily affected by their failures tend to have a negative mindset about the market. They believe the system is rigged against them and allow self-doubt to build up.
Every trader, regardless of how good they are, has a few losing trades under their belt. But they learn to make use of it. Mistakes provide information on what doesn’t work and what aspects of your trade need improvement. It also shows that there is still room for growth. When mistakes happen, see it as a stepping stone to doing better. However, this doesn’t mean you shouldn’t protect your portfolio against losses. There is a difference between accepting your mistakes and letting losses eat away at your capital and profits.
After experiencing a string of losses, use a demo account or cut back on your capital. Another alternative is to use a micro account for trading. This allows you to improve your skills, learn from your mistakes and avoid costly errors that will wipe off your capital. Once you are sure that you understand what needs to be done, you can try again.
Trading long-term is going to be a tough journey and learning to cultivate the right mindset will have a huge influence on your performance. Developing and maintaining the right mindset will not happen overnight and requires strict self-discipline and accountability. But by cultivating good trading habits and sticking to it, your attitude towards trading will gradually change for the better.