Why Mindset Trumps Strategy as a Trader

As you move forward in your trading experience and start to develop more advanced trading techniques, research new indicators and transition from old objectives to new, the only thing that stays consistent is the fact that everything is changing. Regardless of your experience level, how long you’ve been trading or how much money you’ve made, no strategy will work every single time and trading will require you to absorb new knowledge consistently. Regardless of your previous experiences, there will be an unsurmountable amount of circumstances in which new variables and factors will affect your trading decision play into account. Therefore, instead of placing so much emphasis on a single strategy, the majority of your effort should go towards understanding market changes and developing a mindset that accounts for unpredictability and refactors dependent on specific needs. Over time, your portfolio will reflect multiple things including your ability to react to changes in market trends and unpredictable circumstances. The success you experience in part will have to do with how accurate your strategy and prediction were, but moreover how you react after things don’t go your way. Placing emphasis on your mindset instead of things you don’t have control over will not only make you a better trader, but will empower you in other areas of your life as well.

Trader Perspective

In situations where your strategy has proper risk management, a high likelihood of being profitable and you are profitable, you can come to think of it as the market rewarding you for a viable prediction on action and behaviour. On the other hand, when you experience a loss, more often than not there is value to be extracted and knowledge to be gained from the circumstance. Whether you placed too much value on a single indicator, bought out of FOMO, or was unaware of an essential chart pattern forming, we tend to overlook factors that only appear obvious after the event has come to a conclusion. However a distinction must be clear. Just because you experienced a loss, does not mean this was a bad trade. There is nothing wrong in this instance as we want to continue to grow and develop as traders and need to absorb new information to continue to advance. The problem however is many new traders experience losses and only want to focus on the fact that they lost money and how to make it back. They associate losses with bad trades and good trades with making money. After a bad trade, by placing too much emphasis on the monetary value and strategy, they want to prove the market wrong. Losing traders aren’t afraid of big losses, but rather being incorrect in their predictions. On the other hand, experienced traders embrace a loss as an opportunity to learn and don’t fear being wrong. They fear enormous losses that bring disaster to their portfolio and understand that their strategy is only temporary based on the variables they accounted for. A new trader or one that continuously loses has a mindset that prevents them from improving their strategy because they can’t see a loss for what it is. Adapting to change isn’t the priority of a new trader, just proving that they are right in the market and finding a strategy that consistently works. Rigidity and stubbornness are two qualities that will land you in enormous trouble in the market. One who is unwilling to change is essentially telling the market his priority isn’t making money, but would rather making correct predictions that feeds into their ego.

The Flexible Mind

Focusing on your mindset brings forward new opportunity with every instance that allows you to continuously grow as a trader and embrace adversity wherever you may find it. If there were strategies that always worked and could be applied to every scenario, then many people would utilise that single strategy and a lot more people would be successful traders than there are at current. This however is not the case, and which is why the most profitable traders are the ones best able to control their emotions and react to unpredictable changes in the market. Similarly, to a battle conducted at war, if something doesn’t go according to plan (and often doesn’t more than it does) the outcome depends on the ability of the general to analyse the situation and choose the best course of action. Most amateur traders when they first begin trading believe that it is their foremost priority to find a great trading strategy, apply it to the market and watch the profits reel in. Being a trader is so much more than formulating better strategies and deducting information from charting tools. A winning trader understands that losses are part of the process and learns from them. Losing traders don’t assume responsibility for their losses and end up blaming it on a rigged market or other factors beyond their control. In short, they have a psychological mindset that doesn’t support their goals. Winners not only win more than they lose but they have also developed a belief system, attitude and characteristics that empower them and are essential to thrive in trading.

Self Belief

An essential characteristic of winning traders tends to be self-confidence. The trust you have in your past experiences, the time you have given to your strategies and efforts you know have continued to make you a wiser and more adept individual. Their self confidence is not shaken by a few losing trades as they know these scenarios don’t define them and their abilities, and with proper risk management, they understand it won’t pose a large risk to their account. Losing traders are constantly doubting the market, their strategy and whether they know enough to be trading in the market to begin with. If you view yourself as a losing trader in a market that’s out to get you and lacking the knowledge to make proper decisions, it tends to become a self-fulfilling prophecy. These traders tend to miss out on good trading opportunities and don’t initiate positions that would have been favorable. In addition, they also cut profits short as they are afraid the market will turn against them at any moment. They are uncomfortable with assuming too much risk because in the past it may have hurt their account drastically. Winning traders understand how to leverage their risk and even if their market analysis is wrong, they don’t let it prevent them from pursuing future opportunities that are genuinely good entry points.

Honesty with yourself

All in all, many of the best traders share many of the same key characteristics. Winning traders are comfortable with taking risks and dealing with the outcome. Understanding losses is part of the game and dealing with them properly all comes down to mindset and has nothing to do with strategy. Winning traders are emotionally capable of managing their risk and the uncertainty that follows while losing traders either don’t know how to manage their risk or refuse to take on any. Adaptability is a core component of one’s mindset that determines their trading ability. Admitting when a strategy has gone wrong, taking responsibility for the loss and taking the appropriate action doesn’t have to be second guessed by a winning trader. If price action suggests they were wrong in their analysis, they aren’t obsessed with proving themselves rights but acknowledge they were wrong, learn from it and adjust accordingly. The ability to think objectively and not get overwhelmed by your emotions requires discipline and a solid footing. By not giving into impulse and emotions, winning traders have developed a mindset that acts out of logic and reason. They don’t get overly emotional about winning or losing. A mindset that controls their emotions instead of letting their emotions control them allows them to continue moving forward and think without clouded judgement. Through a refined mindset and discipline, they implement risk management and strict money rules.

Failure vs Feedback

Winning traders understand there is a difference between a “bad trade” and one that loses money. As long as a trade offers greater reward than risk and the odds of it turning out are more favourable, just because you lose money doesn’t mean you were wrong in your analysis. In the same way, just because you made money doesn’t mean it was a good trade. Losing traders identify any trade that makes money as a “good trade” and any trade that loses money as a “bad one.” It is inevitable that good trades will still lose money every now and then, but winning traders have the tenacity to adhere to logic, reasoning and proper planning and understand in the long term their good trades will still bring their profit. It is of the utmost importance that winning traders accept that there is no guaranteed market analysis that will always predict price movements. Carefully watching for indicators that their analysis may be incorrect, winning traders have no difficulty in adjusting their trading position. Losing traders look mainly for signs that help prove them right and neglect indicators that could contradict their analysis. As a result, losing traders stay in losing trades for far too long and take unnecessary large losses due to a mindset built out of ego instead of logic.

Self Discipline

Since trading has no boundaries and you are free to enter and exit markets as you please, many people see it as a tempting opportunity to participate in an open environment where you can make the decisions on a whim. While there are no rules forcing you to buy or sell at any given time, the only way we can be successful in trading is to self-impose rules to govern our trading and implement discipline ensuring we abide by those rules. The problem is however that we love having the freedom to do as we want and hate rules of any regard, even if they are the ones that we have created. Self-discipline is by far the hardest discipline to follow as many of us believe “since I created the rules, I should have the authority to break them as well.” Although that’s technically true, abiding by this mentality will lead to more frustration and account that loses more than wins.

Market vs Mind

A winning trader understands that all the emphasis on external factors will get them nowhere. The answers to becoming a successful trader are all within. Now this can be both empowering as well as frightening, but virtually means anyone can become a master trader given the time and practice. Losing traders place too much emphasis on the market and how to utilise a proper strategy in an attempt to master it. Their efforts unfortunately only lead to more frustration and confusion as attempting to control the market will bring you no future wins. The only thing you can control is yourself, how you react to the market and the discipline you implement. Putting greater effort in themselves and trading actions rather than mastering market analysis is what sets winning traders apart from those that lose consistently. It’s not to say that market analysis doesn’t hold any validity, but with the abundance of information and indicators, there are virtually millions of strategies that could end up right. In addition, an indicator that may prove significant in one instance could be completely irrelevant in another. Sorting through all this information and interpreting it properly is impossible, so successful traders spend the majority of their time mastering themselves and developing a mindset that will supplement their trading ability.

Attaining the proper mindset of a winner requires a large amount of introspection and self-discipline. Good trading habits don’t come naturally and is an ongoing process, but will benefit your lifestyle outside of trading as well. Making the commitment to becoming a winning trader means developing the mindset and habits to get there. The emphasis should always be on you, not the market.

This article was originally published by FinTeXec