If you want to become successful in trading or become a successful investor, your psychological capital is your biggest asset by far.
Most traders believe that winning or losing is a function of their system. Unfortunately nothing could be further from the truth: Because if that were the case most new traders would succeed. We all know though that this is not the case. Failure rates run at 95%.
It is a known fact that a mediocre trading system in the hands of a seasoned trader will perform well, while even the best system will fail when used by the novice trader.
The reason is simple. Once you have learnt the principles of trading your trading success is NOT based on the system or method you use but on your psychology. Everyone who trades for a living knows that their most important asset is their psychology and not their trading method.
Let’s take a look at some of the many misconceptions about trading:
First, there is the belief that money is easily made; all you need is a system.
Most new traders underestimate the time and money it takes to become a master trader or investor. In order to become really good at it you will need money and accept that you may have to work for 2 or even 3 years before you start making regular returns on your money.
Then there is the total misunderstanding what trading is really all about: Actually, trading can be compared to a high performance sport. You need to prepare yourself mentally and physically for the challenges ahead. This involves determination, study not only of the markets but also of yourself. Trading success is a path and requires regular, daily practice. The inner game of trading is the core to your trading success.
Few other activities will present you with the state of your inner game so quickly and mercilessly as trading. For the intra day trader the results are immediate. You know within minutes whether you are right or wrong. It is a fact of trading that no matter how successful you will become, you will be wrong a lot of the time. Most people cannot swallow this reality.
What are your beliefs telling you about your trader mind set?
We are driven by our values and beliefs. Our values and beliefs derive from conditioning you received literally from the day of conception. You trade your beliefs and not your system, yet you will be unaware of this fact unless you have done a lot of personal development work and self awareness training.
Your view of the markets reflects your view of the world and of yourself. Your personal filter system determines which information you allow yourself to consciously access and act upon. In psychology we call this: Judgemental heuristics. Judgemental heuristics will dictate your inner game of trading.
Let's look at an example: If you are a perfectionist you will be spending most of your time searching to improve your system. Anger is often a side effect of perfectionism. You may be over critical with yourself putting unrealistic expectations on your trading performance.
Fear of losing is a major hurdle for many traders
Over 50% of all traders have fear issues. Fear can lead to difficulty pulling the trigger, exiting too early, or too late. Fear often masquerades as impatience and anger. In other words you have a flawed perception of price action and chart patterns when the emotions of fear are present.
Your inner talk determines what you see on your screen and in your outer world and since this is largely a subconscious process for the average person you have the challenge of unearthing the programs and filters that make your world and may be blocking your trading success.
The well balanced trader spots opportunities in all market conditions because their mind is clear and calm and free from conditioned responses.
Fear of losing is often fuelled by the need to feel safe and the need to know the outcome of an event. Trading will always confront you with uncertainty and ambiguity.
If your mind struggles with fear, excessive need for security and judgement you cannot focus on the complexities of the markets unfolding in front of you. You will miss opportunities instead of allowing the market to come to you.
Preserve your psychological capital first
I trust that by now you are beginning to appreciate the importance of handling your psychological capital first before you dive into obtaining the latest software system that promises you great riches.
So, what can you do to help your trading psychology? Take a good look at yourself. Look at your strengths and weakness, your fears and anxieties. Look at behaviour patterns which are camouflaging issues of fear and control. Yes, we all have them. Do not kid yourself into believing that you are free from these constraints of the human condition.
Ask yourself if you are looking to prove something to yourself. Is trading a way of fulfilling an unmet need in relationships, being appreciated or feeling worthwhile?
Once you get a sense of your feelings and emotions which may be blocking trading success you can clear. them, but do not pretend that they are not there.
I can guarantee you that trading has an uncanny habit of bringing forward any unresolved issue sooner or later. Trading is in essence an inner game. Learn to observe yourself and work on yourself. It is a pre-requisite to successful trading and an ongoing, essential part of the master trader’s and budding master trader’s job profile.
There are many techniques available to help improve your trading mindset. Personally I favour energy psychology. It is a cutting edge tool which gets results very fast. Admitting that your shadows exist, and, believe me they exist for every one of us is a first important step on the road to successful trading.
If you are honest with yourself and willing to work on your emotional capital you are an important step closer to joining the exclusive group of the 2 to 5 % of traders who succeed.
