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- Mar 10, 2022
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Introduction
Many traders face the situation when, despite learning various trading methods, purchasing expensive indicators, and subscribing to signal channels, they still experience emotional struggles when making decisions in the market.
Trading in financial markets often involves emotional states that can be both positive and negative. Some traders feel uncertain about their strategy after experiencing losses. Others may feel panic when dealing with large volumes they are not accustomed to. Desperation may occur when hoping for a losing trade to return to break-even. Greed and fear of missing out (FOMO) can also play a significant role in decision-making.
Out of all the emotional states that traders may go through, fear and greed are the most common. They can significantly impact a trader’s account and trading outcomes. Recognizing these emotions can help traders acknowledge their weaknesses and work on improving themselves.
In practice, many traders face challenges in managing emotions, and it is crucial to develop psychological resilience to make rational decisions in the market. This may involve various methods and strategies for emotion control, such as using stop-loss orders, pre-planning trades, and analyzing past decisions.
Stress in Trading
Stress in trading can manifest in various ways, with losses being a significant factor. Losses often result from lack of knowledge or inexperience, and they are an inherent part of the trading process. However, the number of losses can be reduced through learning and experience.
Indeed, as paradoxical as it may sound, it’s not advisable to fight stress in trading; it is something that needs to be experienced and dealt with gracefully. Moreover, stress can serve as a catalyst for more productive activities. To begin with, identify the source of stress. If it’s family matters, dedicate less time to trading and more to your family. If you are overwhelmed by stop losses, step back from trading and focus on back testing and analyzing your trades. If stress stems from lack of knowledge, dedicate time to review the material you’ve learned. If you feel like you never have enough time, track all your actions throughout the day for a week, including phone calls, and identify activities you can eliminate to free up those crucial minutes. Continuous self-improvement is essential. Analyze your mistakes and draw conclusions. This applies not only to trading but to all aspects of your life.
It might seem like the market is unfair, taking your stop-loss order and then moving in the desired direction. Why does everyone in the chat seem to be making profits while you struggle with stop losses? Is it because you’re a failure? No, in trading, luck may play a role, but it’s not the most critical factor. Understanding that trading is a game of probabilities is crucial.
Nobody knows how your area of interest will play out, where the price will go tomorrow, or even what the assets will be worth a year from now. It’s all about probabilities, and embracing uncertainty is part of the trading journey.
You are absolutely right. In trading, there are only probabilities of certain tools or strategies working. Therefore, it’s crucial to change your attitude towards failures. Collect data on the performance of your setups, precisely know the percentage of successful trades for the tools you use. If a trade doesn’t work out, it’s not a problem if you already have statistical data and have conducted back tests. How many out of 10 trades does this trading tool produce profits? How many result in losses? There should be clear answers to these questions before you start trading.
By analyzing your failures and understanding that you are solely responsible for your trades, there’s no need to worry excessively. Every business carries the responsibility of the entrepreneur.
If you get stopped out because Elon Musk tweeted something, it’s one thing. If you get stopped out because you misjudged the trend, it’s entirely different. Just like with stress, you shouldn’t fight failures; you’ll lose. Instead, focus on learning from them and making improvements based on the lessons learned.
Perhaps, the following might help some of you: try to change your initial attitude towards your trading account. It is merely a tool—nothing more. Just like an auto mechanic wouldn’t get too upset if a wrench develops a crack, he would simply conclude that it doesn’t meet his quality standards and choose a different set of wrenches next time.
Similarly, you should view your trading account as a set of tools. If everything seems to be falling apart, the responsibility can’t be shifted to the manufacturer. It’s all up to us.
Obstacles on the path to stability:
1. Gambling Instinct:
If you have a strong gambling instinct, enjoy taking risks, and seek adrenaline rushes, you should consider how you will handle this trait while trading. Gambling and professional trading are fundamentally different and lead to different outcomes.
2. Money Mindset:
If you have a highly emotional attachment to money, it might be necessary to work on your money mindset. Avoid overestimating the importance of money, as it can negatively impact your emotional well-being.
In trading, money is a tool used for work, but at the initial stages of a trader’s development, money is still perceived as a means of payment. For instance, when closing a trade, you might think that in just 10 minutes, your trading account has increased by an amount equivalent to someone’s monthly salary. Or that the stop you just hit could have bought something significant for you. Transitioning from this standard mindset to a professional one takes time. It involves viewing the funds in your trading account solely as percentages—both profit and loss. Money will act as a catalyst for all your skeletons that will come out of the closet as soon as you open a position on the exchange. This is inevitable.
3. A series of unresolved psychological issues:
Trading will take you to places you have never been before, and you may discover things about yourself that you never knew existed. However, only with the right approach and understanding can you transform trading into a means of self-awareness.
So, take out an A4 sheet of paper and write down all the qualities that you believe might hinder you. Keep writing until the list feels complete. Save it: it will come in handy later.
Practical methods for problem-solving:
- Time Management: Avoid sitting in front of charts 24/7 and watching every candle. Over trading and exhaustion will not lead to anything fruitful (and you definitely won’t make more money). Instead, set a schedule for yourself. You can either work throughout the day and take evenings off, or occasionally monitor the market during the day after analyzing charts in the morning and placing limit orders. Use this time for other activities. It may be challenging to decide on your schedule immediately. It will come to you once you determine the type of trading that suits you, whether it’s scalping, swing trading, intraday, etc.
- Pay Attention to the Chart: Customize the colors and tools on your trading platform to make it comfortable for you.
- Maintain a Trading Journal: Start keeping a journal where you record everything in the beginning. Include all observations, trades, emotions, and shortcomings. Write down everything every day.
- Create a Checklist: Write a checklist for yourself, including everything that might hinder your trading. Hang it in front of your monitor. Every morning, before you start trading, check if all conditions are met. For example: a good mood, no headaches or other ailments, well-rested, focused, all urgent tasks completed to avoid distractions, and so on. Most importantly, be disciplined.
- Calculate Profits and Losses Only in Percentages: Consider your deposit as 100% and focus on the percentage increase it experiences monthly, rather than the dollar amount. Embracing this simple rule from the start can lead to significant improvements in your life and finances over time. The power of compound interest will work its magic.
- Create and Refine Your Trading System: Your trading system is a crucial element that helps you manage stress, see the bigger picture, and understand your objectives. However, designing a trading strategy is one thing, and following the rules you set for yourself is another. Your trading system allows you to neutralize all types of worries. Worries arise when a trader deviates from their own rules.
- Backtests: An essential element of trading activity. Know precisely when to open a trade, understand the percentage of successful trades for your tools, and be familiar with the stages of market analysis. Print out information about your personal business (trading). Keep track and maintain records. Stop gambling on the exchange - trade professionally.
Psychological Correction:
Taking breaks and rest is just as important as everything else in trading. How you spend your time off is up to you, but it’s essential to know when to take a pause, especially in the following situations:
- After several consecutive stop losses: Set a critical point for losses (a percentage of drawdown on your trading account) for the day, week, or month, depending on your trading style. For example, my critical point is a 1% drawdown within the day. Once I reach this point, I shut down my computer and stay away from both charts and trading terminals. Sometimes, I might do backtesting, but it doesn’t really help since my mind is not in a cool and rational state.
- Avoid trying to recover losses: Understand that trying to recover lost money can only worsen the situation. The money is already gone, and losses are a part of any business, including trading. When you reach your critical point, switch off, spend time with your family, go to the gym, or engage in your hobbies. Remember, the market will always be there, and trying to force trades to recover losses may lead to more mistakes.
- Profitable trades: It’s also essential to take a break after a profitable trade, whether it’s a large one or a series of successful trades. Why? Because you might become filled with euphoria, thinking that you’ve hit a bright streak in trading. This can lead to a lack of focus and reduced responsibility, potentially increasing your risk per trade or neglecting stop-loss orders. Be mindful of this pattern.
Things are going well? Great! Take some of the earned profits and treat yourself or your loved ones. It’s essential to reward yourself and feel the rewards of your hard work. While the money is still on the exchange, it’s 100%, but once you withdraw it from the exchange, it becomes real currency ($). Remember that there’s no need to amass all the money in the world. It’s not practical and doesn’t make sense.
- Freedom: Trading can grant you the most important thing - freedom. Financial freedom, freedom from being tied to a specific job location, and the ability to manage your time. However, this freedom can be truly embraced only when you strike a balance between work and rest. If you find yourself constantly glued to the computer, trying to grow your deposit with thoughts like “I’ll rest when I reach $100,000” or denying yourself pleasures with the belief that “I’ll buy a coin with this money, and it will grow,” you become a prisoner of this never-ending cycle.
Don’t seek entry into every trading opportunity within each price zone on the 5-minute timeframe. Eventually, you might lose enjoyment in trading. Living solely for the market without emotional diversification can put you in a difficult position. Find harmony between work and leisure - that’s when you’ll truly enjoy the process. Remember, it’s essential to take breaks, unwind, and have a balanced approach to trading. This way, you can experience the true pleasure and freedom that trading can offer.
I would like to recommend the following books for you to read or listen to. They are not all about trading, but they will help you in one way or another in shaping the Trader’s personality:
Many traders face the situation when, despite learning various trading methods, purchasing expensive indicators, and subscribing to signal channels, they still experience emotional struggles when making decisions in the market.
Trading in financial markets often involves emotional states that can be both positive and negative. Some traders feel uncertain about their strategy after experiencing losses. Others may feel panic when dealing with large volumes they are not accustomed to. Desperation may occur when hoping for a losing trade to return to break-even. Greed and fear of missing out (FOMO) can also play a significant role in decision-making.
Out of all the emotional states that traders may go through, fear and greed are the most common. They can significantly impact a trader’s account and trading outcomes. Recognizing these emotions can help traders acknowledge their weaknesses and work on improving themselves.
In practice, many traders face challenges in managing emotions, and it is crucial to develop psychological resilience to make rational decisions in the market. This may involve various methods and strategies for emotion control, such as using stop-loss orders, pre-planning trades, and analyzing past decisions.
Stress in Trading
Stress in trading can manifest in various ways, with losses being a significant factor. Losses often result from lack of knowledge or inexperience, and they are an inherent part of the trading process. However, the number of losses can be reduced through learning and experience.
Indeed, as paradoxical as it may sound, it’s not advisable to fight stress in trading; it is something that needs to be experienced and dealt with gracefully. Moreover, stress can serve as a catalyst for more productive activities. To begin with, identify the source of stress. If it’s family matters, dedicate less time to trading and more to your family. If you are overwhelmed by stop losses, step back from trading and focus on back testing and analyzing your trades. If stress stems from lack of knowledge, dedicate time to review the material you’ve learned. If you feel like you never have enough time, track all your actions throughout the day for a week, including phone calls, and identify activities you can eliminate to free up those crucial minutes. Continuous self-improvement is essential. Analyze your mistakes and draw conclusions. This applies not only to trading but to all aspects of your life.
It might seem like the market is unfair, taking your stop-loss order and then moving in the desired direction. Why does everyone in the chat seem to be making profits while you struggle with stop losses? Is it because you’re a failure? No, in trading, luck may play a role, but it’s not the most critical factor. Understanding that trading is a game of probabilities is crucial.
Nobody knows how your area of interest will play out, where the price will go tomorrow, or even what the assets will be worth a year from now. It’s all about probabilities, and embracing uncertainty is part of the trading journey.
You are absolutely right. In trading, there are only probabilities of certain tools or strategies working. Therefore, it’s crucial to change your attitude towards failures. Collect data on the performance of your setups, precisely know the percentage of successful trades for the tools you use. If a trade doesn’t work out, it’s not a problem if you already have statistical data and have conducted back tests. How many out of 10 trades does this trading tool produce profits? How many result in losses? There should be clear answers to these questions before you start trading.
By analyzing your failures and understanding that you are solely responsible for your trades, there’s no need to worry excessively. Every business carries the responsibility of the entrepreneur.
If you get stopped out because Elon Musk tweeted something, it’s one thing. If you get stopped out because you misjudged the trend, it’s entirely different. Just like with stress, you shouldn’t fight failures; you’ll lose. Instead, focus on learning from them and making improvements based on the lessons learned.
Perhaps, the following might help some of you: try to change your initial attitude towards your trading account. It is merely a tool—nothing more. Just like an auto mechanic wouldn’t get too upset if a wrench develops a crack, he would simply conclude that it doesn’t meet his quality standards and choose a different set of wrenches next time.
Similarly, you should view your trading account as a set of tools. If everything seems to be falling apart, the responsibility can’t be shifted to the manufacturer. It’s all up to us.
Obstacles on the path to stability:
1. Gambling Instinct:
If you have a strong gambling instinct, enjoy taking risks, and seek adrenaline rushes, you should consider how you will handle this trait while trading. Gambling and professional trading are fundamentally different and lead to different outcomes.
2. Money Mindset:
If you have a highly emotional attachment to money, it might be necessary to work on your money mindset. Avoid overestimating the importance of money, as it can negatively impact your emotional well-being.
In trading, money is a tool used for work, but at the initial stages of a trader’s development, money is still perceived as a means of payment. For instance, when closing a trade, you might think that in just 10 minutes, your trading account has increased by an amount equivalent to someone’s monthly salary. Or that the stop you just hit could have bought something significant for you. Transitioning from this standard mindset to a professional one takes time. It involves viewing the funds in your trading account solely as percentages—both profit and loss. Money will act as a catalyst for all your skeletons that will come out of the closet as soon as you open a position on the exchange. This is inevitable.
3. A series of unresolved psychological issues:
Trading will take you to places you have never been before, and you may discover things about yourself that you never knew existed. However, only with the right approach and understanding can you transform trading into a means of self-awareness.
So, take out an A4 sheet of paper and write down all the qualities that you believe might hinder you. Keep writing until the list feels complete. Save it: it will come in handy later.
Practical methods for problem-solving:
- Time Management: Avoid sitting in front of charts 24/7 and watching every candle. Over trading and exhaustion will not lead to anything fruitful (and you definitely won’t make more money). Instead, set a schedule for yourself. You can either work throughout the day and take evenings off, or occasionally monitor the market during the day after analyzing charts in the morning and placing limit orders. Use this time for other activities. It may be challenging to decide on your schedule immediately. It will come to you once you determine the type of trading that suits you, whether it’s scalping, swing trading, intraday, etc.
- Pay Attention to the Chart: Customize the colors and tools on your trading platform to make it comfortable for you.
- Maintain a Trading Journal: Start keeping a journal where you record everything in the beginning. Include all observations, trades, emotions, and shortcomings. Write down everything every day.
- Create a Checklist: Write a checklist for yourself, including everything that might hinder your trading. Hang it in front of your monitor. Every morning, before you start trading, check if all conditions are met. For example: a good mood, no headaches or other ailments, well-rested, focused, all urgent tasks completed to avoid distractions, and so on. Most importantly, be disciplined.
- Calculate Profits and Losses Only in Percentages: Consider your deposit as 100% and focus on the percentage increase it experiences monthly, rather than the dollar amount. Embracing this simple rule from the start can lead to significant improvements in your life and finances over time. The power of compound interest will work its magic.
- Create and Refine Your Trading System: Your trading system is a crucial element that helps you manage stress, see the bigger picture, and understand your objectives. However, designing a trading strategy is one thing, and following the rules you set for yourself is another. Your trading system allows you to neutralize all types of worries. Worries arise when a trader deviates from their own rules.
- Backtests: An essential element of trading activity. Know precisely when to open a trade, understand the percentage of successful trades for your tools, and be familiar with the stages of market analysis. Print out information about your personal business (trading). Keep track and maintain records. Stop gambling on the exchange - trade professionally.
Psychological Correction:
Taking breaks and rest is just as important as everything else in trading. How you spend your time off is up to you, but it’s essential to know when to take a pause, especially in the following situations:
- After several consecutive stop losses: Set a critical point for losses (a percentage of drawdown on your trading account) for the day, week, or month, depending on your trading style. For example, my critical point is a 1% drawdown within the day. Once I reach this point, I shut down my computer and stay away from both charts and trading terminals. Sometimes, I might do backtesting, but it doesn’t really help since my mind is not in a cool and rational state.
- Avoid trying to recover losses: Understand that trying to recover lost money can only worsen the situation. The money is already gone, and losses are a part of any business, including trading. When you reach your critical point, switch off, spend time with your family, go to the gym, or engage in your hobbies. Remember, the market will always be there, and trying to force trades to recover losses may lead to more mistakes.
- Profitable trades: It’s also essential to take a break after a profitable trade, whether it’s a large one or a series of successful trades. Why? Because you might become filled with euphoria, thinking that you’ve hit a bright streak in trading. This can lead to a lack of focus and reduced responsibility, potentially increasing your risk per trade or neglecting stop-loss orders. Be mindful of this pattern.
Things are going well? Great! Take some of the earned profits and treat yourself or your loved ones. It’s essential to reward yourself and feel the rewards of your hard work. While the money is still on the exchange, it’s 100%, but once you withdraw it from the exchange, it becomes real currency ($). Remember that there’s no need to amass all the money in the world. It’s not practical and doesn’t make sense.
- Freedom: Trading can grant you the most important thing - freedom. Financial freedom, freedom from being tied to a specific job location, and the ability to manage your time. However, this freedom can be truly embraced only when you strike a balance between work and rest. If you find yourself constantly glued to the computer, trying to grow your deposit with thoughts like “I’ll rest when I reach $100,000” or denying yourself pleasures with the belief that “I’ll buy a coin with this money, and it will grow,” you become a prisoner of this never-ending cycle.
Don’t seek entry into every trading opportunity within each price zone on the 5-minute timeframe. Eventually, you might lose enjoyment in trading. Living solely for the market without emotional diversification can put you in a difficult position. Find harmony between work and leisure - that’s when you’ll truly enjoy the process. Remember, it’s essential to take breaks, unwind, and have a balanced approach to trading. This way, you can experience the true pleasure and freedom that trading can offer.
I would like to recommend the following books for you to read or listen to. They are not all about trading, but they will help you in one way or another in shaping the Trader’s personality:
- Darren Hardy: “The Compound Effect: Jumpstart Your Income, Your Life, Your Success.”
- Stephen R. Covey: “The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change.”
- Robert Greene: “The 48 Laws of Power.”
- Mark Douglas: “Zone Trading.”
- Brett N. Steenbarger: “Trading Psychology.”
- Nassim Taleb: “The Black Swan: The Impact of the Highly Improbable.”
- James Clear: “Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones.”
- James Clear: “Adapt Strategy to Low Timeframes.”
- Mark Douglas: “The Disciplined Trader: Developing Winning Attitudes.”
- Morgan Housel: “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness.”
