The Psychology of a Successful Trader
“Do you want to sound smart and lose money or make money?”
The above question is something my mentor has asked me repeatedly over the years. I, like most traders, have a bad habit of overthinking.
“Is the Fed going to continue easing?”
“What does the latest GDP data tell us about the economy?”
“Is the top in?”
These questions and a dozen others are always floating in my head when I go to make a trade.
Almost all of it is useless. And I’ve had to work EXTREMELY hard to turn off this part of my brain when I’m trading.
The world, particularly the financial world, is awash with highly intelligent-sounding people who lose money trading on a regular basis. It’s almost a given at this point that the more followers someone has on Twitter, or the more often someone appears on CNBC, the worse he or she is at actually trading the market.
How do I know this?
Because talking about the markets is a WHOLE LOT easier than making money from them. Indeed, a recent study from Brazil showed than only 3% of traders actually make money. And of that 3%, only 1.1% made more than the minimum wage.
Let that sink in…
Out of 100-day traders, only THREE make money. And of those three, only ONE of them is making more than the minimum wage.
Again, making money from the markets as a trader is EXTREMELY hard.
Why is this?
Because to trade successfully, you need to master your emotions. You aren’t really trading the markets. You’re trading yourself.
If you think about how most people handle things, it’s quickly apparent that they are almost 100% irrational and 100% guided by their emotions.
Almost every time someone says, “I think” what they usually mean is “I feel.” Heck, just look at how people describe themselves when you ask, “how are you doing?” The answer is usually based on an emotion, “I’m happy.”
When it comes to trading, your emotions are a MAJOR handicap. If you want to succeed at trading, you need to learn to look at the markets AND your portfolio without ANY emotion.
This is extremely difficult to do.
Which is why the best traders almost ALWAYS use a systems-based approach to their trading.
With a systems-based trading system, it will help you find trades according to certain rules, giving you clear guidance on what actions to take.
No “I think this will happen.” No “I feel this is looking good.” You want none of that.
It sounds boring. And there are indeed periods of time in which you AREN’T trading ANYTHING. However, systems-based trading can be INSANELY profitable — if it’s done correctly.
Want to see what this looks like in practice?
I recorded a video with a live demonstration of this style of trading.
You can watch it here.
Editor, Money & Crisis