The Professional Trader's Mindset

The reason why traders need to think differently.

How to view the market and think like a pro

  • The thought processes and principles that we use in everyday life simply do not work well in the trading profession. The trading environment is categorically different from anything you have been trained to deal with effectively by society.
  • In everyday life we are taught to avoid risky situations, whereas when trading, we need to embrace and accept risk.
  • Effect does not equal reward. There is no relationship between the time we put into trading and the returns we generate. This is completely different from the “work hard and get rewarded accordingly” mentality most of us are raised on.
  • There is no guaranteed outcome for a trade, no matter how much evidence we accumulate. There are far too many variables to ever expect a definitive result. Therefore, we need to train ourselves to think in “probabilities”.
  • Beliefs are very difficult for people to change. We tend to hold onto beliefs even in the face of contradicting evidence. Trading requires us to have the ability to always view the market objectively, and not to try to control the market with our expectation. Simply put, the market is always right.

Accepting Risk and Loss

  • Traders must truly accept, and be comfortable with the risk of a trade. Every time you place a stop loss you must accept the fact that it can be hit. Not accepting the risk will cause you to move stops further away, opening yourself up to larger losses. It will also cause you to hesitate when opportunities arise, and stop you from closing a trade if the situation changes.
  • Losing is part of trading; there is no way around it. Every trader has losses and drawdown. One trade is a small part of the overall bigger picture. Stay focused on the bigger picture. Analysing all individual trades and drawing the right conclusions is essential to reduce future losses and to achieve better results overall.
  • Look at everything in percentages, not monetary value. Many new traders get focused on the dollar amount of the trade, instead of the percentage value. This is particularly helpful when you are switching over to trading larger amounts that you are used to dealing with in everyday life.

The work/effort vs reward conflict

  • Many new traders are coming from, or are still in, a 9 to 5 type of salaried work setting, where the amount of time and effort you put in directly impacts the amount of money you make.
  • Traders can literally make a lot of money in seconds with very little effort, or spend days analysing and looking for a trade, without a probable opportunity. This means you can work for several days without seeing any money moving your trading account.
  • This causes many new traders to “create” opportunities that are not in their best interest because they feel like they need to be making money all the time. This typically has the opposite impact on your trading account.
  • Our job as traders is to wait, find, and execute the best possible trade opportunities. Sometimes the best action is no action. Overtrading or forcing revenge trades after losses mostly leads to further losses, sometimes with catastrophic consequences.

Thinking in probabilities

  • The market is notoriously difficult to predict because there are simply an incredible number of variables driving currency flows at any given time. There is no perfect analysis technique or strategy that will infallibly predict price movements. The often looked for “holy grail” does simply not exist.
  • In everyday life, our environment is mostly static with very predictable outcomes for every action we take. We also have the ability to change factors in our environment to meet the desired outcome of our actions. This is not the case in the trading world where things are always changing, very fluid, and where we have absolutely no control over the environment.
  • This requires us to change our thinking from definitive outcomes to probable ones, and accepting the fact that we can’t control them. No matter how much we try.
  • This understanding amplifies the importance of proper risk management and not overleveraging.

It’s not over till it’s over

  • Unrealized profit is just that: unrealized. Most new traders realize it, and are putting those profits in the bank as the trade is ongoing.
  • The market does not move in a straight line. There are pullbacks from profit taking, short term drivers, inter-market factors etc. One look at a price chart will confirm this simple fact.
  • When you are booking the profits as the trade moves, and banking those pips in your mind, psychologically your brain shifts to loss mode every time the market naturally pulls back.
    Now in your mind you are “losing” money, when in reality you are still in a good trade for the same reasons you entered with your original target.
    Nothing has changed except the perception of the trade in your mind.
  • Stay focused on the original reasons for your trade. If those reasons haven’t changed, and there is no reasonable explanation to change your original assessment, simply manage the trade by reducing risk and locking in profits with trailing stops as the trade moves.
  • If you fail to do this, you will very likely never hit a profit target.

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