New traders always seem to focus on finding the right system to trade. They feel that with the right system they can easily become profitable and trade winner after winner with no problems. The fact of the matter is that even with a good system 95% of all traders will still fail. This is because they haven’t developed the mindset of a successful trader.
The mindset a trader has is their thought patterns or how they respond to outside stimuli and events. It stands to reason then that if we can train our minds to respond to markets and trading situations with the proper patterns we can expect to become more successful in our trading.
Earlier I said 95% of traders will fail even if they are using a successful system to trade. This is because each of us process information differently. And while we all respond differently to various events and information, there are two constants for every trader. These constants are the emotions fear and hope. We all have them to some degree and how we respond to them as a trader can help determine our success.
In trading it is too easy to fall prey to hope. We hope price will move in our direction. We hope to correctly gauge market direction. We hope to have a winning trade this time to offset prior losses. When our hopes are not realized we often begin to feel fear. We fear losing money, we fear being wrong, and we fear not realizing our dreams. Fear and hope can color our trading decisions and make us take unreasonable risks.
Rather than let hope and fear control our decisions we need to build the mindset of a successful trader. We do this by creating positive feedback loops that allows for increased confidence and the ability to calmly accept both losses and wins in the market. Setting up a positive feedback loop teaches us to believe that positive actions lead to positive results. These positive results then lead to more positive actions and the loop continues.
Building such a positive feedback loop means we must take a holistic approach to trading. We must have all the proper components in place. We should be trading with sufficient capital, should be in the right market, should have a good trading system, and have a money management system to limit risk. We cannot get rid of risk in trading, but we should strive to limit the amount of risk we accept. By limiting risk we can feel like we are in control, and this sets up the positive feedback loop.
By creating the positive feedback loop we also create the mindset of a successful trader. There is a saying that one should buy when there is blood in the streets, but who has the nerve to buy when everyone in the world seems to be selling. The person who has learned to harness the power of positive feedback and has created the mind of a successful trader, that’s who. Will that be you?