What Does The Mindset Of A Profitable Trader Looks Like?
It’s easy to understand that what differentiates a beginner from a pro-trader is the mindset.
After all, good trading behaviors can’t last long without the right mindset, neither good trading habits can be implemented without it.
We all hear about the importance of a switch in mindset for achieving trading profitability. What we don’t hear so often is what does this mindset switch means. And more than that, what does it take.
We are not made to be traders!
As humans, our brains were made to avoid pain and search for pleasure; they were also made to seek certainty everywhere, in everything we do. This is the major way our bodies have to save energy: by predicting the near future.
When we are exposed to a similar situation of the past, why experience it all over again like it is the first time? Our bodies make sure to recall the emotional response triggered in the past. This emotional response leads to the same behavioral response and when you repeat this behavior for too long and too often, it’s transformed into a habit meaning, the information passes to your unconscious brain. That is how the body can save the biggest amount of energy. This extra energy saved is used for other more important activities from our daily lives like learning a new skill.
Throughout our lives, we built certain habits that saved us a lot of time and they still are helpful in certain skills. However, when it comes to trading they are completely unproductive.
This happens simply because the nature of the markets goes against what we are used to experiencing. We see ourselves in an uncertain place, where there are thousands of changing variables and the only thing you can make stable is your behavior in the market.
The trader that is just starting out has no clue about all the skills required to be profitable in this business. He/she doesn’t even know that her/his mental framework needs to be rebuilt in a totally different way.
Trading requires a very different approach from other skills and at the same time, needs to be treated like any other business. You need to unlearn to start to learn.
In the following scenarios, I contrast the difference in the mindset of a neophyte and a professional trader facing different situations in the market. Hopefully, you can review yourself in certain situations and if needed, make a change from there to get closer to the mindset of a professional trader.
Let’s explore them:
Situation – One loss
Beginner – There’s something I did wrong. There has to be a way of not losing. Losing means being wrong.
Pro – Nothing more than business costs. Did I respect my strategy? Did I perform well? If yes, there’s nothing to worry about. Losses will always be there, I just have to know how to reduce them.
Situation – Price moving in the opposite direction of the trade
Beginner – Please go back up I can’t afford to lose another trade. If I lose this trade I have to fix my strategy or switch it. Losing this trade means my strategy doesn’t work. I have to exit this trade as soon as possible before the market stops me out!
Pro – What is this telling me? Is this telling me something useful about the trade? Is this a retracement or something I should pay more attention to? I know the market doesn’t go in a straight line so as long as my trade invalidation rules don’t present, I’m remaining in the trade. If I lose, I get extra information about the market that I can use in my next trade. Is this a good opportunity to add to my position?
Situation – No setups during a long period of time
Beginner – I need to be active in the market. I can’t make money if I’m not doing business! I need to find a trade setup as soon as possible! I’m not leaving my laptop until I find something. Maybe I should widen my watch list just for this time. Who knows if I can find something to trade in other pairs.
Pro – If my setup isn’t there, I’m not gonna force a trade. The market gives me information upon which I apply my strategy. If there’s no signal, there’s no trade. Quality is more important than quantity. I’m not gonna risk my capital to take a trade outside of my strategy. I keep the most neutral view as possible. I have a life outside of the charts; If I have nothing to trade, I have other stuff to do. Trading more pairs doesn’t mean more money.
Situation – Winning streak
Beginner – I’m a God! Finally this strategy works! I deserve this, I feel unstoppable! I master this, I cracked the code! Was about time! The market does what I want it to do. In the next trade, I will higher my risk to win big!
Pro – The chances of the next trade being a loser increased a lot, therefore, I have to be extra careful with my decisions and keep a clean mind to hold a neutral view. This is the time to be extra aware of my emotions because they can lead me to stupid mistakes.
Situation – A missed trade
Beginner – I could’ve caught this trade! I knew it would go in my direction! Next time I just have to take it because I was right! The pain of having lost this move is bigger than anything else, I’ll just gonna enter here before it keeps going higher and I miss the whole move. I could be winning X amount of money right now. I gotta find another opportunity fast!
Pro – In an infinite market, I missed one opportunity. I know my edge and I trust it. I can’t catch all the opportunities in the world nor I should blame myself for that. Why did I lose this trade? Was it because of my emotions? Was it because I was not in the charts? Because I doubted to enter? What made me doubt? What can I do next time to not miss this trade? I’m confident in my strategy and in my ability to trade it and I don’t get impatient with a simple missed trade. Bring on the next opportunity.
Situation – A losing streak
Beginner – This strategy sucks. I am a loser. Now I have to get all my money back and it better be fast! I should’ve not made that mistake I knew it was wrong. The next trade will probably be a loser again… The market is against me; for some reason, it keeps misleading me!
Pro – Regarding the law of probabilities, there’s a higher chance the next trade will be a winner. What is this losing streak telling me? How can I best deal with this losing streak? My risk management is what gonna save me from this dark period. This is a reminder to remain disciplined. What matters is the long-term view and I need to look at the big picture. My performance was amazing that’s all I care about. Results are up to the market. I’ll lower my exposure until I get my loss back. Gonna analyze all my trades and see if I find a recurrent pattern for this losing streak. Enough of charts for today, I’ll get back when I fully re-charge my emotional battery and confidence. When I come back, I’ll be mentally stronger.
Situation – Price is going in my favor
Beginner – I’m the best! This one will be for sure a winner! If price doesn’t reach this specific target, I ain’t gonna take my profits! This money isn’t enough for me, gonna hold the trade a bit longer. It’s just raising a bit more…
Pro – I know the market is unpredictable so I use an approach that permits me to manage my trade in the smartest probabilistic way that is: Taking partial profits. I have no problem paying myself often. I accept what the market has to offer me in many targets, not just a fixed one. The market does what it does, not what I want. I’m risk-free on this trade and I took one partial already, what happens next is up to the market. I assured profits.
Situation – “Perfect” entry
Beginner – I’m the best look at this entry! More accurate couldn’t be! This is already a winner! My work is done, price is going in my favor and it can’t reverse back now, impossible!
Pro – First step of the trade is accomplished. The real work starts now: pushing stop loss to break even, taking partial profits, scaling in, observing price to see what it tells me about the quality of this trade. The entry is only the very first step of a good trade. Without good trade management, a perfect entry is worthless.
Situation – Trading a small account
Beginner – I’ll go nowhere with this account. I’ll get disciplined when I trade a bigger account but for now, all I want is to make money.
Pro mindset – The aim of trading a small account is not to make money, is to develop the good trading habits that make that money. All that matters is the percentages, not the amount of money I make. I acknowledge I only can pass to a bigger account when I can be consistent with this one which only is possible if I get good trading habits right from the beginning. Money comes as a consequence of my performance.
Do you see the difference in mindset?
Could you review yourself in some of these thoughts?
A professional trader…
- Accepts the uncertainty of the markets;
- Plays with probabilities because he/she knows it’s all that can be controlled;
- Is in peace with any outcome because he/she is confident about the edge;
- Has no problem with loss because he/she no longer associates it with being wrong, but as business expenses;
- Values his/her performance more than the results of each trade;
- Relies on the big picture to make conclusions about the strategy;
- Respects his/her trading capital by not risking too much. He/she knows that there’s no need to risk more to make more money;
- Respects his/her emotions and doesn’t try to shut them down or ignore them. Instead, he/she uses them as an alarm to raise awareness;
- Has a life outside of the charts that provides him/her the balance needed to offer full focus to trading;
- Has the desire for self-improvement.
Trading is a long and lonely journey: there’s nobody that can walk this path for you. You need to face your flaws, accept them, and have an extremely big desire to change for the sake of your trading success.
Now I have a challenge for you.
The goal of this challenge is to make you adopt the mindset of a professional trader faster and in a simple way.
Here we go:
1) Write down each of these market situations on paper;
2) Next to each situation write the way you would like to react to it, the next time you face it. Write as well what you need to improve in your behavior regarding the situation.
3) Keep this paper right next to you when you start your trading day.
4) When you face one of these situations go to your paper and read the way you want to react to it: your desired behavior.
5) Contrast the emotions you’re having at the moment with the behavior you want to have: Do they match?
6) If yes, perfect, keep going. If not, stop trading and go do something that re-establishes your emotional balance.
This is all you need:
1- Awareness – to spot the emotion flow;
2 – Interruption – to break the autopilot mode;
3 – Replacement (of the bad behavior with a better one)
4 – Repetition – to implement a change that lasts forever!
The simple fact of raising awareness is halfway to changing your perception of the event. This is how you break the cycle and start actually building the mindset of a professional trader!
Remember, repetition is the key to habit development. One good attitude doesn’t assure you’ll change, but a series of good attitudes do.
Until next time,
Have a great trading week and…
Reach me anytime 🙂
Contact Sara at firstname.lastname@example.org
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