TRADING: A MIND GAME – Probably the Most Important Aspect in Trading

There are many opinions and angles on “what’s hot and what’s not” when it comes to trading on any global market. Some “specialists” claim that without being highly educated in any given market field would lead straight into disaster, the others are prone to saying that everyone can learn how to trade, over period of time. The truth is as always somewhere in between.

I am not going to go into discussion about who’s right and who’s not, or are the Fundamentals or Technical analysis the right tool, or even about strategies, systems and Risk management … No, here I am going to talk about probably the most important aspect of trade when it comes to The Trader – his/her ability to control his/her own mind while trading.

Long time ago , I have seen a study showing that traders brain functions with only 20% of it’s usual capability , once the trader opens a position ( I would say that it covers the period from the moment trader starts getting ready to open it, till the moment the position is finally closed ) .

So, it is definitely The Mind’s game – so let’s bring some light on the issue.

You must change your mental attitude first from a normal person to that of a speculator. Almost all traders I have met, except a few successful ones who really made millions and billions trading in the market, simply waste all their time trying to learn the easiest part in perfection, like about how to read the data and charts, and trying to perfect entry and exit skills, etc. Trading is a mind game and without having a right frame of mind, it is a losing game even before it starts. Training a trader’s mind is the first step for any successful trader but almost all new traders neglect that part and that explains why more than 95% of traders are a failure in the long run.

Acquiring the knowledge and learning from daily news and analysis of the market is not difficult for anyone with average intelligence, after a few years of hard study in the market. But it is neither the level of intelligence nor the knowledge that decides the outcome of the market operations of a trader. It is the decision making process that is so hard for most traders to overcome and that is the main reason for a success or a failure for all the traders. Some find it easy to make decisions and stick to it and most find it too hard or almost impossible. Unfortunately, any decision making process in trading is a pain-taking process and humans tend to avoid pains and go for pleasures even if for temporary ones. Assuming one has acquired enough market knowledge and acquired one’s proven trading system (this is the second most important element of success in trading, in fact). An edge in any system is based on the quality of info one has.

Through studies and research, a trader faces the task of making decisions to put this knowledge and system into practice. Then, how many traders can honestly say they can commit their well being when the trade is suggested by their own system (given that trading is just a chance game) and let the profit run for weeks and months when their system tells them, and how many can manage to cut the losses as a routine process when the situation arises. It all sounds so easy when saying it, but so difficult when doing it, affecting real money in the market. I still do not sleep well when I am running position because even if the profits are running into a few thousand dollars and the system is telling you to carry on, there is no guarantee that the profit will turn into a yard or two in a month time, and it may even turn into a loss in a day or two when something unexpected happens. A pain-taking process in real sense. The pain is – not knowing what will happen in the future and the fear of losing. So at the end of the day, assuming one has decent trading system and market knowledge and decent info, it is ultimately how disciplined and how well that trader can take the pain of making right decisions at the right time that decides the outcome of the trades. Hence I call trading a mind game.

To be able to overcome all that fear ( of losing ) , a trader has to do a thorough back testing of the system in use, for as long as data let’s it, without lying to himself ( like : oh I would/wouldn’t take that trade ) , do the full statistics, come to exact Probability  , apply proven Risk management control – from R/R , S/L to Leverage levels .

Once the technical part is done, there is only one thing to do – To Execute!

But sitting on positions and watching the counter-rallies costing truck load of money is not an easy job to do and causes lots of pain all the time. Most traders even among experienced ones cannot bear that pain and give up too early. But there is no other way to make a big money and we have to bite the bullet and “sit and accumulate” as long as the medium-term trend is intact. That is why I always believe psychological aspects of trading are far more important than anything else in successful trading.

Entries and exits can never be “irrelevant” for any trader for any purpose. It is just that psychological aspects of trading are much more important than entries and exits, and decisive for the success or failure of a trader in the long run. Perhaps exits are more important than entries because any perfect or near-perfect entries are possible only in hindsight.