Trading has often been associated with complicated charts, lines, and technical theories. The emphasis on the analytical part of trading is so much that it is usually ignored that the mindset is as important as your analysis. There have been so many scenarios where the same system is used by two individuals, with one individual consistently reaping profits. At the same time, the other person drains his trading account with consistent losses. Hence it becomes imperative to be in a particular psychological state to trade successfully in the markets. We present to you specific characteristics of the mental state that successful traders incorporate in their trading philosophies, allowing them to ride through various market cycles:
- Small Gains over a Long period – Many people tend to associate trading with huge gains occurring overnight, making millionaires in the process. However, our experience suggests that vast fortunes are swept away in the same fashion they are earned. Huge gains lift the trader into a state of frenzy, leading to overconfidence and a final blow-up of capital. Therefore, all successful traders believe in small gains stretched over a reasonable period, allowing them to continue trading in the market for more extended periods and reap profits consistently.
- Rule-Governed – Every successful trader has a system that he follows. The system is tested thoroughly before being implemented. Once the system is implemented, successful traders follow their systems religiously. Overriding the method is one of the biggest mistakes most beginners make while trading, and this leads to significant loss of capital. Developing the system is one of the most critical aspects of successful trading, which becomes even more complicated when the system goes into a drawdown. Most traders tend to deviate from their system when faced with consecutive losses, forgetting that drawdown is a part of every system. Hence any trader must follow his system to profit consistently in the markets.
- Trade to Trade well: A popular misconception among people is to have the net gain of their trades in positive. Although this approach is commendable, and it is a great achievement to have a green in your balance at the end of the period, there are certain practicalities associated with it. Consecutive losses force a trader to re-evaluate his strategy, and the pressure related to consistent losses can create situations in which the trader will try to over-ride his system. Also, if the number of positive trades is low in your system, and you miss out on the profitable Trade due to any circumstance, your entire account balance is affected. Hence I recommend that instead of trading for gains, “trade to trade well.” By trading well, I mean an above 50% accuracy in your trades, systematic stop losses, and targets and avoiding severe drawdowns. Risk management is also one of the essential aspects a trader should keep in mind to keep risk within manageable limits. High risk creates chances of wild swings in the portfolio, which can detract the discipline of a trader.
- Positive outlook: I cannot emphasize enough on the importance of this aspect of trading. Without a positive outlook towards trading, a trader will almost certainly give away all his capital to the market. A positive outlook towards your system and strategy is critical while trading. Venting frustrations on trading can be disastrous, specially during a drawdown phase, which can become prolonged and magnified due to inept discipline.
- Analytical Thinking: I always recommend to traders that instead of scanning for quick gains or sudden swings in prices, try to search and understand the factors that create those gains. Every profitable Trade is not just a favorable move in price; it is a culmination of a specific set of factors that cause the price to move in your favor. Please note that by factors, I don’t mean a technical indicator flashing a trading signal. The reason that indicator is flashing the sign, combined with the overall outlook of markets, makes the indicator much more reliable and practical. If you understand those factors, you’ll be able to identify them and Trade at profits consistently in the longer run.
The strategies mentioned above not only increase your profitability but also allow you to become a better trader with each passing day of the market. I hope these strategies help you in your trading endeavors and boost the profitability of your account.