Understand your trading mindset and stop the blame game

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What type of trader are you?

Have you ever had one of these trading days?

I can recall a particularly miserable trading session where the market seemed to be hunting for my stops.

I went long just to have my position stopped out at the low tick.  I reversed and went short, and got stopped out moments thereafter.  In frustration I went long again just to get stopped out before the market took off to my original forecasted profit targets with me standing on the sidelines screaming to get filled.

At this point I was already past my pre-determined max. loss for the day but here I was saying to myself, “If I can just get this one winning trade I can set the ship right”.

After what felt like an eternity the market pulled back and I took a long position just to see the market selloff stopping me out moments after getting filled.

4 wrong trades in a row, I’ve blown past my max. drawdown limit, and i’ve badly hurt my equity curve and emotional capital.

I threw my hands up in frustration and extricated myself away from my trading desk and tried to find something anything to get my mind off of trading.  After several hours my anger receded and I found myself wondering if anyone else had this kind of trading day?  I surfed over to the various trading forums I used to frequent to pour over the posts of other traders who had also been chewed up and spit out by the markets.

In an odd and perverse way I felt better knowing that I wasn’t the only one who’s PnL was in the red.

Misery loves company right?

And therein lies the problem.

At that time whether I acknowledged it or not I was a victim.

I would have days and weeks of trading success just to have these type of trading sessions that would wipe out all of my trading gains and worst of all it felt like I was giving back all the progress I had made in my trading.

This pattern would repeat itself time and time again until I gained an insight I will share with you in this article.  No it’s not a fancy indicator, a stop loss strategy, or chart pattern, it ultimately comes down to a mindset.

Unfortunately too many traders I see still operate from a mindset that will only lead them down a path of struggle and frustration.

What type of mindset do you need to be a successful trader 

Ultimately all of us have our own paths to take as it pertains to achieving trading success but it all begins with the mindset.

As it pertains to the worst and best traders I see 3 prevalent mindsets.

  1. To Me
  2. By Me
  3. Through Me

The real art in trading takes place as we move beyond proficiency, when trading becomes an expression of our essence.

Stop being a victim

The “To “Me” mindset is your classic victim mentality.stop

Most if not all new traders begin with this mindset as all the answers to trading problems in the beginning appear to be external in nature and beyond our immediate control.

Likewise traders who are struggling are often stuck in the victim mindset and blame all their failures on external causes.

Check out any popular trading forum and I daresay you’ll see dozens of traders posting on how everything would be great in their lives except for the fact that the markets are corrupt, or that HFT is unfair, or that a broker/bank is front-running, etc., etc., ad infinitum.

In fact some people get their sense of significance and importance based on how much of a victim they can be.

The more wronged they have been the more just their cause.  

My only guidance to those who are trapped in this mindset is that it pays no one to be a financial martyr.

Give up blame

[Tweet ““I stopped fighting reality a long time ago, it kept winning””]

Give up blame.  Blame doesn’t work anywhere in nature, and neither does it work in trading.

The point is to take root in reality and not on how things should be.

The quicker you can accept things for how they are vs. how they should be the more rooted in reality your decisions will be.

After the 2008 crash too many traders stuck with their bearish biases and missed out on the massive upside rally because they refused to believe that the whole world was not ending.

The only thing anyone wanted to speak about was how the US Fed was dropping money out of helicopters and that US dollar should collapse, or that the Euro zone was in political shambles and that it should break apart, or that all fiat money systems should fail, etc.

Does that mean I advocate simply turning a blind eye to these unfair and often times unjust conditions?

Not at all.  But don’t let your biases blind you from seeing how things really are.

If you don’t believe me think about this real world scenario.

Say you were one of the unfortunate ones to have lost their jobs during the downturn, how good did it do you if you spent weeks or months dwelling on the great injustices leading to your termination?

Sure there is a certain guilty pleasure that can be found in misery but the reality is the sooner you can accept you’ve lost your job, the sooner you can begin making intelligent plans to find new employment and opportunities.

Just remember the old market adage, [Tweet ““Price is the only thing that pays”; reality pays.”]

Give up blame and replace it with personal responsibility.  

Most traders who manage to survive the early trading struggles, evolve away from a victim mindset and shift to a mindset based on personality responsibility.  

A key tenet in Stoicism states, [Tweet ““You don’t control the world around you, you only control your response to the world”.”]

The trading plan is the quintessential tool for maintaining and operating from a place of personal responsibility.

The term “personal responsibly” is often tossed around and can carry many connotations but if we break it down to it’s core all it means is having the ability to respond.

That being said it is still surprising how many traders I interact with who trade yet have no defined trading plan.  In many ways they are literally flying by the seat of their pants each trading session and absolving themselves of personal responsibility by impairing their ability to properly respond.

The trader who has a properly and thoroughly researched trading plan and follows it with discipline is taking control of their destiny irregardless of outcomes.

This is a huge improvement from the victim mindset as it shifts success from being something external to one where if success is going to happen it is going to be because you made it happen.

Stop fighting the market. 

Ask any trader what is the most difficult aspect of consistent, long term trading success and one of the top answers you’ll hear is dealing with the day-to-day grind of trading.

Take what we do as traders –

  • We wake up at the crack of dawn each morning to scan the news/charts for potential opportunities.
  • We sit and stare at screens all day long until ours eyes go dry and our bodies atrophy waiting for an opportunity to pounce on.
  • We struggle emotionally and psychologically dealing with the spectrum of losing and winning streaks.
  • We spending time away from our families and loved ones reviewing and analyzing our trades looking for patterns that might one day be profitable.
  • We struggle against an ever-changing competitive landscape that can often times be downright hostile.

Now rinse and repeat this each and every day, for 251 days a year if you’re an intraday trader, and you get why it’s a grind.DSC_0005

How do we overcome the grind?  We stop fighting the market.  We replace the grind with flow.

Have you ever felt so in-tuned with the markets that it felt like you could do no wrong?  Where your trading was so effortless and in tuned with the markets that it felt like you could see around the corner?

If so you were trading in flow.

Trading in flow falls into the last mindset – “Through Me” – and it is rarefied air.  Great traders live here and good traders who bust their hump catch occasional glimpses.

Relinquish the need for control

The essence of “Through Me” is the decision to relinquish the need for control.

It is the ability to release the death grip on what you think reality should look like and instead accept reality for all its uncertainties and infinite outcomes.

For many years my trading was like the proverbial bull in a china shop.  It was exhilarating and exhausting.

Time and time again I would take a position and I’d be glued to the screens watching each and every agonizing tick.

In my mind the trade should have been instantly profitable and gone on to hit my prescribed targets.  

But when the trade did not materialize how I thought it should play out I would panic and I would either close out the position early because of fear or close out the position before the intended target because I was uncomfortable holding onto the trade.  

And worst of all if I was actually wrong and was stopped out, it would only amplify my fear based mindset and negatively affect my future trades.

The funny thing is that stress is just reality not fitting your mental pictures.

The mind likes to think in straight lines but in nature there are no straight lines.

And so it is in the markets.  Seldom if ever do you see a stock/market move in a straight line.

So manage the process but don’t be tied to outcomes.  Put another way, relinquish the need to try to control each tick and take joy in controlling what you can control by believing in a bigger picture – do it for the joy of your process.

Conclusion and Take Away

Let me conclude this article with the following quote from the Chess master Joshua Waitzkin-

“The moment we believe that success is determined by an ingrained level of ability as opposed to resilience and hard work, we will be brittle in the face of adversity.”

The key principle is to move away from a mindset where you think life happens to you and shifting towards a mindset where life happens for you.

Build your trading plan to give yourself the space and slack to be right but not so much that it can hang you.  Then get out of the way and release the need for control by trusting on a greater outcome.

The outcome may be that you don’t get rich overnight but in the process, if you have the right mindset you will have learnt far more along the way about yourself, the market, and you will find yourself far further along than many of the traders who are still playing the blame game.

Understand your trading mindset and stop the blame game

by editor time to read: 8 min