10 Ways to Manage Your Trading Psychology – a Blueprint for Development

Experts suggest that 80% of your trading outcomes can be attributed to your behavioural and psychological interactions with the market.

It is your mindset that determines how well you comply with good trading, even if you are sufficiently disciplined to adhere to a written trading plan, have the motivation to even write such a plan in the first place, commit to measuring your trading as logic would suggest is prudent, and do the “tough yards” in learning how to trade.

Let’s get real…
Compared to the relative ease of learning a new indicator or grabbing someone else’s system to
trade, this is hard for many, and falling short in this aspect of your trading (which many traders do)
may ultimately be the reason why the majority of traders appear to be less than happy with their
results.

However REAL practical advice is often relatively scarce. One need only look at how the internet is
brimming with advice on which indictors to use for entry, with only scant reference to the
behavioural aspects of trading, usually summed up in a trite statement along the lines of “you must
be a disciplined trader”.

This article aims to address some of these practical issues through providing 10 possible tactics that
may help.

Your ten tactics:
1. Awareness and acceptance is critical. Unless you accept where you are now with your
thinking, feeling and consequent behaviour, you will not move forward.

2. You have a complete trading plan that articulates trading actions before you enter and once
in trades i.e. an exit strategy. The ambiguity of many trading plan statements, although
better than not having a plan at all of course, does not serve in creating consistency in
action in the “heat of the market”, leaving the trader more open to straying from that which
was original planned.

3. Start a journal. Sometimes the very process of formally recording what you are doing helps
in doing the right thing more consistently. Of course, a journal will enable you to identify
what you are REALLY doing and what contributed to decision making, is crucial to be able to
pick up common threads that can be identified easily ad subsequently worked upon.

4. Press the “reset button” on your trading account NOW. What we mean by this is an
acceptance that your trading capital is what it is now. There is little point and it does not
serve a positive, committed mindset if you are “stuck” in what has gone before. If you have
been on the receiving end of ‘donating’’ a proportion of your capital to the market through
ill-discipline. Take your previous results as feedback, use it as the motivation to act on what
has been happening. This is VITAL!

5. Re-align with your trading purpose and plan prior to every trading session. Reminding
yourself of what you MUST do and why you are doing it should be part of your daily trading
ritual.

6. Make it a mission to “challenge” your existing plan on at least a 3-monthly basis through
gathering an increased weight of evidence that its component parts are working for you as
an individual trader. This breeds confidence in actioning a plan, enabling more disciplined
trading.

7. Beware ‘unhealthy’ statements, both externally that you may hear flying around the
investment world, and the internal language that “pops up” in your head whilst trading
(although this can give you clues about what is happening with you). For example, “do not
invest with money you can’t afford to lose” (it makes no sense to go in to the trading arena
with a mindset that it is ok if I lose my capital), or even worse, “it is not a loss until you take
it”.

8. Take regular breaks from the market during any session, particularly when trading shorter
timeframes, to re-align with purpose and plan, and to mentally press your “reset button”.
Remember, research suggests you are your optimum concentration level (without changing
an activity) for around 20 minutes. Use “gaps” in active trading to do other things perhaps
e.g. make a journal note, get your “books” up to date or even re-align with an article that
has previously made a difference. These are potentially far more fruitful than purposeless
screen watching, simply observing positions move up and down. Additionally, of course, this
change in activity could be helpful in maintaining concentration when you re-check in with
your positions.

9. Ensure that you are trading within your level of competence i.e. Trade ONLY what you have
learned, you are more likely to revert to unhealthy actions if your confidence is low relating
to what you are doing.

10. Trade smaller positions until you have evidence of developing good consistent habits that
break away from your current less healthy trading state. There are a few different ways to action this, reducing your
tolerable risk level significantly per trade e.g. from 3% to 1% of trading account capital, or
trading micro-lots rather than mini-lots are a couple of examples.

Look down the list above and choose 2-3 that resonate with you to focus on in the first instance.
Master these and then move onto the rest with the confidence that achieving a developmental goal
often provides.

Finally, as we have discussed before, be gentle on yourself. There is no point in beating yourself up
emotional for mistakes you may have made in the past as this is unlikely to contribute to taking
some positive steps forward. There is NO successful trader we have come across that does not
subscribe to continuous learning, including in this context of course, the learning you must do about
yourself as a trader.