Think Like A Trader Blog

Thursday, 31 March 2016

The Dangers of Trader Mindset Loop

Reading Time - 7 Minutes

Hello Traders.

Today I want to go over something that really destroys a lot of beginners. I’m also going to tell you exactly how I got over it and how I still deal with it today.

First thing is first – trading is BORING. I hate to pop your bubble, but there is no excitement in the trading industry. For the vast majority of the time, you’re simply waiting with nothing to do. It is also frustrating in that you can sit around waiting all day and then a trade can trigger from your zone that you completely miss. That’s trading. You will win, you will lose, and at the end of it all, your aim is simply to be in profit.

So what happens with a lot of people is they get into the ‘trading mindset loop.’ Yes, I made that phrase up, but it’s exactly what happens. Let me break down what might happen in a typical trading day with a beginner:

8am – Watching the charts
9am – Watching the charts
10am – Watching the charts
11am – Watching the charts

Now the boredom and frustration really starts.

1pm – The market reaches an identified zone.
1:30pm – There are no clear signals. It doesn’t quite fit all of your rules but it’s very close and you’ve been sitting here all day. You don’t want to miss it. You jump on the trade.
1:45pm – The market has moved against you. You panic. The market will turn around. Just this one time it will reverse and let you get out at break even.
2pm – It drops back to break even with a strong candle. You knew you were in the right position. You decide to hold.
2:15pm – The market has moved against you. It hits your stop.

Mindset – The market is to blame. It just wasn’t playing the game today. You made a small mistake but that’s ok, you wont do it again.

This happens over and over again. People blow accounts like this and then when the account is gone they are still facing external and blaming the world. The market screwed them. The trading system was no good. The broker took their money.

Blah. Blah. Blah.

The reality is that the only person to blame for losing money is, sadly, you. I’ve been there and I had to face that reality. It’s very tough. But you control your trading and you are the one who ultimately pulls the trigger. If you’re suffering losses, you need to face that fact.

Now let me state that if I was watching the charts all day, I would likely fall back into the habit of making the same mistakes. It was something I noticed that I did and I corrected it. Let me show you how that same day would play out for me now:

8am – Not watching the charts
9am – Not watching the charts
10am – Not watching the charts
11am – Not watching the charts

1pm – My pre-set alarm signals. I go to my computer and look at the chart. It is very close to my zone. I run through my checklist before any signal appears. Is EVERYTHING aligned correctly? Not 70% or 80% but 100% aligned. All looks good. I check the chart every 5 minutes for a signal. None come. One gets very close, but does not quite fit my rules. I ignore the trade.

2:15pm – My account is still exactly the same. I have not lost any money. I have not made any money. My capital is protected.

I do this all the time. I pass up on trades that DO work nicely. I do it because I know that over the long term, being selective works. I don’t care about making points on a Monday or a Tuesday or a Wednesday. I care about living as a full time trader. And that’s exactly what I do.

I scratched out a zone that ended up working very well – I don’t care. My capital is protected.

It wasn’t quite a signal but the market then rallied 50 points! – I don’t care. My capital is protected.

That looks like a Head and Shoulders pattern. I don’t trade those but wow this one is good – I don’t care. My capital is protected.

This is the mindset you absolutely MUST develop to become a successful trader. Do you think someone working for a bank with millions at their disposal takes a trade that is ‘almost’ perfect? Of course they don’t! They would be out of a job in a matter of days.

The most dangerous thing that can happen to retail traders is that sometimes breaking the rules work. There is no management there to reprimand you and all you see is the profit. You build bad habits this way and instead of getting fired you eventually lose all of your money. This is the reality for 90% of retail traders. I’m not trying to be morose and put a damper on your journey, but this is something that needs to be taken to heart and learned.

I figured out that watching the screens was the major problem for me. It actually surfaced again when I dipped my toe into live room trading. I was at my screen. I was letting the trader mindset loop take over. Your issues may be different, but you need to find out what they are. Stop blaming the market and stop blaming the system (unless the system is genuinely a con!). The problem is internal. As soon as you face that and start to correct it, you will become a better trader and you will see the results begin to work in your favour.

I set alarms on the chart. I do not watch the market until those alarms trigger. When they do trigger, I have checklists pinned to my wall. I’ve been doing this for years now and I still run through those checklists before a trade. I read them, even though I have them to memory. I read them because it makes me look away from the chart and consider each one without the market in the picture.

The mistakes won’t correct themselves no matter how much you convince yourself you ‘wont do it again.’ If you want to succeed and be a profitable trader, find your problems and work at every one of them so you can manage them all.

Don't be one of the 90% who feed the market!

I hope you’ve all had a great trading week!

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