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How To Think Like A Professional Trader

By August 25, 2020 how to

Knowing how to handle psychological conflicts is as critical as developing a highly detailed risk/money-management strategy and trading methodology. When all the components function in parallel, nothing stands between you and your successful trades.

In reality, trading psychology is often ignored. Many traders mistakenly prioritise developing solid trading methodologies over the psychological component of day trading, believing that is all that’s required to profit.

Those traders who are incapable of managing their emotions while operating in the market, regardless of the trading methodology, their chances of becoming profitable are extremely low.

Thinking Like A Trader

In the times of high-pressure circumstances, the way you think or react determines the outcome. Generally speaking, trading is a challenging task if you choose to trade yourself. Should you wish to choose to focus on generating passive income rather than the process, be sure to navigate here

If you have opened a trade at least once, most likely you’ve experienced a hurricane of emotions, depending on the direction of the trade: hope, greed, fear and regret. On top of that, your body releases adrenaline, also known as the ‘fight-or-flight’ hormone. Traders that neglect the psychological part of trading will often experience an adrenaline rush as a response to a stressful or exciting trading outcome.

What separates amateur and professional traders is the mindset. The latter think about trades from a viewpoint of probability and not guarantee; they take into account the risk that comes with each trade. Frustration comes when your expectations don’t meet the reality. A successful trader understands that technical methods identify patterns and never a certainty, and each trade has to be assessed individually. 

When a trader truly accepts the random nature of each individual trade, they will be able to produce consistent results, considering that the trader has developed an edge that plays out over a series of trades.

Mindset Of A Successful Trader

Thinking in probabilities is a part of the day trading philosophy that allows you to think like a professional trader. While the theory is not complicated to grasp, it surely has certain difficulties in implementation, especially when your hard-earned money is on the line.

Let’s assume you’ve selected a method that reports a 50:50 win:loss ratio over a series of trades and tends to average twice the risk on winning trades. The next thing on your to-do list is to identify the setup in the market and have a risk management strategy in place. Having completed this preliminary stage there isn’t much else to think about, aside from following the trading plan.

With the 50:50 method in mind, why would a professional stock trader feel anxious over a losing trade or glee over a win? If the basic rules are followed, momentary individual trades will not have an effect on your overall trading performance.

Naturally, to acquire the mindset of a successful trader will take time. A good deal of time and heaps of discipline.

Trading Psychology

As already mentioned above, risk management is a critical component to successful trading. Without it, all your attempts at becoming a successful trader will fail.

A common scenario is the inability to accept a trading loss, which implies that you weren’t able to accept the risk.

What typically happens is that instead of owning your failure and moving on, a classic emotional response is to re-enter the market and try to win your loss back while convincing yourself that the failure was due to a flaw in the method. In most cases, you’ll experience another loss and then another, and so on. The whole situation spirals out of control leading to devastating trading performance and an empty account. Telling yourself that the loss was due to the method can also lead to unnecessary adjustments.

The best technique to help overcome this issue is to choose to trade positions you feel emotionally comfortable with. Depending on the size of your trading account and your overall risk management strategy, a loss of $100 can be devastating for some. At the same time, the exact same amount can be tolerated just fine by others. If your comfort level lies within a $10 loss range on each trade, then this is where you’d want to start from. Build your confidence and slowly increase risk as your comfort level grows.

Before a trader can acquire a mindset of a successful trader, accepting that each trade carries a risk is vital.

How To Become A Professional Stock Trader

“Keep it simple” – over the years it has become a trading mantra. However, without the proper context, it can often be misunderstood and misused.

If you choose to trade yourself and learn from your own mistakes, keeping it simple does not cancel analysis, market monitoring, risk management, etc. Simplicity in trading means having a straight-forward trading plan that provides certainty and clarity to providing answers to the following questions:

  • What is your entry and exit?
  • What timeframes will you trade?
  • When will you be active in the market?

The keep it simple principle also helps avoid a phenomenon known as analysis paralysis. This happens when an individual becomes so obsessed with the process of examining and evaluating various points of data they are unable to make a decision. 


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