Trading Psychology: 5 Ways to Reach Your Peak Mindset

Trading psychology has been a well-documented factor of investing, but often with little importance actually placed on it. Having a strong mindset during your live online trading activities is really a key determinant in success throughout your investment decisions. As much as this dimension of trading is overlooked, the importance of mastering your cognitive mindset is paramount.

 

“If we make decisions in cognitive, emotional and physical states that are different from the ones we occupied during our preparation, we’re likely to find that the decisions we plan won’t always be the ones we act upon”.

Dr. Brett Steenbarger

Trading psychology has been a well-documented factor of investing, but often with little importance actually placed on it. Having a strong mindset during your live online trading activities is really a key determinant in success throughout your investment decisions. As much as this dimension of trading is overlooked, the importance of mastering your cognitive mindset is paramount.

So why is adopting a trading mentality often a challenge?

Because in reality, our trading mindset needs to react contrary to human nature. We as human beings are wired to make decisions based on our current emotional, cognitive and physical state, which I’m sure many will attest that this changes dramatically when the markets open and live trading commences.

Therefore, in order to understanding trading psychology and keep this mindset it in tuned, we have outlined 5 types of mentalities that should be somewhat present whilst you’re trading.

 

1. A Focused Mindset

Often our mindset can be filled with noise which cannot only disturb our trading activities, but it can also limit our ability to consume and process new information quickly and decisively. When we’re distracted by focusing on our profits & losses, and other external factors, we lose focus on the most important thing, which is the market’s behaviour. Having the ability to exercise and sustain self-control of our own thought process will directly reflect the control we have over our actions.

Begin developing your focused mindset by simply practicing the process of eliminating all irrelevant thoughts (and devices) until your entire focus is on the task at hand.

How you do this is left to your own devices, there’s no one size fits all approach in trading psychology so try experimenting and see what’s effective for you.

 

2. Be Aware

Often the key to succeeding in trading is to see things that others may miss. Whether these are consistent trends, or simply just short-term patterns occurring in the market, when our minds are distracted our ability to identify and process these changes quickly and efficiently gives you an edge that few others have.

The ability to see trends taking shape or ending, who’s in control (buyers and sellers) and what short-term price movement is telling you, all require a mindset that is open to new information and aware of changes and shifts in the market’s behaviour.

 

3. Be Constructive

Reality is, throughout your investment endeavours you will at some stage endure some losses. It’s not personal, it’s just business. However, your reaction to these losses is personal, and your ability to overcome and learn from these mistakes will either make or break you as a trader.

The lessons drawn from these mistakes will provide you with invaluable learning experiences that will assist you extensively in the future. Approach these situations from a constructive perspective. Yes, you may have lost some of your capital, or you may have even just missed out on an opportunity, but what did you learn from this and what can you change to make sure the same situation doesn’t repeat itself?

There is always something to take away from each day that will give you value in the future and make you a better online trader. Learn how to effectively manage your trading risk as apart of your CFD trading strategies with our how to guide.

 

4. Be Positive

Outside of our trading life, we aim to fill our lives with meaningful activities that bring us joy and happiness. A fulfilling life is not sought through profits and losses that are gained trading, but is instead derived from activities that bring  happiness.

It is this emotional energy that will fuel you with the dedication, persistence and determination to power through tough and challenging market times. Remain positive and always look for the silver lining.

 

5. Take Action 

All the intention and ideas in the world mean nothing without actually acting upon them. Taking action means to not only focus on the planning, preparation and organisation of your trades but to also translate this into actually pulling the trigger and taking a trade.

Whilst critical to the success of your trading, the preparation process is largely idea-focused. Your preparation needs to be in balance with taking action when you are execution-focused. The most effective way of doing this is to develop a comprehensive trading plan, learn how to create your own with our 6 step guide.

 

6. Trading Psychology: The Bottom Line

Trading psychology is a key factor in profitable investing. The criteria above are effective and useful ways to assess what mental attributes you currently possess and what you need to improve on to really reach your peak trading mindset.

Having a balance of these mentalities will go a long way to resulting in a profitable trading business, and likewise, the wrong mindset can almost ensure your future losses. When we have a strong mentality during our online trading, we give ourselves the best opportunity to absorb information, process it and act accordingly in a disciplined and justified approach.

If you trade based on your emotions with an ‘in the moment’ mentality, then you are instantly putting your capital at risk. Make your trading an investment, not a gamble.