Before we can get to discussing the main topic, I would like to give you a brief psychological background of the ‘prey’ mentality and the reasons why it dominates the mentality of new traders.
The single biggest reason new traders lose money with trading is because they spend too much time executing good and bad trades all the time. The more they trade, the more they expose themselves to risk. Although knowledge and understanding comes from making blunders and bad judgments, but given the nature of trading – the losses can have severe implications emotionally and financially. Once caught-up in a bad cycle – novice traders often trade relentlessly trying to make up for the losses and don’t leave room for a second chance.
The most successful traders spend 1% of their time executing trades and 99% of it waiting for the right moment to arrive.
If you are spending too much time thinking and looking at too many stocks, currencies and indexes and not getting the kind of returns you expected, or even losing money – then you need to stop.
You need to let go of your old habits and restructure your beliefs to start thinking like a trader.
Conventional Beliefs & Ethics
If you are starting out with trading, then you must know that our beliefs and habits are deeply rooted in us. They have been shaped over our entire lifespan. For instance, the conventional belief of ‘time and effort vs reward’ simply does not apply when it comes to trading. On the other extreme, in certain jobs, effort is irrelevant due to the hourly wage or salary structure. Trading however is a unique beast, with its own set of dynamics like no other profession in the world. A trader can land enormous profits in a matter of seconds, and without having to exhaust any physical energy at all for the most part.
If you grew up with a strong belief system that taught you about working hard for money. No surprise there – that’s how it should be. Our beliefs, overtime condition our minds. The conditioning becomes hard wired principles that we adhere to, however, it then creates an emotion of guilt – that’s you profiting without putting in any hard work. There is nothing wrong with that belief system – I am certain that like myself all traders teach their kids to work hard for money. The 99% of all professions in the world work on those principles. However, as as trader you should acknowledge that you are not in the wrong with making a large profit in a matter of seconds or minutes.
There is another deep metaphor that describes the implications of this mentality, as some trader tend to trade until the point they give back everything they earned from trading. Their deeply rooted belief makes them reject the trading rewards. They struggle to stay put. They are unable to justify the profit they made in a very short amount of time, so they continue to trade and do what their subliminal mind is telling them to do (to give back what they think they don’t deserve). There isn’t anything ethical or unethical about it – these are typical undisciplined, emotional reactions to the new environment of trading.
Learning To Trade Like A Predator
The majority of traders out there putting on trades get swallowed by seasoned traders, who wait patiently to strike at the perfect time. Seasoned traders spend their time waiting, studying the market and planning for a hunt like a cheetah or a crocodile stalking after their prey.
There are other ways to be active in trading than just putting on trades. A good trader would invest their time studying and analysing the market, and equip themselves with as much information as possible to turn the odds in their favour.
The stock market is a device to transfer money from the impatient to the patient.
The metaphors are endless to explain the trading mindset as some refer to it as ‘trading like a sniper’, but how do we break it down to the real activities a trader has to perform?
Surely, a sniper or tiger hiding in a bush explains much less than what a trader has to take in to account before executing trades.
It’s rather easily said then done. The undue pressure of making millions, making traders lose their cool and taking on trades more often they should.
It’s not easy to simply define a standard everyone should adhere to. There are several smaller components, cogs and wheels that are constantly turning when in a live trading environment.
How can a trader shield their emotions and not pay attention to every minor event?
How can they separate insignificant events from the ones that count?
Those are the real questions that need to be answered, and in our forthcoming posts, we will try to cover those areas.
If you have enjoyed reading our blog so far, I would love to hear your comments.