The opening bell just sounded and you are putting on a trade. You’ve got your plan established…you’ll buy the demand level on the 60 minute chart of the NQ E-mini that you analyzed yesterday. The price action on the Globex chart is confirming the plan with an overnight low that coincides with the demand level that you established. You have your entry, target, stop and exit planned. After entering you become gripped with anxiety and fear because the price action is inching toward your stop and is falling beyond the levels that you picked. You begin to second guess your plan and in a fit of doubt you exit the trade as the tick momentarily went to break-even. As you sit on the sidelines, you are feeling some temporary relief because you are no longer anxious, but a little later you’re feeling really stupid as you watch the price action turn up just where your analysis and plan had indicated. For the next 15 minutes you watch as it hits what would have been your target. You “would have had” a nice profit, but your self-doubt has caused you to “trade not to lose”…again; and snatched defeat from the jaws of victory – again!
Develop your mindset
Like most emotions, doubt is normal. It is when doubt takes over your mind and influences behavior that you must watch out for … and you must be careful as this could foreshadow a much more dangerous core issue. You must develop a mindset that is focused on trading to win. This is much different from an orientation that is focused on trading not to lose.
A trading not to lose mindset is based on the need to remain in your comfort zone and to constantly look for ways to get back in the comfort zone by capitulating to impulsive behavior and hoping that your plan (if you have one) works out. Traders who have a trading not to lose mindset don’t want to put forth too much effort and continually look for a quick fix to their issues or a magic bullet that will create results out of thin air with no regard for their development. On the other hand, trading to win is about personal growth and having the courage to meet challenges. Traders with this mindset realize that trading success is about a commitment to excellence and a belief that learning (both about the market and self) is critical for consistent positive results.
The core paradigms and mental models of trading not to lose are driven by fear and greed. These emotions are attached to deep seated limiting beliefs about self and these limiting beliefs conjure unsupportive thoughts. Thoughts similar to the following; “…I must get out of this trade, I can’t possibly allow any losses that I can prevent, that would mean I’m wrong and being wrong is for losers.” Conversely, the core programming of a person trading to win reflects a belief that losses are a part of trading, that every small loss gets you closer to a big win; and that there is an abundance of opportunities. Additionally, they believe that they don’t have to worry about being wrong and impulsively exiting one trade because there will be another, and another after that. Furthermore, they understand that being wrong provides more information and data in order to build their skills.
A trading to win mindset includes a search for objective reality while in the trade. They realize that resonating with the reality of what the charts are showing provides a safety net against illusions brought on by fear and greed. Looking at the reality of what the charts are showing means that you’re not paddling up the river of “denial.”
A trading not to lose strategy is closed with limited alternatives; it blames others or outside influences first and seldom looks inside to identify issues that are negatively affecting results; this strategy promotes irrational thinking.
The trading to win mindset owns all results by using techniques like journaling to find out what is and is not working. The trading to win trader is prepared to use protocols and effective routines in order to develop skill based habits and ensure sustainable success. The trading to win mindset is intellectually and emotionally honest along with mustering the enthusiasm and energy necessary to vigorously take on trading weaknesses. You can’t take on a weakness that you either don’t know or don’t understand.
Trading not to lose encourages erratic and illogical behaviors while looking for the easy win, often putting large positions at risk thereby simply gambling, and by reneging on commitments to established rules – if they have rules at all. The trading to win mindset recognizes that trading necessitates losses and that effective long-term winning means managing risk, having an iron clad commitment to rules, goal-setting, planning and methodical, smart trading. The trading to win orientation is winning the psychological war one battle at a time – “going as far as you can with all that you’ve got” in a growth focused, joyful, honest and healthy way.
Issues, obstacles, and problems that plague your trading must be treated like an infestation in your home, you want to know if the vermin are there so you can weed them out and get rid of them. That’s why the “Thought Journal” is a critically important addition to your tool belt. Most of you already know that smart trading means tracking and documenting your trades in order to get data on how well your trade plan is working. Similarly, you must also gain data on what you are thinking and feeling because this is how you uncover the unconscious issues that act as drivers to bad behaviors that bring on unwanted results. You’ve got to be willing to dig deeply to find out; you must drill down into your issues and face them with the right tools in order to resolve them. A “don’t-bring-me-no-bad-news” outlook is going to turn you into a Sisyphus, the Greek mythological character that was doomed to roll a boulder up a mountain only to never reach the top. You’ll never reach the top of your trading goals but will be doomed to push that boulder (your issues) until you run out of either energy or money and it’s usually the latter first. The smart trader accepts the challenge and realizes that trading to win is about the long haul.
So, you must decide which mindset you are willing to develop in the service of your trading. Will it be the courageous and comfort-zone expanding trading to win, where you are committed to growth and excellence? Or, will you reach for the easy button with a strategy based on not wanting to get outside of your comfort zone; avoiding challenging yourself and trading by default with blinders on. The choice is always yours. Remember, trading to win is where you are going as far as you can with all that you’ve got! This is included in the aim of bringing and keeping your “A” Game at the trading platform while using mental and emotional tools from your handy tool belt. Ask your Online Trading Academy representative for more information; and get my book “From Pain to Profit: Secrets of the Peak Performance Trader.”
Dr. Woody Johnson