The Mindset of a Winning Trader

Your trading plan is important, yes, but many would-be traders have excellent plans and still find it difficult to make money. In fact, 80 of beginners fail and give up trading. With the availability of so much information about strategies and money management, these figures are hard to believe, but nonetheless true. The key to success lies in the mindset of the trader, rather than the trading strategy or degree of education.

One of the first realizations towards becoming a winning trader is to understand that there is no trading strategy that wins 100% of the time. Some may come close to it, but losing is an inevitable part of trading and does not mean that you have necessarily done anything wrong. Certainly losing trades should be reviewed to see if there are any indications of how your trading plan can be improved, but it is virtually impossible to wipe out losing trades completely and consistently.

Recognize that trading is a matter of percentages rather than absolutes. You win some and lose some, and your trading education should train you to understand that it is the overall picture that counts in the end, and not the results of individual trades. Consistency in application coupled with a great trading plan must inevitably result in profit.

Another difficult situation is when the trader suffers several losing trades in a row. This is where it is important to have confidence in yourself and in your trading strategy, and this allows you to continue trading according to your plan rather than changing it spontaneously, which often results in ruin. You can build your confidence in the plan by rigorous back testing, and this allows personal confidence to continue to follow it.

Another essential part of the mindset of a winning trade is to have discipline. This flows from the self-confidence that you are trading with a winning plan, and the determination to follow it to its inevitable profitable conclusion. Emotions such as fear if you have had several losses, or greed if you feel you are on a winning streak and becoming invulnerable, can play havoc with your account.

Fear and greed are the most widely discussed emotions that affect anyone who wants to try trading, and there are many other emotions that will, if not kept in check, affect your actions and therefore the outcome. The truth is that until someone tries trading with their own money, they have no idea how difficult it can be to follow through on their trading plan.

Some traders find it helpful to not think in terms of making money directly, even though that may be the reason that they are trading. A better mindset is to think in terms of preserving your capital, and then the profits will flow naturally from taking the right actions according to your trading plan. Such a mindset will have you quitting losing trades as soon as they have shown themselves to fail, rather than hanging on in hope and suffering further losses. Adopting this mindset will lead you to becoming a profitable trader.