The Mental Edge Required in Trading

Don't overthink

What makes some traders so successful? What separates the big earners from the big losers?

What makes our emotions jump out at such critical moments?

How do we stop our feelings from taking over and leading us to wrong choices?

The answer? Discipline.

You know exactly what feeling I'm talking about. That feeling that creeps behind when you risk your money on a trade. You thought of everything already, you chose your asset, setup and made up your mind on how to proceed. But you still get that feeling, maybe it's fear or just your mind conspiring against you, after all, in your right and calm mind you still know that the outcome of the trade is uncertain.

It takes more than just analyzing charts and trying to predict two steps ahead of the market, it takes having control over your emotions, enthusiasm and fighting FOMO.

Our lives and the outcomes of our actions are made up of 3 things.

1. Thoughts
2. Feelings
3. Actions

Imagine thoughts, feelings and actions are in a closed circle, directly effecting each other. When one part of this circle is functioning badly, the others are effected.

You probably had a bad trade that made you think "How could I make such an idiotic mistake?". This will lead you to feeling bad, which can result in even worse actions .

On the other hand, you could've opened a trade and felt stressed about the risk only afterwards, and that of course could get you to overthink, and again, end up with bad choices and actions.

Being aware of your emotions and thoughts and how they drive your actions will be one of your greatest attributes, not only in trading but life in general.

Some people act on gut feeling while others are very calculated, those who act on gut feeling are going by their emotions and letting themselves take unnecessary risks in their trades and analysis. The other group base their actions on the technical part alone, and are sometimes over-calculating before any action they make, this could lead to missed opportunities, minor loses but also minor earnings.

But, there's the group in the middle, the ones who are calculated and use their gut feeling to find the right opportunity, taking into consideration many possibilities but are also able to choose the right ones without being nervous and without FOMO.

FOMO stands for Fear Of Missing Out, and it's the feeling you get when you hear a lot of hype about something and you feel like you have to participate in order not to miss out on the earnings, this feeling many times leads to big loses.

 

One of the best example of FOMO appeared in 2017, Bitcoin was at a ATH (All Time High).

Imagine seeing a cryptocurrency going up to over 19K$... Of course you would want to join the Bitcoin train and maybe become and overnight millionaire like others!

But for some... it didn't end up well...

For example, you look at asset X and you see the chart climbing with more and more green bars popping up, you tell yourself "This rally is continuing, I have to get my hands on it", you get yourself over excited over it, when in actuality you're buying asset X when it's close to it's top, causing you to wait and hope for the green bars to keep coming, but they don't. 

Now let's say asset X starts going down, you can either tell yourself "Okay that's a missed opportunity, I should close the trade and move on" or "I believe it'll keep going, I just need to wait some more", most people will tell themselves that option B is more plausible, and even if they see asset X dropping they'll just sit there and wait, with price alerts ready and hope in their hearts it will get back up.

Sometimes, we need to learn how to take loses, I don't think there's even one trader who had not suffered a loss, let alone a big one.

The next steps will try and help you cover some areas that will prevent you from being too emotional in your trades but will still help you take advantage over your gut feeling to try and maximize results.

 

Bitcoin 2017 FOMO. Whoever bought the top is still crying

 

1. Do Your Research

When you still feel like you're over stressing while trading, you probably need to do more research.

Research is important nonetheless, because when you know exactly what you're getting into, you'll be more calm, knowing an asset has the potential and hype to reach where you're aiming your trades towards.

Knowing what's the best and what's the worst case scenarios will help you minimize your losses and reap your gains without being too greedy.

Learn more about indicators.

2. Risk Management

Risk management should be one of your top priorities, being able to exit a trade before you lose too much will help you recover much faster.

You should know exactly how much of your account you're willing to risk compares to the possible profits.

Read about risk management 

 

3. Don't Be Overconfident

 

Some traders feel like they know it all. They think that after a couple of winning trades they will know for sure where their trade is going to. Well I'm sorry to break it to you, cannot fully predict the market, sometimes your expectations will be demolished.

Be humble and cool, being over confident will end up going against you and you might lose more in one trade than your total gains.

 

4. Read!!!

 

Go around the web, blogs, news sites and Twitter and just start reading but reading with caution, not every piece of information will get you to where you want to be, it might do more harm than good.

Find a project that attracts you, that one project that you feel interested in reading more and more about. Sometimes that gut feeling towards a certain investment or trade could be the one you need. Obviously, don't let yourself jump in without the right risk management and analysis. 

Know your assets

5. Be as Independent as Possible

It's pretty common nowadays to see traders running about on Twitter, looking for the next "Hot Tip" from their favorite analysts there. 

This is a very bad move, you cannot allow yourself to be fully reliant on someone else's analysis or speculations, you will get burnt, more than once.

Yea sure it's useful to read other people's analysis and pick their minds, but when you use that information while all you see is a tiny piece of the puzzle and not the big picture, you'll end up making all the wrong choices.

Conclusions

Now we know what it takes to better ourselves for better results.

We need to expand our knowledge, manage our risks, not be overconfident, read and not to rely on others.

It's not as easy as you might think, it's a process that takes time to control and master over. 

But the harder you try and the more you immerse yourself in it, the greater you become.