The Trader Mindset

Updated: 2017-10-05 14:40:39

You will get as far as you believe you can

Every day, we subconsciously filter information. How do we filter it? Through the lens of our beliefs. Our beliefs heavily influence how we feel and think about everything in life and in trading, our beliefs can literally determine our results. What we believe about anything, determines how we react to it. Even so, you can change your mindset and view the markets through an objective lens. In this article, we shall talk about how to change your mindset and your beliefs, in order to become a consistent trader.

1. Beliefs

What is the key to a person's success, in any aspect of life? What the best in the world usually say is something like “loosing my first championship”, “losing my first round”, “the school of hard knocks”. It seems that early failure goes hand-in-hand with future success in many cases. Why is this?

Because failure helps people side-step certain mental pitfalls. They are beliefs that can at first seem powerful, but that are actually barriers on the way to accomplishment. The key trap to avoid is believing that we're special, better than others, a prodigy...and thus leading us to not work hard at things that don't come easy.

Homer Simpson states the incorrect mindset best.

2. Fixed vs. Growth Mindset

The moment we believe that success is determined by an ingrained level of ability we will be brittle in the face of adversity

Success or failure depends on our mindset. And there are basically 2 different mindsets that people can be divided into:

A) fixed mindset -> people that believe that we have some sort of “fixed” intelligence. Focus is frequently on the outcome (my current score vs. others), on looking smart (ego), thoughts like “effort is for the incapable” (unwillingness to work at things).

B) growth mindset -> people that believe that they can improve, learn new things. Focus is on “what can I do better?” or “what kind of effort will allow me to learn this?”

How many of us think of ourselves as “naturals” or vice-versa “not good in math” or “not creative”? These are limitations. We can change our ability to think. We can change our neural pathways and build different abilities. When we realize that we can change our own mindset and grow, we can accomplish much more than we think!

Do you think he ever believed he couldn't learn to walk?

So to protect their ego, people with a fixed mindset just give up and say they're not capable of doing something, whenever they hit a wall. Instead, people with a growth mindset know that setbacks are just hurdles towards new growth.

To bring things back into our trading context, let's say that you entered into a long trade on the DAX and you came out with a profit. You come into the Live Trading Room and show people your trade and ask for comments. There is a subtle difference between getting feedback like “Wow you're really good at this” as opposed to the less enthusiastic, but more useful “wow, that's a really good trade, you must have prepared it well!”. Strange as it may seem, giving praise just for the result will assist people in returning to the less productive fixed mindset state, where they need to do things that “feel good” and where they are “smart” or “incapable” based only on the result.

Instead, giving praise on the process (preparation/plan) is much more useful and tends to help people progress, gain curiosity about the process and work harder to become even better.

Same outcome, different mental process. Which one do you more frequently hear/adhere to?

3. Grow solid beliefs

Fortunately we can change mindsets! We can focus on the process and not the outcome, we can learn how to learn and evolve. Where do beliefs fit in, in this context? Simply stated: you need to believe that you can learn and overcome the difficulty. You need to believe that there's a way.

But since there are multiple ways of tackling the market, how can we find something that's right for us, that we can believe in? We need to respect our nature! Part of life must be devoted to discovering ourselves and what we're meant to do, so that we're passing along the right imprint on the next generation. Questions to ask yourself, in order to understand more about yourself, are:

What do I care about?

What are my values?

What's my choice pattern?

This way you are actually learn more about what it's like to be you! Then you can express yourself in the best possible way towards others, and in anything you put your mind to. Including trading. And here we come to one of the key ingredients of successful trading beliefs and endeavors:

You must know what your beliefs are, and trade in tandem with them, in a consistent and disciplined manner.

Underlining the importance of having some sort of battle-tested plan, in line with your beliefs, that will allow you to tackle the markets in a consistent way.

To sum up: our beliefs shape our reality. Having limited beliefs about our capacity to learn, adapt and trade ever-changing markets will negatively affect our results. It's not about the outcome, it's about the process. It's not about talent, it's about learning how to learn and progress through difficulty. It's about understanding your own beliefs and creating a trading plan around those beliefs, so when you trade you are de facto expressing yourself as an individual.

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