Mental Tips to Improve Your Trading

<WikiFX Malaysia Original – Editor: Fion>

The mental game in trading is an underrated topic that does not get enough attention within the industry. No matter how much time you spend reading every single fundamental news or how long you choose to stare at the technical charts, psychology is still the biggest factor that makes or breaks your trading.

Here are some practical mental tips that you could implement into your trading strategy to improve your performance:

(1) Do not trade for the sake of money

This advice sounds counterintuitive because everyone gets into the financial markets to make more money. It sounds as funny as telling someone to work without expecting a salary in return. However, in trading, it is all about going against normal human behavior and the societal norm in order to succeed.

The reason is that the more you are fixated with extracting money out of every pip move within the currency markets, the more emotional you will get. Unrealistic expectation as such makes it easy for a trader to be engulfed by the fear of missing out (FOMO), regret, frustration, and stress. Ultimately, you will never feel happy nor enough with your trading. It is impossible to catch every move in such high volatility markets which move 24 hours, 5 business days a week.

When these overpowering emotions arise, your ability to make sound decisions or judgments tends to be clouded. This is when traders give in to their inner demons and end up taking trades that are not in alignment with their edge just for the sake of being part of the market movement.

(2) Overleveraging in the hope of making big bucks quickly

Trading with leverage is not always a bad thing if you know what you are doing.

However, it can make you lose more money and faster than you intended to.

This is similar to the concept of borrowing money and going all-in betting in the casino. If you win, thats great luck. If you lose, how are you going to find the money to pay it back？ That is something that people tend to neglect as they are blinded by the potential handsome profits that they could reap without considering the consequences of losing.

Although it all boils down to “blame the driver, not the vehicle”, traders should never treat their trades like a lottery ticket – as if with just one strike, they can retire and enjoy financial freedom once and for all.

This is where Warren Buffetts golden advice comes into play, which is “get rich slowly”. Play the long game by focusing on consistency with patience and it will bring you towards your goal faster than risking it all to get rich overnight.

(3) Focusing on being right instead of taking care of the downside risk

From an early age, humans are trained to do the “right” things. When we were young, parents and teachers would criticize or tell us off for making mistakes. Although most of them meant well, over time, this instilled in us the need to avoid mistakes at all costs. Nevertheless, in trading, being right is not the main objective. In fact, having to prove oneself right is the fastest way to capitulate your trading account.

When we equate losing money in trading to a mistake, our natural reaction is to avoid it. For many traders, when they see unrealized losses in their account, they tend to have counterproductive reactions such as removing or adjusting their stop losses, adding more positions to that losing trade, and even being in denial by ignoring that specific losing trade altogether. In moments like these, these traders have forgotten that their priority should be protecting their capital by accepting losses when they are still manageable.

To overcome this, traders should be aware that there is never wrong in trading. The only thing that could be seen as a mistake is when you do not adhere to your trading strategy and rules. This includes not executing when the right setup presents itself and/or executing randomly without a suitable setup. Acknowledging and accepting this fact humbly will help remove negative emotions when taking losses, especially when the loss is still small. The ability to stay in the game long enough is the only way to win the game.

<WikiFX Malaysia Original – Editor: Fion>