Trading isn’t just numbers and charts—it’s a battle of the mind.
New traders jump in, dreaming of riches, fueled by tales of triumph in the financial markets. Yet, they miss something big: mastering the storm of risks and emotional highs and lows to avoid losing trades.
Everyone enters the market eyeing the prize yet neglects to look at trading bias. Watching other successful traders rake in profits, they think, “Why not me?” But here’s the twist—90% of winning is all about playing it smart with risk.
But there’s a step before ‘managing’ the risks. It’s knowing what the risks are at a conscious level and then training yourself, or being trained, to fully ACCEPT these things at a subconscious level.
If you don’t go through a learning process to do this, then you’ll never properly learn how to manage the risk of your own emotional challenges, which will lead to a never-ending cycle of self-sabotaging your trading.
This piece spotlights understanding trading psychology, unpacks common trading mistakes, and offers timeless wisdom on developing the discipline and mindset needed to overcome the complexities of the financial markets and become calm and peaceful traders.
What is trading psychology?
Trading Psychology is about the mental and emotional dimensions that impact your decisions in the financial markets. Mastering your psychological state is often more critical than your ability to analyse the market or devise trading strategies. It encompasses understanding, accepting and then managing the four main risks you might encounter, according to the legendary Mark Douglas, who called them “the four primary trading fears” (pg. 12 Trading in the Zone):
- The risk of being wrong
- The risk of losing money
- The risk of missing out, and the
- The risk of not capitalising fully on a trade
To understand trading psychology, you must develop a disciplined mindset through strict adherence to a well-thought-out trading plan, rigorous risk management, and the ability to control emotions.
Adopting a probabilistic mindset is crucial, whether you’re a beginner or a professional trader. You must also learn to recognise and fully accept market uncertainties and focus on the trading process, not just trade outcomes.
Why does practising radical acceptance in market uncertainties matter?
Radical acceptance matters in navigating market uncertainties because it empowers you to focus on what truly matters: your strategies and responses.
By fully embracing the market’s inherent risks and unpredictability, you develop a more resilient and adaptive mindset. This acceptance allows you to concentrate on controllable factors instead of being immobilised by risks you’re unwilling to take or denial of potential losses.
For instance, at Share Wealth Systems (SWS), we recognise that many traders might initially overlook the importance of this mindset. However, radical acceptance fosters a deeper level of self-awareness and continuous improvement.
By guiding you through a series of trading experiences, the team helps you reach full acceptance of market risks. This process not only helps lessen the impact of short-term losses but also paves the way for achieving long-term success.
What are the cognitive biases that professional traders and investors face when trading?
Whether you’re a beginner, a professional trader, or a successful trader, you face these cognitive biases. No one is spared from these but can be overcome with the right trading strategies.
- Overconfidence bias hits hard, with many traders—men in particular—thinking you got the market’s number. This cockiness often leads to more trading but less winning.
- Illusion of control tricks you into believing you can predict the market’s whims, seeing patterns in chaos.
- Availability bias has traders grabbing at the latest news, ignoring the big picture in favour of a snapshot that might mislead.
- Loss aversion keeps losers in play too long, driven by the dread of admitting defeat, while winners are cashed out too soon, all to dodge what-ifs.
- Confirmation bias sends you down rabbit holes, searching for echoes of your own opinions and turning a blind eye to dissenting facts.
- Representativeness heuristic makes you bet on the familiar, overlooking the odds for a sense of déjà vu.
- Attribution bias divides outcomes into personal victories or flukes of fate, never the fault of the decision-maker.
- Anchoring bias locks sights on the first number seen, sidelining other crucial information.
- Optimism/Pessimism bias colours future decisions based on past performance, tipping scales toward reckless hope or undue gloom.
- Fear of Missing Out (FOMO) propels you into hasty moves, chasing trends without thought or groundwork.
How do you deal with trading psychology? 5 Actionable strategies for you
A resilient and peaceful trader focuses on the mental and emotional factors influencing a trader’s decision-making process. This is where battles are won or lost, in the silent spaces between fear and greed, hope and despair.
Mark Douglas, the legendary trader and investor, teaches you to master your mind, turning psychological hurdles into stepping stones towards success.
1. Accepting uncertainty
Douglas stressed that traders must embrace the markets’ inherent uncertainty. He famously stated, “When you genuinely accept the risks, you will be at peace with any outcome.” This acceptance allows traders to open themselves up to training themselves.
2. Probabilistic thinking
Douglas emphasised that trading is a “probability game” rather than a game of certainties. He taught that traders should focus on the overall probability of success across multiple trades rather than the outcome of any single trade.
3. Developing a disciplined mindset
Douglas believed that consistency in trading comes from the mind, not the markets. He stated, “The consistency you seek is in your mind, not in the markets”. This involves developing and sticking to a trading plan, regardless of short-term outcomes.
4. Focus on process over outcome
Douglas encouraged you to concentrate on executing your trading strategy correctly rather than fixating on profits or losses. He believed that good results would naturally follow from a sound process.
5. Self-awareness and continuous improvement
Douglas zooms in on the importance of traders understanding your own psychological tendencies and biases. He encouraged ongoing self-reflection and improvement of one’s mental approach to trading.
Speaking of continuous improvement, having a support system will take your trading career further. I’ll tell you why.
Building a support system that empowers you to think big
Successful trading requires more than just technical knowledge and market analysis skills. It demands a strong support system that empowers you to think big, stay motivated, and overcome challenges. Engaging with a supportive trading community and finding a mentor can significantly accelerate your growth as a trader.
Here’s why:
- Practice. A fit-for-purpose training program comprising a series of live trading experiences to simulate proper trading skills with other elite traders.
- Shared knowledge. Trading communities provide a platform for exchanging ideas, strategies, and market insights. This collective wisdom can help you avoid common pitfalls and discover new opportunities.
- Emotional support. The psychological aspects of trading are often the most challenging. A supportive community can provide encouragement during tough times and help you maintain a positive mindset.
- Accountability. Being part of a community keeps you accountable to your trading goals and helps you stay disciplined in your approach.
- Mentorship. Learning from experienced traders can shorten your learning curve and provide valuable coaching guidance tailored to your specific needs.
Success in trading requires more than just knowledge—it demands a time-tested practice and coaching routine. No skill is learned without consistent practice and the repeated execution of doing the right thing. This disciplined approach is essential to becoming a consistently peaceful and profitable trader in the long term.
Remember the secret sauce of trading success? It’s not buried in data or trends—it’s in the power of people around you.
By joining Share Wealth Systems, you’ll be part of a supportive community that nurtures your growth and helps refine your skills through ongoing practice.
