No matter whether you are into forex trading, stock trading, futures trading or options trading, trading is a tough but potentially lucrative profession.  With online trading and the wealth of information and computer based tools, it should be easier than ever to win, but it is not - there are formidable obstacles to success for the beginning trader.  The trader’s biggest enemies are not other traders but mental baggage and limitations of thinking carried over from normal life.

This article is the first part of a two part series and discusses the mental obstacles to success as an independent trader, and how to overcome them.  The concluding part finishes listing the obstacles.

Relying on incorrect patterns of thinking

In normal life, incorrect patterns of thinking are prevalent but not normally challenged.  By incorrect patterns, I mean those thoughts that are not in alignment with reality.  For example, a CEO of a huge corporation may make a number of foolish decisions that are implemented by those under him resulting in losses, but the company has enough capital to survive.  A manager may be able to bluff those above him, while bullying those below him.

In trading, the market immediately flattens anyone who persists in an incorrect decision.  Your ideas mean nothing compared to the overwhelming force of market movements.  You will need to be able to accept reality rather than continue to hold dear ideas that don’t work in practice.

Lack of knowledge

Every profession has some specific skills that need to be acquired before someone can successfully work in that area.  A doctor goes to medical school, a mathematician studies at university.  But the only entry to the profession of trading is having some money to trade with.

Nicolas Darvas in his book “How I Made $2,000,000 in the Stock Market” described his lack of knowledge like this:

I was the perfect pattern of the optimistic, clueless small operator who plunges repeatedly in and out of the market.  I bought stock in companies whose names I could not pronounce.  What they did and where they came from, I had no idea.  Someone told someone who told me.

Someone with this lack of knowledge would be unlikely to be successful as a lawyer or a carpenter.  Why do we think that a trader without an understanding of trading will be successful?

Lack of knowledge can be overcome by reading books, getting information from sites like this one, watching the market and studying systems.

Unwillingness to learn from errors or admit that a decision was wrong

One characteristic of winning traders is that have disconnected their egos from the need to always be right.  Conversely, a losing trader will be unwilling to admit an error.  This means that the trader will hold a position even when it is clear that the market is going the other way.

The superior trader will have already closed the position and is planning the next move.  This flexibility comes from not having to be right.  The successful trader is more interested in profitability than getting every trade right.

Next time…

This article will be concluded in a second part, so check back again soon.  We’ll discuss some more enemies of the trader, and briefly discuss how to overcome them.

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Tags: cognitive errors, trading psychology, Winning Mindset

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