Traders lose because they are not psychologically prepared to trade. In effect, they are not able to accept the financial risk over something in which they have no control of the outcome.
In this post, I will explore the difference in mindset between inexperienced and professional traders.
Trading is more psychological than methodological. If you are not psychologically prepared, you trade in fear and I am sure everyone will know that feeling. When trading with real money, fear and emotion are the overriding factors that engulf 98.5% of traders.
You don't need me to tell you that those 98.5% are losing traders.
The easiest thing for a trader when things go wrong is to blame the method, or blame the person who gave them the method, or blame the rubbish football team who cost them a packet. Unless the trader can alter this train of thought they will forever be a losing trader.
The first thing to understand is about losing trades. Losing a trade does not make you a loser, all it does is make you a member of the trading community. Even winning traders lose many of their trades, but what they do is to handle those losers so much better.
- Winning traders have a positive psychological mindset where all they see are opportunities.
- Losing traders have a negative psychological mindset where all they see are problems.
Do not focus on winning and losing, focus on your trading plan and stick to it.
Professional traders think differently than most other traders. Their thought process is far removed from what your own maybe with regards to trading and how they go about their business.
A lot of Goal Profits members email me and say they have been doing really well, have had a fantastic week, made lots of profit and then lost it all in one bad day. Has that ever happened to you? If it hasn’t then you are a rare exception, because to be honest it happened to me so often in my early days.
So why is it that this happens to people? Why do they win for a few days/weeks and then lose it all in one bad day? Is it bad luck? Bad match selection? Bad system selection?
Of course it may be a combination of all of those, or it may be nothing to do with any of them. My hypothesis as to why it happens is down to the individual thought process of that particular trader.
Are they thinking like a professional or are they thinking like an inexperienced trader?
Hopefully, even an inexperienced trader will understand that you cannot win every time. I take that as a given. So how do they think? They know they are going to have bad days so, to nullify the effect of those, they think they have to make profit first.
By putting pressure on themselves to make instant profit they will undoubtedly push things harder than is necessary. For instance they may trade far more than what is good for them, or they may stay in a trade far too long.
This may help them in the short term and so that is where the good week comes in. They have defied convention but have got away with it. Not only have they got away with it but they have made a tidy profit too. It has been a stellar week.
A new day/new week arrives and they feel great. Money in the bank and they are unbeatable. Those bad days now are a thing of the past and don’t happen to them. Bad mistake. They still do happen to them and they will soon find that out.
They have a bad start to the day, but surely it is a temporary blip. It may have been a temporary blip 3 hours ago but now it is a full blown crisis. They have not only lost all the gains of last week but they have lost 20% of their bank on top of that and are in trouble.
They have chased loss after loss, been hit hard and are reeling. Their mistake was to put pressure on themselves by thinking they had to make profit immediately to guard against losses.
Their mistake was to put pressure on themselves by thinking they had to make profit immediately to guard against losses.
Their sequence may be WIN-WIN-WIN-WIN-WIN-WIN-WIN-BIG BIG LOSS with the result being a loss of 20% on the bank.
The pros are different from most punters. For a start they don’t put pressure on themselves. They don’t say, “I have to do this today or I have to do that tomorrow”.
They know that this is a cyclical game. Good spells and bad spells are routinely meted out to them and they take each one exactly the same.
Goal Profits members who follow me in the chat room see me post “scratch is a win for me”. On my P/L account a scratch is shown as a green figure. A green figure is a profit; that is part of the mindset. Scratch is green, green is profit, therefore scratch is a profit Q.E.D.
So I can go a whole week, win absolutely nothing but still feel as though I have won every single day, because I have made scratch every day. And for me, scratch is profit; I have won my stake each time. I know for a fact that if I can keep as many scratch trades on my P/L account as possible, that sooner or later I will hit a big winner.
My sequence could be SCR-SCR-SCR-SCR-SCR-SCR-SCR-BIG BIG WINNER with the result being a 10% increase on the bank.
In short, an inexperienced trader can have 7 winning days and 1 losing day, but lose 20% of the bank.
However, a professional can have 7 scratch days and 1 winning day, increasing the bank by 10%.
Never worry about having a week of scratch trades, it only means you are close to a big winner. Whenever I enter a trade, my initial aim is to make scratch. Anything better than scratch is great, but for me a scratch is great too!
Trading Psychology Books
There have been many books written about trading and trading psychology. While most are centred around stock market trading, the principles can be applied to sports trading too. After all, a trading psychology is the same whether you're logging into Betfair each day or a stock platform.
We're constantly asked to recommend books about trading, here are a few which we particulatly enjoyed reading:
Trade Your Way to Financial Freedom
by Van K. Tharp
"Tharp explains that the Holy Grail in the market is different for each trader; one that can be uncovered quickly and plugged into every trading program with surprisingly little effort. He shows how the interplay of your style, goals, and personality - in combination with a carefully designed and tested system - will ultimately determine your true success."
Trading for a Living
by Dr Alexander Elder
"Why teach? Why not simply stay in front of the screen and quietly grind out profits? Whenever I hear this question, I say: "Preaching is good for the preacher." Showing specific chart patterns and stressing the need for discipline reinforces my own performance. To master a concept you have to be able to teach it to others. If you can′t explain what you think you know, then you really don′t know it."
Trading in the Zone
by Mark Douglas
"Douglas uncovers the underlying reasons for lack of consistency and helps traders overcome the ingrained mental habits that cost them money. He takes on the myths of the market and exposes them one by one teaching traders to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the "probabilities" of market movement that governs all market speculation."
Positive mental attitude (PMA) is vital for anyone wanting to become a successful trader. If you're full of doom and gloom after a loss, it's going to be so much harder to achieve your goals.
Professional traders see losses as nothing more than learning opportunities to improve. See how positive that is? Imagine how much less a loss hurts once you learn something from it... something which is going to reduce future losses or, perhaps, avoid some of them completely.
There's something positive in literally everything you do - good and bad - so focus on that and your trading psychology will become closer to that of a professional trader.