You may have studied various trading strategies, paper traded, and looked at daily charts to grasp the market but have you mastered your mindset? Your day trading psychology is as important if not more important than your trading strategy. And if you have not considered it, you have much to learn about grasshoppers! Aspiring traders do not take into consideration the amount of mental and emotional strength it takes to become a professional day trader. Matter of fact, most may not even realize how crucial it is until they start trading with actual money and suffer losing trades. How we think or the way we feel can affect our trading success. Like market analysis or technical analysis, trading psychology should be a fundamental aspect of our trading regimen.
Understanding yourself and your day trading psychology can make or break an individual as a consistent, successful trader. The reality is day traders can be very profitable, but they cannot avoid loss. Investing always carries risk. Even the best, top traders will lose money at one point in financial markets. Understanding your trading psychology, how you won a trade and why you lost a trade, is learning good risk management skills, and it’s imperative to your prosperity. To understand how your trading psychology can prevent certain losses, we will focus on what to do after you have endured a bad trading day.
Let’s go over this briefly in Three Steps: acknowledgment, recovery, and prevention.
Step 1: Acknowledgement of Your Trading Strategy
You have nailed down a trading plan that lends profitable results on paper. There are many strategies out there but let’s just say you connected with a supply/demand zone strategy. This strategy is highly effective if implemented accurately and an edge you can learn from with the MK Day Trading VIP program. Great! You found something that works no matter if the stock market is bearish or bullish! You practiced and now you take action and start live trading with real, hard-earned money. Maybe you win a few trades, maybe even experience a big win! You are elated, maybe feeling euphoric!
And then it happens. You lose. And you lose again. You get frustrated and blame the trading strategy, you blame the unpredictable market and the market participants, you blame your spouse because you argued the night before and are in a bad mood. Instead of producing excuses, check yourself and take a look at your losses. Why are you losing money? What was the difference between your profitable trades and your unprofitable ones? Keeping a trading journal and analyzing your trades is key to looking into why you do what you do. It allows you to identify your strengths and weaknesses and your personal trading psychology. Did you follow your trading entry criteria? Did you follow your trading exit plan? Did you plot your supply and demand zones accurately? Did you implement your stop loss? If the answer is no to any of those, then mentally you made an error during your trade. No matter the bad trade, review the loss first and foremost and then acknowledge the why behind it.
You see, it takes extreme emotional discipline to adhere to your trading rules, to resist taking trading actions off of how we think or feel, and ultimately become a successful trader. You must develop a strong, consistent mindset to enter the market based only on your entry criteria and exit the market based only on your extraction plan. Do not deviate. I repeat, do not deviate. If you ignored your trading rules, you were possibly operating under emotions. Fear and greed are huge psychological trading obstacles. Hope, FOMO (fear of missing out), hesitation, analysis paralysis, being distracted, overconfidence, pride, perfectionism, and anxiety, just to list a few more, are all common stumbling blocks as well and can detrimentally affect a trader from collecting profits. Other factors can be lack of concentration, stress, poor emotional well-being, reading the chart wrong, plotting incorrect zones, and even health, marital or financial concerns.
No matter your psychological issue, acknowledge the why behind your loss and learn from it! What behavior or emotion entered into that trade when you took it or got out? You may quickly realize certain personality traits are not only affecting your losing trades and long-term success but also keeping you from getting in the next trade or staying in winning trades. If you can learn how to enter and exit trades based on your set trading plan like a robot, with little to no emotion, like it is boring, then you are well on your way to getting out of your own way!
Step 2: Recovery
So, you lost a few trades and maybe more money than expected. Poor trades do occur, and your trading performance may not be on fire every day. All market wizards trade to be profitable, however, no strategy out there is foolproof. There are what we call natural losses where you implemented the edge perfectly and the market didn’t cooperate. The market is unpredictable to a point. All it takes is one trader on the other end to alter your projected outcome. Having a good day trading mindset can give you an edge and allows us to win more than lose over a series of trades. You cannot judge a strategy’s effectiveness based on one trade alone. You can, and must, however, analyze your good trades and also your behavior after suffering a trading loss.
It is a hard lesson, but we must learn the most from losing and take steps to recover. A bad trade is going to happen, and a trader must be humble enough to take action and determine the source. If you are operating under emotions or lack discipline, dig deep and figure out what that emotional conflict is so that you can fix the behavior before it becomes a habit. If you are making technical errors, identify them so that your trading performance does not suffer. Our struggles tend to repeat until we decide to confront them, handle them, and learn from them!
After you have determined what your emotional crutch is that is preventing you from being a better trader, you must devise a recovery plan to get back on track. If you don’t take the time to recover and improve your day trading psychology you may find yourself repeating the same mistakes or revenge trading and losing even more of your capital.
Suggested Quick Tips to Recover From Losses and Getting Back Into the Trading Game Are:
1) Paper trade/practice more.
2) Lower your contract size.
3) Hire a great trading coach.
4) Partner up with another successful trader.
5) Go back and re-study your trading courses/trading educational resources.
6) Create your strategy checklist again and backtest, if need be.
7) Take a break from trading.
All of these suggestions, or a combination of them, can help fix your mindset drastically. If you can identify your weaknesses, you can introduce improvement. The key is to do the work and properly recover from your losses.
Step 3: Prevention
After you have lost a trade, figured out why you lost, and have recovered from the punch in the gut, serious traders should come up with a best practice plan to foster a positive mindset for the day and help prevent future losses. This may be as simple as making a schedule for yourself daily. Getting up at a certain time, eating, exercising, showering, whatever makes you feel ready for your day. Reviewing your strategy criteria and risk management plan daily before trading is super helpful. Writing down one goal for the day like, “I will not ignore my stop loss”, can be beneficial and help a trader stay on track. If you are feeling emotionally distraught, maybe skip participating in the market that day.
Be sure to carve time out of your day to review your journal as well. This will keep you accountable for all trades and identify emotional or technical mistakes before they ruin your account. Day trading is a business. Any business requires hard work and maximum effort. Most traders enjoy the profession, but they keep strict schedules, detailed trading journals, and are in a constant state of learning and growing. They take advantage of how the market is acting in real-time instead of placing expectations on its unpredictability. Most of all, they keep a healthy mindset, stick to their trading plans, stay flexible with trade outcomes, and do not trade utilizing emotions.
Summary of Improving Your Day Trading Psychology
Having a trading loss is the reality of all successful traders. You are putting your best foot forward to mastering the kind of winning mindset it takes to be a profitable, professional, successful trader if you take the time to acknowledge and analyze your trades, learn and recover from losses, and create a workspace that fosters a positive attitude and discipline. Strengthen your day trading psychology by investing and entering the markets without emotional distraction. It is crucial to have a good trading strategy, but it will only work if your mindset is in the right place!
Resources to Check Out!
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Book: Day Trade Like A Millionaire by Maurice Kenny (FREE download)
Book: Trading In The Zone by Mark Douglas
YouTube video by Maurice Kenny: 5 Steps To Win More Day Trades With Less Stress