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Mental Traps Traders Face Daily

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Trading Psychology and Can Be Your Best Financial Friend

Let me explain to you how it all falls into place. It is nearly impossible not to fall into this trap when you’re first starting out; it is easy to assume that what you don’t know about the markets is the cause of your losses and lack of consistent results.

What the trader doesn’t take into consideration during this period is the fact that no matter how much the trader learns about the market’s behavior, no matter how brilliant an analyst the day trader becomes, he will never be able to anticipate every possible way the market will move or cause him to lose money.

One of the factors that reinforces this belief is the fact that the markets are always in a state of uncertainty and peoples naturally don’t feel comfortable and get nervous around uncertain situations and this creates further vulnerability in beginners.

Furthermore if the trader perceives the market information as fearful or hurtful, he will struggle and it will feel like he is struggling against the market. The struggle however is taking place inside of the trader’s mind. If you feel like you are struggling when daytrading stocks, it is because you are struggling against your own internal, conflict, and fears.

As you can probably imagine, this creates a major psychological obstacle for most people because the positive results and consistency they seek in their trading is really not in the markets but inside their mind.

It is their attitudes and beliefs about losing money and being wrong, and not their technique or market knowledge that is the cause of the problem. And it is a fundamental shift in their attitude that accounts for success, not some brilliant realization about the markets or learning a secret system, as most people erroneously belief.

Understanding the real meaning of risk as it pertains to trading and understanding the belief system of a beginner is only the first step in the process of integrating that concept at a functional core level. This is particularly true of concepts that deal with thinking in probabilities and changing one’s belief system.


Trading Expectancy and Financial Markets

trading futures electronically

There is a random distribution between wins and losses in stocks, futures and commodities – If every loss puts you that much closer to a win, you will be waiting ready and willing to take the next trade “set up”.

If you lack this conviction you may anticipate the next edge with trepidation. You may start gathering evidence for or against the trade. If the fear of missing out is stronger, you will gather information in favor of the futures or commodities trade; if you fear another loss you will gather information against it.

An edge is nothing more than an indication of a higher probability of one thing happening over another. Creating consistency requires that you completely accept that stock and futures trading is not about hoping, wondering, or gathering evidence one way or the other to determine if the next trade will work.

The only evidence you need to gather is whether the variables you use to define your edge are present at any given moment. If the market is offering you a legitimate edge, determine the risk and take the trade.

Every moment in the market is unique – If each moment is like no other then there is nothing at the rational level of your experience that can tell you for sure that you “know” what will happen next. Training your mind to believe in the uniqueness of each moment will act as a counteracting force neutralizing the automatic association process.

The stronger your belief in the uniqueness of each moment the lower you potential to associate; the less you’re potential to associate, the more open your mind is to perceive what the market is offering from its perspective.

Once a trader has accepted the five truths your expectations of trading profits will always be in line with the psychological realities of the market environment. With the appropriate expectations you will eliminate your potential to define and perceive market information as painful or threatening therefore, neutralizing the perceived emotional risk of trading.

The best traders have evolved to the point where they believe without a shred of doubt or conflict that anything can happen. Their belief in uncertainty is so strong that it prevents their minds from associating the “now moment” opportunity with the outcomes of their most recent commodity or futures trades. By preventing this association they make themselves available to take advantage of whatever opportunities the market may offer at any given moment.

This perspective allows them to consider both the known and unknown and completely accept the fact that they do not know the outcome of any particular trade.

Remember what I just said a second ago, the professional commodity trader accepts the fact that he does NOT know the outcome of any one particular commodities options trade. This is very important to understand for stock and futures traders who equate their knowledge of the market with the experience of their last trade.

How Futures Traders Can Change Their Belief Systems

currency commodity tradng

The second major psychological issue that futures and commodities traders struggle with and is just as important as thinking in probabilities or lack of truly appreciating risk of loss in commodities, is how futures and commodity traders react to the false belief that the markets and lack of market knowledge is the cause of their losses. Believe it or not the pattern is typical for the majority of traders and what follows is just as equally unproductive and damaging.

Most of the time when beginners experience large loses or a market move that was unexpected, the beginner will begin looking at the markets instead of at themselves and blaming lack of commodities market knowledge as the reason why the loss occurred or why they missing the last big move. It’s very important to make the connection that believing you don’t know enough about the futures markets as the reason for the loss is the same as blaming the commodity market for the loss.

Unfortunately, the reaction we see in most traders is unusually similar in most cases; I would estimate based on my experience dealing with traders for 2 decades that over 85 percent of people react the same way. The typical trader believes that the best solution is to dive right in and begin learning more about the markets because if not knowing enough about markets is the cause of the losses and missed moves, then learning about the markets will solve that problem, this is the logical conclusion that most traders accept to be true.

I personally talk to dozens of traders on daily bases who believe that they don’t have enough commodity trading market knowledge or don’t know the newest strategies and this is why they are losing money in the markets. This is the second biggest psychological problem beginners experience and in effect what they are doing is shifting the responsibility for both profits and losses away from themselves and on to the market. They are not doing it intentionally but this is what is happening and you need to be aware of that.


Trading Techniques Swing Traders Can Use

trading short term

Understanding Probability and Psychology in Swing Trading

The reason why so many traders have inherent difficulties thinking in probabilities is because it requires two different beliefs that don’t seem consistent on the surface. First you have to believe in the uncertainty and unpredictability of the outcome of each individual stock swing trade . Second you have to believe that the outcome over a series of stock trades is relatively certain and predictable.

But as long as they legitimately define trading as a probabilities game, their emotional response to any outcome of an individual short term trade is equivalent to how an average person feels about flipping a coin, calling heads, and seeing the coin come up tails. A wrong call for most people would not tap into their accumulated pain of every other time they were wrong in their lives. Most people realize that the outcome of a coin toss is random thus they expect a random outcome. This is a good example of how professional traders think about individual trades, there is no personal connection with the result of the trade, and it just is what it is, like a flip of a coin.

It’s important to keep in mind that when you accept in advance of an event that you don’t know the outcome, that acceptance has the effect of keeping our expectations totally neutral.
This is called a probabilistic mindset and it consists of five fundamental elements and they are all equally import.

Anything can happen – there are always unknown forces working in the market. Any exceptions that exist in your mind will be a source of conflict and may cause you to perceive market information as threatening.

You don’t need to know what is going to happen next in order to make money – this truth makes trading a probability and numbers game. When you truly believe that trading is a numbers game your expectations will be in harmony with the possibilities. Market information is only threatening if you are expecting the market to do something for you.

Traders Psychology and Stock Swing Trading

n showing financial graph on screen

Understanding Fear and Active Trading

Also keep in mind that your awareness about the psychological characteristics of a successful commodities and futures trader will not and I repeat not unfortunately translate into acceptance and belief for the great majority of people.

When something is truly accepted there is no possibility of conflict within our mind. When we believe something we operate out of that belief as a natural function of who we are without effort. When you train your mind to think in probabilities, especially when it comes to short term commodities and options trading,  it means you have fully accepted all possibilities with no internal conflict; you always take action, and always take the unknown into consideration next.

To whatever degree there is conflict in our mind, there is an equivalent lack of acceptance and it’s very important to keep that in mind because it’s easy to fool yourself into believing that just because you understand what characteristics make a successful futures trader, doesn’t mean you truly developed these abilities on a deep subconscious level and this is what comes to surface during a period of losing trades, so remember that just because you understand something doesn’t mean you have integrated it into your mind on a subconscious basis.

Another incorrect assumption that many beginners futures and options traders assume is the fact that the best stock and futures traders somehow neutralize their fears with courage and self-control, while it sounds great in theory, it couldn’t be further from the truth.

One of the real secret of top stock and futures traders is to not perceive anything the market does as threatening or fearful. If the trader really believes this, there is no need for courage because there is no fear. When a futures trader and brokers finally breaks through and truly understands this deep down on a psychological level, he will start looking at the markets in a positive objective and constructive way.