Introduction to the Mental Game of Trading

A view on how your psychology can interfere with you trading performance.

We Trade to Trade Well

The psychology of trading is a complex and multifaceted area of study that delves into the mental and emotional aspects of making financial decisions in markets. This Wednesday, BluSky had Jared Tendler on the YouTube channel talking about trading psychology. BluSky traders had the opportunity to send in their questions and get a some very qualified answers from Jared on the subjects.

It becomes evident that traders often seek quick fixes to their problems without understanding the underlying causes of their difficulties. Jared, who is a specialist in this field, emphasizes the importance of addressing the root causality of trading issues rather than looking for temporary solutions. He points out that traders who only patch up their strategies without addressing foundational flaws are setting themselves up for greater failures down the line.

Tendler's approach suggests that a deep psychological understanding is crucial for long-term success in trading. Traders must be willing to engage in self-reflection and to confront the often-uncomfortable truths about their decision-making processes.

This involves recognizing patterns of behaviour that may be detrimental to their performance and developing strategies to mitigate these tendencies. The psychology of trading is not just about managing emotions during market volatility but also about building resilience, discipline, and a mindset geared towards continuous learning and improvement.

In essence, the psychology of trading requires a commitment to personal growth and a willingness to invest time and effort into understanding oneself as much as the markets. It's a journey that goes beyond seeking quick tips and embraces the complexity of human behaviour in financial decision-making.

Jared did, and Matt has also spoken several times before about following a system/strategy without deviation and following the rules, even if you lose several times in a row. You may doubt what you're doing, and your mind may try to find other strategies, but if you followed the rules, you did well.

And even if you lost, you traded well by following the rules. With proper risk management and position sizing, you are still on track for success. We should all strive to trade well and work with our minds to achieve stoic equanimity in our trading.

I would like to summarize my takeaways from the session, which I hope you can take with you and use when you want to work on your mental game.

1. Avoid repeating mistakes:

• Emotions that violate your rules: If you find yourself making the same mistakes over and over again, it's important to realize that emotions often lead to rule violations. These emotions can cloud your judgment and lead to impulsive actions.

• Identify the emotion: Start by identifying the specific emotion that is driving your behavior. Are you feeling fear, greed, frustration, or something else? Awareness is the first step.

• Physical Awareness: Pay attention to physical cues. For example, if you notice yourself tapping your feet or feeling tension in your body, it could be a sign of emotional influence.

• Read your body: Check in with yourself regularly. Are you feeling anxious, stressed, or overconfident? Understanding your emotional state will help you make more rational decisions.

2. Dealing with Loss and Hope:

• Loss Aversion and Hope: If you're freezing in a loss and hoping for a breakthrough, you're probably experiencing loss aversion. You're afraid of realizing the loss and clinging to hope.

• Objective rule: Make a clear rule for yourself: "If a trade reaches a certain level of loss, I will exit." Stick to this rule objectively, regardless of your emotions.

• Deeper Reasons: Explore why you don't allow yourself to be in control. Is there a deeper reason for this feeling? Perhaps a fear of failure or a lack of confidence?

• Prepare and Plan: Have a plan before entering a trade. Know your entry, exit and stop loss points. Stick to that plan even when emotions kick in.

• Habit of Hoping: Recognize if you have a habit of hoping that trades will turn around. Hope can be detrimental if it prevents you from taking necessary action.

• Seek help: If you struggle with self-control, consider seeking professional help or joining Jared Tendler’s program. Make sure you use the offer that Jared put together with BluSky.

• Procrastination: Think about whether procrastination is affecting your trading decisions. Address any procrastination tendencies in your personal life as well.

3. Dealing with Overconfidence:

• Perception Problem: Overconfidence often stems from a distorted perception of your abilities. Compare your actual performance (ABC: Worst, Avg, Best) to your perceived performance.

• Belief vs. Confidence: Understand the difference between belief and confidence. Belief is an expectation, while confidence is based on evidence and ability.

• Avoid unrealistic expectations: Many beginners believe that they'll automatically succeed. This can lead to unrealistic expectations. Acknowledge your current skill level and avoid crossing that line.

• Stay Grounded: Don't assume success without putting in the work. Confidence should be based on continuous learning, practice, and improvement.

4. Mentally Evaluate Yourself Before a Trading Session

• Pattern Recognition: As a trader, you're good at recognizing patterns in the market. Now apply this skill to yourself. Recognize early signals or indicators that you may be in danger of overtrading or oversizing.

• Self-reflection: Consider your mental state prior to such events. Are you not sleeping well? Do you feel anxious or rushed during preparation? These signs can help you anticipate risky behavior.

• Morning Assessment: Think about how you felt earlier in the day. What was going on? Understanding your mental state can prevent impulsive trading actions.

5. Recover and Grow After a Big Loss

• Consequence matters: Simulated trading (SIM) lacks the emotional impact of real consequences. To recover, trade with real stakes. Use micros or smaller positions - this adds weight to your decisions.

• Identify the Cause: Analyze why the loss occurred. Was it revenge trading? Mistakes you made? Fear of missing out (FOMO)? Understanding the cause will help prevent a recurrence.

• Profit target or time frame: Set clear goals. Have a profit target for each trade or assign specific time slots for trading. This discipline prevents chasing losses.

6. Fighting Fear

• Technical Component: Fear isn't just an emotional response; it has a technical aspect. Understand what makes you a competent trader. Can you succinctly articulate your strategy? If not, dig deeper.

• Have a plan: Develop a clear trading plan. Know your entry and exit points, risk management rules, and overall strategy. A well-defined plan reduces fear-based decisions.

• Take time to think: Anxiety often arises when you lack clarity. . This reflection increases confidence.

• Strategy and Confidence: Confidence comes from having a plan and understanding how you make money. It's not about physical combat; it's about mental preparation.

7. Getting better at accepting losses

• Trade to trade well: Shift your focus from individual trades to your overall performance. Did you stick to your trading plan? If so, consider the loss part of the cost of doing business.

• Position Sizing: Properly size your positions based on your risk tolerance. Smaller positions can help you manage losses more effectively.

• Practice and prepare: Mentally rehearse scenarios in which you might incur losses. What will you do if a trade goes against you? Having a plan will reduce emotional reactions.

• Cost of trading mindset: View losses as a necessary part of trading. Just as any business has costs, consider losses as the cost of gaining experience and improving your skills.

Remember, trading psychology plays a crucial role in your overall success. By addressing emotional biases, staying disciplined, and maintaining self-awareness, you can enhance your trading outcomes

If you want to learn how to play the mental game of trading better, log on to https://blusky.pro/members/tools/jaredtendler and begin your journey to stoic equanimity.