17 Oct The Most Important Skill in Trading
I’ve trained many traders over the years and have seen successes and failures of my students. What differentiates the two? Is it because of their knowledge level, trading experiences, capital, intellectual abilities or just plain luck? It’s very simple and it all comes back to a skill that applies to success in life. It’s your MINDSET. Many of you have heard me speak about mastering your mindset and that trading is a mental game. Well it is the TRUTH. You see, the profession that we are in is totally reliant on when you push the buttons on your computer to BUY or SELL a trading instrument like stocks. If you BUY at a good price and it goes up then you make money. If you BUY at a bad price and it goes down right away then you lose money. It’s really a simple profession that we are in. The key is obviously timing. You can say that it depends on your knowledge and experience in determining what to buy or sell OR other concepts such as money management, chart reading and a whole slew of other factors. But let’s say that you have a solid foundation of knowledge and 3+ years of experience in trading the financial markets AND you’re still not a successful trader. Then what’s the skill that you lack?
Having had the privilege of training a lot of experienced traders, I can say that the one skill that they lack or haven’t fully developed is their ability to detach themselves emotionally from their BAD and GOOD Trades. The concept is no matter what the result of your trade is (PROFIT or LOSS), you shouldn’t let the result determine whether you are HAPPY or NOT. You see, I’ve seen so many traders base their emotional state on how a trade went. I would often see students happy one week and then miserable the week after that. However, how can you not base your emotions on whether you made money or not? Are you supposed to be happy when you lose money in the markets??? Well I’m not saying that but irregardless of the result, your emotional state should stay relatively neutral. If you put on a good trade and made a profit from it, pat yourself on the back and say “Good job! The market agreed with me.”. If you put on a trade that you thought was good but you ended up with a loss on that trade then tell yourself “I took a small loss. The market told me that I was wrong.” There were many instances in my trading career that I was on a roll and making money on a consistent basis. At first, I was a cocky guy and bragged about how much money I made but as my trading matured, I became more modest. I remember one time, I had a friend watch me trade in my hotel room and I made a sizeable profit that day. My friend was jumping up and down for joy for me. I sat in my chair and patted myself on the back. Good Job.