How to Control Your Mind During Trading – 12 Tips from Top Trading Psychologists

Do you ever feel like emotions sabotage your trades? If you’re wondering how to control your mind when trading, keep reading.

Even the best trading strategy can be ruined when fear, greed, or other emotions creep into your mind and take over. But there are ways to keep these trading emotions in check.

The world’s best trading psychologists have developed techniques to keep your trading on track, even when strong emotions threaten to derail your plans. Here are 12 techniques they offer to tame trading emotions.

1. Take a mental inventory (Paula T. Webb)

According to Paula T. Webb, many problems with trading emotions stem from a vague definition of what “success” means to us. According to her, we have to define our success as traders based on our own definitions, not on the definitions of others.

“When you live by other people’s definitions of what it means to be prosperous, you will not achieve your own financial goals, because you have no focus of your own.”

For example, Webb mentions the idea that “money is the root of all evil.” She believes that many traders are subtly influenced by this idea.

Even if we know how to trade well, we may unconsciously sabotage our trades out of a belief that making too much money is bad.

Webb suggests that we make a list of all of the ideas we hold related to success. Any ideas we hold that limit our success should be changed or discarded in favor of ones that will make us more successful.

“You have to begin to take a mental inventory of what you were taught, and still believe, about being prosperous and successful – and change any limiting beliefs into more productive ones.”

2. Don’t give a hoot (Steve Ira Present)

Steve advises traders to stop taking losing money personally as a way to end the strong influence of negative emotions that hurt trading results. He suggests that traders simply follow their method.

By doing so, you’ll win if you’re using the good methodology.

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3. Understand the randomness of markets (Nial Fuller)

Nial Fuller suggests another strategy for dealing with trading emotions. According to him, many problems with emotions arise because we do not accept the randomness of the markets.

Technical analysis cannot tell us whether a trade will be profitable or not. It can only let us know whether success is probable and whether the reward is worth the risk.

“A winning trader has the mental skills to realize, understand, and utilize the FACT that any particular trade he or she takes has basically a random outcome. That is to say, they cannot possibly know the outcome of that trade until it is over. The winning trader knows this and they also know that they must trade in-line with this belief over a large series of trades and ignore all the temptations and feelings that get kicked up on each trade they take.”

According to Fuller, if we keep this fact firmly in mind, it may allow us to execute our trading strategy regardless of the emotions we feel.

The problem, however, arises when we start thinking such things as “this trade will work.” Getting hung up on one trade leads us to doubt our own strategy if the trade ends up not being profitable. Because of this problem, we should think in terms of risk and reward rather than wins and losses.

4. Investigate the causes of your trading emotions (Jared Tendler)

In Jared Tendler’s view, one common cause of emotions derailing our plans is that we don’t know what is causing them. For example, a trader may enter a trade too early because he is angry, but he may not realize the anger is caused by the fact that he got stopped out on the previous trade and then the price took off afterward.

Or a trader may enter a trade simply because he is bored from the market going sideways, but he may not realize this is the reason for his mistake.

In Tendler’s view, it is easy for a trader to get hung up on the mistake itself in this kind of circumstance. He may make the mistake over and over again. But no matter how many times he has identified the mistake, it keeps happening.

The solution is to stop focusing on the mistake itself and focus instead on the cause of the mistake. Once the cause is kept firmly in mind, the mistake is often much easier to correct next time.

5. Cultivate creativity (Brett Steenbarger)

Another principle that Steenbarger teaches is to cultivate creativity. Markets are always changing, so we must be creative in order to adapt to these changes. We also need to be creative in order to find new opportunities to grow our business.

We should experiment with new instruments, new time-frames, and be creative in other ways. This will help to make our businesses more successful, which will also help to keep our focus on continuing to do the things we are doing well.

6. Distinguish between the types of trading mistakes (Jared Tendler)

Another important principle taught by Tendler is to distinguish between different kinds of trading mistakes.

Some mistakes are “A-game mistakes.” These are mistakes caused by a misunderstanding of the market or of a particular trading strategy. Even a trader performing at his peak will sometimes make these kinds of mistakes. Once we have identified a mistake as being in this category, we need to work on developing a better strategy or on understanding the market better.

On the other hand, some mistakes are “C-game mistakes.” These are mistakes that are obvious. We know we shouldn’t enter the trade early, but we do it anyway. We know we should let that winning trade run, but we exit regardless.

Tendler believes we should avoid getting angry when we realize we are making C-game mistakes. Instead, we should build recognition of the factors that are leading us to make these mistakes. Once we identify these factors, we can work towards avoiding these mistakes in the future.

There are also “B-game mistakes” that are a mixture of the two kinds.

Regardless of which type of mistakes we are making, Tendler believes it is important not to mix them up with each other. Each type of mistake requires a different method for preventing it in the future. If we misidentify the type, we may apply the wrong method.

7. Build on your strengths to control trading emotions (Brett Steenbarger)

Brett Steenbarger has another take on how to stop trading emotions from derailing our success. According to him, many of these problems can be avoided by focusing on strengths instead of weaknesses.

It is common for traders to focus on all of the mistakes they are making. But instead, we should focus on things we are doing well.

“So many people, when they talk about psychology and trading, they focus on their weaknesses, they focus on their problems, and that’s well and good. But we can learn a lot from our strengths, from what we do well in markets and what we see in markets. And so I encourage traders to focus on their successes, focus on their wins, and learn from those. That’s building on strengths.”

8. Master your method (Steve Ira Present)

Steve is also a big advocate of learning a trading method very well. He discourages traders from jumping from “guru to guru” and instead focus on mastering one method well.

Avoid all distractions, such as phone calls, while crafting your methodology. Stay with your rules. Trade less and win more through patience and mastery.

9. Develop yourself as a person, not just as a trader (Brett Steenbarger)

According to Steenbarger, being successful at trading also requires us to be successful in other parts of our lives. If we want sustained success, we need to develop ourselves as people, not just as traders.

“What the research tells us is that to balance the demands and stresses of work, we need to have sources of emotional well-being, things that make us feel good – give us positive experience.”

To be good at trading, therefore, Steenbarger believes we should spend the time we have outside of trading doing things that are fun, meaningful, energizing, and that bring us closer to those we love.

10. Master your edge (Kenneth Reid, Ph.D.)

Kenneth encourages traders to trade from a plan. He points out that professional traders use plans, while individual traders are more likely to trade with intuition. This often leads to trading impulsively.  

This makes a lot of sense because most people, including traders, have worked for organizations before (or while) trading. Organizations have specific plans to achieve their goals.

They usually have a management structure that requires accountability. This means that unless a trader has been a CEO or very high-level manager, developing adherence to a plan is likely a skill that has to be developed for the first time.

11. Be Michael Jordan (Steve Ira Present)

The present gives an analogy of Michael Jordan with these guidelines.

• Picture yourself winning.
• Set the rules and always follow them.
• Master your emotions, especially when feeling pressured so you can act with intelligence and wisdom.

12. Be neutral (Van K. Tharp)

Dr. Tharp suggests that traders stop acting on conservatism bias. With conservatism bias, Tharp explains that traders naturally search out what they expect to see in the markets, and what they need to see.

As a result, traders are unable to go with the flow because they are not neutral. They are busy searching for what they think they will see.

Conservatism bias is a common bias in the growing field of behavioral finance.

Conclusion

Unfortunately, having the best trading strategy is not enough to be profitable at trading. It’s common for a strategy to work great on a demo account, proving that it works, but fails when a trader tries to use it on a live account.

This is because human beings are not dispassionate machines that always trade a strategy correctly. We still have that animal part of our brains that is motivated by greed, fear, and anger, instead of by reason. And this makes it much harder to implement a trading strategy correctly when real money is on the line.

But this article has summarized 12 principles trading psychologists have recommended dealing with trading emotions. If you’ve had trouble implementing your trading strategy successfully, even though you know it is a profitable strategy, we hope these principles will be of help to you.

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Thanks to our References and Sources.

The discipline of Trading Psychology, by Paula T. Webb, https://www.paulatwebb.com/discipline-of-trading-psychology.html

12 Trading Mantras From Trading Legend Mark Douglas, by Nial Fuller, https://www.learntotradethemarket.com/forex-articles/12-trading-mantras-from-trading-legend-mark-douglas

Trading Webinar – Understand How to Control Emotions in Trading, by Jared Tendler, http://jaredtendler.com/trading-webinar-understand-how-to-control-emotions-in-trading/

The Future’s Radio Show Ep. 101: The Importance of a Trader’s Psychology, by Anthony Crudele and Brett Steenbarger, https://futuresradioshow.com/podcast/101/

Steve Ira Present, M.S. – http://www.tradingpsychologyhelp.com/article-whymosttradersmustlose.php?h=i

Van K. Tharp – https://optimusmarkets.com/files/Trade_Your_Way_to_Financial_Freedom_-_Van_K._Tharp.pdf