MY JOURNEY OF SELF DISCOVERY

All of the top traders I have met and read about say that psychology is the key to successful trading. I did not understand this until I started trading the markets full-time and had to come to terms with the emotional swings and internal dialogue you experience while in a trade. It took me some time to realise how important your mindset is in becoming a successful trader – in the end, this is what makes or breaks you in the markets.

I have learned more about myself since trading the markets full-time than in any other career I have undertaken. I can say now that it has been a wonderful journey of self-discovery and inner growth, but during the first year it definitely did not feel that way. I would like to share with you the psychological journey that I went through in my first year of full-time trading and the steps that I undertook in the following year to improve myself.

Before I started trading the markets full-time, I sat down and studied my motivations, set goals and determined what I thought to be my edge in the market. I knew that I was a highly organised, determined, motivated and goal-oriented person, so I felt that these characteristics would give me an edge in the market. However, I lacked patience and had a tendency to beat myself up after exiting a losing trade.

Patience was elusive. I was always afraid of missing opportunities and the need to be in the market was very overpowering. I found myself attracted to options trading. Everything seemed to happen very fast with options – in only a day or two you knew that your trade was a winner or a loser. The only problem was, I did very well in my first few months of options trading and started to focus on money rather than on good trading. This actually caused me to overtrade, which is not a very successful activity in the market. These are some of the issues I had to learn to deal with as part of my psychological development as a trader.

Once I realised that I was sabotaging myself in the markets, I knew that I had to take action to overcome my problems in order to move to the next level and become a peak performer in the markets. Below are the steps I undertook to get back on track and become the successful trader that I am today.

1. Get to know yourself

Continually work on improving your mindset. You are the most important factor in your trading. You are the one who makes the decisions and you are the one who decides what happens once you open a trade. It is what goes on inside your head that will make or break you as a trader. You need to develop self-awareness and understand your motives for trading. Trading is not just about making money – it’s about becoming the best trader you can possibly be.

Start a trading diary. Have a good look at yourself and your personality drivers. Understand how your personality influences the way you trade. Realise your strengths and weaknesses in the market and explore ways of overcoming your weaknesses. I recommend that you start a trading diary and write down your trading emotions each day as they occur and you recognise them. Writing down your thoughts and bad habits as they develop is like sitting back and watching yourself in a mirror. Once you have developed a list, look at the traits you have identified and determine how they might benefit or limit your trading. Think about how you might overcome your limitations.

Source books on self-development. There are a lot of helpful books available on self development, self-healing and the psychology of trading. One book that I highly recommend is Trading in the Zone by Mark Douglas. The subtitle of this book sums up its premise: “Master the market with confidence, discipline and a winning attitude”.

2. Believe in yourself

Create positive visualisations and a positive internal dialogue. As part of getting to know yourself, you will start to become aware of the things you say silently inside your head. I know that I used to beat myself up after exiting a losing trade. I consistently put myself down and agonised over what could have been. Even though I understood that losing was part of the game of trading and that I must learn from my experiences, it still did not stop me from talking to myself in this way.To overcome this, I took some courses in self-development and improving my mindset, touching on the basics of NLP (neuro linguistic programming). This helped me to put my life into perspective, gain control over my emotions and develop a positive attitude and vision for myself in life. In order to achieve success, you need to learn to be your own best motivator and believe in yourself.

Develop a set of personal rules. I decided to add a section to the back of my trading plan called “Personal rules”. This is a list of bullet-point affirmations, quotes from successful traders and reminders to myself of my visions and goals in trading and in life.

Surround yourself with positive people who believe in you. It goes without saying that we are who we attract. In order to remain motivated and positive, we need to be with these kinds of people.

Be passionate about what it is you are doing and why you are doing it. You must have clear goals and understand your reasons for trading. Not only are persistence and determination keys to success, but you must be passionate about what you are doing. When you love doing something, you will persist with it.
Undertake regular exercise. There is a lot of truth in the saying that a “healthy body keeps a healthy mind”.

3. Regularly evaluate yourself

Measure your performance in the markets. Trading is a probabilities game and you need to ensure the odds are in your favour. I regularly study and evaluate my performance. I examine my trading returns, reliability, average win size to average loss size, average hold time and equity curve. It was the results of these measurements that made me realise I was sabotaging myself in the market with my options trading. I decided to change my trading style from short-term trading and focus instead on medium-term trading.

Understand what is working and stick with it. By measuring my performance in the markets I realised that I had been trading shares successfully, but I had given back these profits (plus extra) in trading options. I knew that I needed to take action and change my trading strategy. My goal was to get back on track with my trading and turn my equity curve around to a rising one with small drawdowns. So I spent time reworking my trading plan and developed a system that mostly involved trading shares and CFDs.

4. Manage your risk

Management of your trades is key. With every trade you undertake in the stock market, you are opening yourself up to risk. You are the only person who can control this. I never had a problem exiting my trades and was always disciplined at acting on my stop losses. However, sometimes I exited pre-emptively in expectation of my stop being hit, which prevented me from letting my profits run. In spite of this weakness, I know that money management has been my key to survival in the markets. Even though I overtraded and had a lot of open risk, it was the fact that I still limited my losses by acting on my initial stop loss that allowed me to survive the markets in my first year of full-time trading.

Consistency is important. Once you have found a trading technique that works for you, stick to it and become consistent in the way you trade. For me, trading is a routine activity. I love the markets and love watching patterns unfold, but overallit is just a set of rules that I follow. I use MetaStock charting software to undertake searches for entry triggers and eyeball the charts looking for a desirable set-up (based on my set of rules). Then, if it all lines up, I enter the trade. After that, it is a matter of monitoring the market and managing my positions through my money management rules. To become successful and take the emotions out of trading, you must make your trading systematic.

5. Continue to educate yourself

Never stop learning. I view every trade I undertake in the markets as a new learning experience and I will never stop learning. In my early days of trading I made it a habit to regularly study myself and my trading systems. My aim was to continually build my instinctive mindset and gain confidence in my trading systems. As part of my trading routine each quarter, I would spend time studying the top winning and losing trades that my system generated, even those that I had not entered. I liked to study how the patterns in the charts unfolded and work out how I would have managed the trades if I had entered them. I also made it a rule to read one book about trading or personal development every month.

Consider finding a mentor. During the period in which I was self-sabotaging in the markets, I was highly influenced by other people and seminars that boasted that they could help me make large amounts of money per week or month trading. I realised that these seminars were not helping me and that they lacked a lot of quality and key information, especially those that promoted options trading.

I spent time seeking mentors who were honest in their approach and had trading styles that appealed to me. I discovered some mentors through reading their books, while others offered coaching and courses. My goal was to learn as much as I could from them in order to improve my trading skills, develop a mechanical trading system and improve my trading results.

Trading is psychological

Trading the stock market is a great experience for personal growth. You will confront your own demons and you will hear that little voice inside your head that will put you down. It will tell you that you are not worthy, that you can’t trade the markets, that you don’t have what it takes and other silly thoughts. When you can overcome these hurdles in your mind and trade the stock market in a disciplined way by following a sound trading plan, you will grow tremendously.

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About the Author
Best selling author of “Smart Trading Plans”, Justine Pollard is a successful private Australian stock market and CFD trader, experienced trading educator and sought after trading mentor. Justine specialises in supporting traders to become peak performers in the market.

Justine has been interviewed in many media articles and included in top trading books such as “20 Most Common Trading Mistakes”, by Kel Butcher and “Real Traders, Real Lives, Real Money”, by Eva Diaz.

If you are looking to start trading or have been struggling in the markets then go online now to get Justine’s FREE special report – ‘10 Key Mistakes New Traders Make’ – www.smarttrading.com.au