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If you’ve been in the trading world for any length of time, you’ve likely come across the bold claim: “Trading psychology is BS!” and a complete waste of time. Proponents of this view often argue that the real reason over 90% of people fail at day trading isn’t psychological at all – it’s simply a matter of not having a proper strategy. But is this really the case? Let’s dive deep into the truth of this controversial argument.
Is trading psychology irrelevant nonsense or is it just as crucial as any other aspect of trading?
The Myth of the One-Size-Fits-All Approach
First and foremost, it’s essential to understand that this blog post isn’t intended to be all-inclusive. The topic of trading psychology has many layers and could easily fill a series of books (I’m actually curious to know if that’s something you would be interested in. Let me know by commenting below this post!)
The problem with dismissing trading psychology is that it relies on too much “OR” logic. It assumes that if one factor is important, others can’t be. This black-and-white thinking fails to account for the complex reality of trading and human behavior.
We're Not All Cut from the Same Cloth
One of the most significant oversights in the “psychology doesn’t matter” argument is the assumption that all traders take this race from the same starting line. This couldn’t be further from the truth. People discredit the psychology of trading simply because they don’t feel it’s what they needed to overcome. This implies that everyone is the same – that all people have the same upbringing, life experiences, and influences. But let’s consider this for a moment:
- Each of us has a unique psychological edge. (What I refer to as your True Edge.)
- We all have something that makes us different from the masses.
- This uniqueness is what truly makes us special in the trading world.
It might be hard to believe, considering the number of people in the world, but we can confirm that no two people are exactly alike. There’s something unique about each person on this planet, and somewhere in there lies our true edge.
The Power of Individual Experiences
While we do have shared experiences, we have differences that makes our individual experience unique. Let’s take an example of identical twins who spend as much time together as possible:
- At some point, they will have time away from each other.
- During this time, they will experience something the other twin did not.
- They will have interactions with people the other twin doesn’t know.
- They will generally have different perspectives, even on shared moments.
Making claims that imply everyone is the same is pure ignorance. Even if you were able to find two people who are completely the same in every way (virtually impossible), that would be 2 out of at least 7 billion people as of 2022 statistics.
For argument’s sake, let’s cut that number in half to 3.5 billion. Two out of 3 billion is too insignificant to consider that no one should be experiencing a certain problem based on your personal truth alone.
The Ego Trap
So why do people make such sweeping claims about trading psychology? Often, it comes off as a form of ego-boosting bragging. It’s as if they’re saying, “Look at me! I don’t have the problem that everyone else claims to have! I’m so special! 😎” If that’s what you’re into, have at it – just do so knowing you’re absolutely wrong.
Factors That Shape Our Trading Psychology
Now that we’ve addressed the misconceptions, let’s look at some of the many factors that can psychologically affect how one trades:
- Your level of financial literacy
- How you were taught about money: managing, budgeting, what it takes to earn, ”money is the root of all evil”, “money is necessary for your survival”, etc.
- Examples you’ve seen of how others treated their finances
- How easy or difficult it has been for you to earn money on your own
- Actions you needed to take to have money to trade with
- The amount of money you have to trade with (one of the most common factors)
- Personal fears that were created outside of trading:
- Fear of being wrong or right
- Fear of social rejection or misunderstanding from friends and family who don’t understand trading
- Fear of failure and its consequences
- How you typically deal with perceived dangers
- Your tendency to self-sabotage in other areas of life
- Lack of discipline
- Lack of consistency to do simple or complex things
- Your general personal confidence
And this is just a short list of the many factors that shape your perspective and attitude towards money. You’re bringing this into a highly competitive field where the overall goal of the environment is to get as much money out of you as possible. Not to mention you were more than likely introduced to this competition concept through short-sighted misinformation that doesn’t make trading any easier. But that’s another topic for another day.
Anonymous Reddit Perspective: ‘ The Problem Is Not Your Psychology’
Let’s delve into a real-world example that illustrates the importance of trading psychology. I recently came across a comment on Reddit that perfectly encapsulates the misconception we’re discussing. The user [deleted account] made a sweeping judgment about all traders based solely on their personal experiences. While it’s natural to view the world through the lens of our own experiences, it’s crucial to recognize that our own perspective is limited.
This type of generalization often triggers me, and for good reason. It fails to account for the infinite diversity of human experiences and psychological backgrounds that traders bring to the market. There’s a significant amount of emotional and psychological baggage around money and finance that many people need to address before they can fully capitalize on the financial market’s opportunities.
Let me share a personal anecdote to illustrate this point. For over a year, I meticulously tracked what my first trading strategy should have achieved. The results were impressive. The data showed that I should have realized substantial gains with only minor periods of drawdown. However, despite having this undeniable evidence of my strategy’s statistical edge, I still struggled to execute it effectively.
It wasn’t until I addressed my habitual issues and mental blocks that I was able to consistently implement my strategy as designed. Now, I can take planned trades regardless of my confidence in the strategy’s statistical edge. This experience taught me that while statistical edge and strategy application are interrelated, they are distinct concepts that both play crucial roles in trading success.
Deleted user states: “Maybe you don’t trust your statistics enough?” While this seems like a reasonable suggestion on the surface, it fails to address the underlying issue. The real question we should be asking is, “Why would someone have trustworthy statistics and not trust them?” Clearly, there’s something deeper at play here, beyond simply analyzing charts or fundamental data.
The answer to this “why” is often the root cause of why many people fail in their attempts to trade successfully long-term. It’s not just about having a good strategy; it’s about having the psychological fortitude to execute that strategy consistently, even in the face of uncertainty and potential loss.
Regardless the depth of our statistics, market conditions change over time. Social media is full of confident predictions on where price is headed, but in reality, the next tick is a constant unknown.
It Probably IS You and That Is Great!
It’s important to note that having psychological hurdles doesn’t make someone a bad trader or a flawed person. Humans are inherently imperfect, and the market has a unique way of highlighting our personal challenges. Recognizing and addressing these issues should be seen as an opportunity for growth, both in trading and in life.
Let’s just say the commenter has not faced any significant mental hurdles in their trading journey, as implied by their statements. Perhaps they were already psychologically prepared for the challenges of the market when they began their trading journey. However, it’s crucial to remember that this won’t be the case for everyone who attempts to trade. Each person brings their own unique set of experiences, fears, and mental blocks to the table, and addressing these is often just as important as developing a solid trading strategy.
There is very little you can do about the entities on the other side of your screen, contributing to the change of price. However, what you do have complete control over yourself. And this is great news for your trading goals.
What has kept me showing up, day after day, throughout the years is undeniable evidence that underneath a solid 99% of my PnL meltdowns were mistakes of my own. The statistics driven by the market was never the core issue.
As a matter of fact, had I kept my discipline and consistency at just 80% the negative impact to my account balance caused by external factors would’ve been much less significant. The psychological gains I have had played a greater role to my trading success than any statistical edge.
How to Leap Over Your Psychological Trading Hurdles
Many of our mental hurdles can be improved by adopting simple personal improvement habits, such as journaling, meditating and maintaining a physical fitness routine. These are great tools to start with because they require no additional cost beyond your time.
I often journal on my phone and laptop. I take at least 5 minutes before every trading session to meditate. I keep an active lifestyle with calisthenics, which can be done anywhere, anytime, without a gym membership, expensive equipment that takes up space, or perfect weather conditions. Even something as simple as going for a walk can make a significant impact on your mental and physical fitness.
But sometimes we need to enlist the expertise of others to help us uncover what we struggle to see on our own. This is where I overcame some of my deepest issues with the help of Bulletproof Entrepreneur.
Bulletproof Entrepreneur offers valuable tools that help you identify the root causes of your psychological struggles and address them head-on, clearing their charge indefinitely.
Bulletproof Entrepreneur’s tools and coaching helped me finally overcome:
- Fear of taking trades within my plan
- Fear of taking another loss in drawdown
- Physiological reactions to unrealized drawdown
- Cheating myself by cutting trades too quickly due to uncertainty
- Attempts to trade outside of my true edge
- Placing random trades outside of my plan
Thanks to Bulletproof Entrepreneur I’ve learned so much more about myself, the markets and I have developed a deep understanding of the statistics. Now, while most traders are having anxiety attacks during high volatility periods or missing opportunities during “boring” periods of low volatility, I’m calmly executing my plan with nearly 100% accuracy.
Conclusion: Embracing the Psychological Aspect of Trading
Trading is not solely about strategies and market analysis. It’s a complex interplay of knowledge, skill, and mental edge. Dismissing the psychological aspect of trading is not only short-sighted but potentially dangerous to your trading success.
Understanding and managing these psychological factors is crucial for successful trading. Developing a well-defined trading plan, setting clear entry and exit points, and maintaining emotional discipline can help mitigate these challenges. But more importantly, recognizing that each trader’s psychological makeup is unique can lead to more personalized and effective trading approaches.
So the next time someone tells you that trading psychology is BS, remember that they’re likely speaking from their limited perspective. Your journey in trading is uniquely yours, shaped by your experiences, beliefs, and psychological tendencies. Embrace this fact, work on understanding your own psychological strengths and weaknesses, and use this knowledge to become a better trader.
After all, in the complex world of trading, your mind and personality traits are your most valuable assets. This is where you will find your true edge.
