Trading Psychology Tips: What Should You Focus On When Trading?
“Focus on the process.”
This is a quote which gets said too often, without enough details to go along with it. When people hear it or say it, the first thing which comes to mind is the Trading Plan.
Although trading the plan is a huge part of it, but here’s something which most people don’t tell you. It’s NOT ONLY about the trading plan.
Zoom out a little more. What is the process beyond the trading plan?
The Psychological Aspect
This is actually a huge huge area, but let’s just look at the simplest thing right at the start. Detach from the results of your trading. Your self-worth is NOT tied to your trading results.
Results are the consequence of the trading system and usually just part of the numbers. This mindset allows traders to handle losses better and avoid the mess that comes from losing your emotional stability.
Your job as a trader during the trading session, is to execute the strategies to the best of your ability. After the trading session, take off your trader hat, then put on your researcher hat and do your trade reviews. Focus on the process.
Look For The Next Best Opportunity
Every trade is an opportunity to do better.
This is key. You can’t trade by always looking backwards, you need to keep looking forward.
Just like you can’t drive a car by only looking in the rear view mirror. Only by continuously participating in the next best opportunity, can we progress as traders.
Mike Bellafiore, founder of a world-class proprietary trading desk, wrote a book called “One Good Trade“. I personally consider this to be one of the “trading bibles”, right up there with Market Wizards, Van Tharp’s, Alexander Elder’s works.
In that book, he clearly explains why we need to keep looking forward. Save your trade reviews for your downtime outside the trading session, like on weekends. Do your visual backtesting as well, look for your opportunities, look for new market opportunities which you think can be exploited. Visual testing helps build confidence.
For those who can code, see if looking at the results of the coded backtest is enough for you. I mean enough for you to gain confidence to actually trade the strategy or opportunity.
It’s only when your actions are consistent, can you truly identify if your trading has an edge. Being consistent also helps you exploit the edge as often as possible.
Having consistency in your actions, will also give you visibility of how best to sharpen your edge. If you make any tweak to your system, change only 1 variable at a time. It will allow you to more accurately identify if the tweak is beneficial to your trading or not.
Imagine if you tweaked 3 variables in your system at a time, how would you know which variable was contributing to any changes in the results?
It’s Not Only About What You Can See
Besides knowing what’s going on with the market, there’s something else you need to keep an eye on.
You have to look inside yourself. How are you feeling stable at this moment?
Any residual emotions from dealing with your world outside of trading? Yes there is a world outside of trading, please remember that. Are you a little tilty because of a few losing trades? Too eager to get into trades because of FOMO? Or hesitant to get into trades because of the fear of losing money?
Active Trade Management
Each decision point means additional stress for you. Humans generally have a limited daily capacity for “making great decisions”.
This is one of the reasons that Steve Jobs and Mark Zuckerburg wear the same thing every single day. They want to save their decision-making capacity for the important issues.
Therefore, it’s always good to set some ground rules on exactly when you need to make a decision. For example, if there is a parabolic price move, or if price makes a very large gap in favour of your trade.
Don’t keep staring at the screen and repeatedly asking yourself, “Should I take some profit off the table NOW?” or “Should I take a smaller loss on the position NOW?”
If you find yourself doing this, then you need to make some decisions beforehand. Determine the decisions points as part of your trade plan for the trade. Then queue your order in the market or use some automated tools to help you with exits at pre-determined points.
Focus On The Process
There is a lot to remember at each step of the process. Write down on sticky-notes, the aspects you want to remind yourself.
Stick these notes around your monitor or on your writing notebook. Write more detailed reminders in a “reminder document” to yourself. Read this reminder document every day.
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Great article! Just found your blog.