Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
“The single most important aspect of trading is PSYCHOLOGY.”
I’m not kidding.
If I asked a hundred new traders what they thought was the most critical factor for trading success, I would bet my life that not a single one would give me that answer.
Raw beginners assume it’s nothing but stock picks or specific options trades.
Those with a bit more experience might suggest the trading system, entry points, or profit targets.
But ask yourself;
“What’s the common denominator in all these reasons?”
You either pick the stock or trade, or else you put your trust in someone else to do so. You either build the trading system, or choose to use it. It’s you who decides when to enter a trade and when to take profits.
YOU are ultimately responsible for everything that happens!
I know that my students haven’t fully grasped the concept when they say what every trader has inevitably said at some point, usually after a string of losses.
“This market is terrible!”
Let me say this loud and clear. There is no such thing as a bad market.
For every dollar you lost, someone else won.
There’s a good chance that many of your trades got skewered by the HUGE sell-offs in the S&P 500, DOW, and NASDAQ over the past two months.
I’ll admit, quite a few of mine got smashed!
However, I still exceeded my profit targets in both February and March.
When you blame the market, it is simply a reluctance to take responsibility for your own trading. If you’d had short positions you could have made a fortune.
Your bad market was someone else’s cash cow!
Every time you’re tempted to exclaim angrily, “This market is terrible!”, I want you instead to calming speak the words:
“This market is.”
No adjective, not judgement, no opinion.
Yes, this is a bit philosophical, but I’m trying to get you to understand something that will dramatically improve your profits.
Rather than blaming the market for your losses, evaluate what you did and try to improve.
Those who project the blame for their mistakes forego the opportunity and the responsibility of learning from them. Without this learning, you’ll go on repeating the mistakes and will never get any better!
Did you have too many credit spreads expiring in the same week so that they all got hit hard?
That’s an easy fix. Don’t put yourself in that position.
Were your losses higher than your account could handle?
Obviously you had too much capital at risk. Work on your allocation process.
Did you have to close a slew of trades at a full loss?
Then start getting out of losers earlier and work on techniques to manage trades gone wrong.
All of these reflections and actions are essential to you becoming a better, more consistent, and highly profitable trader. Until you stop pointing fingers at the market, the stocks, or the system, and turn your gaze towards the mirror you will be stuck in a rut.
I recently read the book Super Trader, by top trading coach Dr. Van Tharp.
Dr. Tharp is world-renowned for using neurolinguistic programming techniques to help traders of all levels achieve their top potential.
In his book discusses a hypothetical average trader named Joe.
“Joe had spent eight years getting his education to become a successful engineer, but he was treating the investing process as if anyone could do it. It’s similar to building a bridge without any training. You can’t work like that in the real world, but it’s easy to do in the market. In the real world it could mean a collapsed bridge; when you do it in the market, it means the death of your account.”
Truer words were never spoken.
Trading is a skill that requires EXPERIENCE, PRACTICE, and LEARNING from your mistakes.
The sooner you stop blaming others for your failures, the sooner you’ll see your cash flow grow.
So you took a hit?
“Shake it off, find out why it happened, and get back in the game!”
Psychology is so important that next time were going to discuss it a bit more.