The fourth stage isn’t too important because 90% of traders never make it past the third. Many will quit when trading becomes difficult and others will find themselves stuck, one step away from the prize in an endless cycle between the conscious incompetence and conscious competence stages. Being stuck in this cycle is very stressful and consumes a lot of mental energy. The trader feels as if they’ve done everything to deserve success yet every two steps forward are followed by three in the opposite direction. “Why” is the main question that is often asked, and when no answer is available blame is thrown at the market, the broker and of course the trading strategy. This leads the trader to head back to the drawing board, searching for a new method for extracting profits from the market, starting the cycle over once again.

There’s an endless number of profitable strategies that exists and if your strategy made it past initial testing, back testing and demo trading phases, then I’m sorry to say but, it’s not the system that’s all of a sudden failing…It’s you. Believe it or not, most traders don’t have a problem finding winning trades. In 2011 a study was performed by David Rodriguez and Timothy Shea which looked at two years of data and over 12 million real trades from FXCM clients worldwide. The study showed that on average, traders were correct more than 50% of the time.  So instead of shifting the blame elsewhere, the key to making a change is accepting responsibility and taking action to deal with it.  Heading back to the study, if the average trader doesn’t have a problem finding winning trades, yet 90% of traders never make it past the conscious competence stage, then what’s holding traders back from success? This question was addressed in the same study and it was found that of the same sample of traders, the average profit per trade was barely half of the average loss per trade.

Knowing this data, it’s easy for one to come to the conclusion that in order to fix this problem a trader simply has to ensure that each trading opportunity provides them with a positive risk to reward ratio. However, I would assume that most traders are well aware of this, yet the problem still exists. So if not that then what? In my opinion the problem lies, not in the analysis that takes place before the trade, but within the trader’s mind after the order is executed.

“Money is the Root of All Evil”

Many of you have heard this phrase before, and when it comes to trading this is certainly holds true. Financial gains and losses are a huge trigger for our emotions. Greed, fear, pain, shame, arrogance, anger and depression are all feelings that are directly associated with the earning or loss of money.  Close your eyes for a second and think about how your last losing streak made you feel.  Were you angry that your hard earned money was taken away from you? Were you scared knowing that you may end up losing more? Were you discouraged, depressed, or even in a state of panic as your account slowly bleed out and you couldn’t seem to make it stop? How about after your last winning streak, did you become greedy and start holding positions past targets in attempt to get every last drop of profit from the market?  Did you become overconfident and start taking trades that you shouldn’t have, believing that you’ve mastered trading and would never lose again? Were you scared, knowing that you’ve struggled in the past and are now wondering if this current winning streak is simply luck and not skill? These are the feelings and emotions that surround every trader each time they put money at risk. 

Successful traders learn how to control these emotions, while struggling trades allow them to influence their trading decisions, resulting in the self-sabotage of their trading results. The connection between emotions and money comes from one’s core beliefs that were instilled in them from a very young age. Therefore, it would be foolish to assume that they can easily be changed overnight. Just like a bad habit, getting rid of these believes and emotions shouldn’t be the goal. Rather the focus should be on how to replace them.

<<Previous     Next>>