The Mindset of a Trader

Hello and welcome to today's video. The title is the Mindset of a Trader.

A vision and strategy aren't enough. The long term key to success is execution. Each day and every day. Now, strategy is absolutely essential. It's the first part of becoming a trader. Before mindset, you need strategy and your strategy needs to be back tested and proven to have an edge. Can't be based off of a 30 minute YouTube video. Can't be based off a trade you saw a random influencer take that you don't understand. Can't be a pattern that you saw play out once or twice or based off of your feelings or hope. It has to be rules based. That has been tested over a large sample size of at least 500 trades. If you don't have that yet, that is the first thing that you need to work on and it'll take some time. You'll need to refine your strategy through a series of feedback loops where it goes through multiple iterations. It needs to include different variables and conditions that the market can give you. And you'll need to simplify your strategy into well defined rules that will make up your trading plan. Now, if you're watching this video and you don't have a well defined strategy yet, I recommend starting with the golden goose which is found in our discord. Learn and master the strategy first and then you can go on to mindset.

Most people think that all you need is a good strategy and that's all that's needed to be profitable. In this video I will explain to you why strategy alone may not be enough. Perfect execution of the strategy matters and that requires mindset skills that need to be developed. Think about it. Why do 95% of traders fail to reach profitability? Why can't you just buy an indicator or buy a proven strategy and become successful? Well, 95% of people, let's assume for the most part, who are all intelligent, who thought they could succeed, who worked hard, ended up giving it a good go, ended up giving up and not making it. In my opinion, it is the mindset that sets the 5% apart from the rest. And it doesn't have to do with being the most intelligent or having the most knowledge.

Let me start off by sharing a story. This is the story of France and it comes from the book the Mental Game of Trading by Jared Tedler.

And it goes like this. Accumulated emotion was a particular problem for France. A Canadian trader who left a 15 year career in academia to scalp e mini futures. He and his wife shared a dream to travel the world. He became a traitor to fund that dream and because it let him be his own boss. But a swirling cocktail of emotions came up on a daily basis, preventing him from executing his strategy consistently. As months turned into years, the pressure was mounting to reach a level of financial success that would enable him to realize the dream. To hit his financial targets, France only needed to take one A setup per day. There were plenty of days when his mind was calm and he can see the action clearly, make quick decisions and take only those trades. Other days, however, the mental strain of waiting for an A setup will lead him to force a trade outside that narrow parameter. Here's a typical scenario for how it would play out. If the force trade loses, France immediately starts criticizing himself while simultaneously trying to convince himself he's done the right thing. Now a new reversal setup is playing out. He's tempted, but able to stay away. Waiting and waiting. Frustration grows from being on the sidelines, and he ends the day with no A opportunities and and that one mistake. Unbeknownst to France, he arrives the following day feeling more of an urge to correct his mistake and get an A trade. Right out of the gate, he sees a potential trade, but it has some congestion to it, so he stays away. Initially, when the price takes off, he knows not to chase it, but the urge is too strong. He gets in and loses. Hope arises in his mind that the next trade will cancel the pin from the loss and his mistake. As he waits, his mind won't relent. Self criticism builds momentum. You know the setup was no good. You shouldn't be losing. You know better. He wants to fight back, and he looks at every candle for a clue that there's a setup to take. He sees one and jumps in without processing all the criteria. To make matters worse, France doesn't even notice his analysis as degraded. The trade loses, his anger explodes, and he takes several more trades before finally standing up and walking away. The rest of the day, he tries to clear his mind and spend time with his wife and son, but his mistakes eat at him. He worries that his dreams may just be that and he might never succeed. The next day, he's resolved to improve his execution, but he doesn't realize how frustrated he already is. Tempers are during his morning routine with family, fanning the flames and causing him to miss the start of the trading day and an A setup. As he sees what was missed, his brain shuts off without even waiting for the next candle to close. He enters in a terrible place despite knowing that all he needs to do is Be patient and wait for the right spots. Cycles like these were common for France.

Can anyone relate to this?

Think about your most costly errors in execution. Do they include any of the forcing mediocre trade setups? Hesitating on entries? Exiting trades too early? Chasing the market price up and down? Moving a stop too soon? Moving your profit target before it hits? Talking yourself out of a good trade? Revenge trading? Overtrading? Often when these mistakes occur, you're unable to stop yourself from making them. Your emotions get in the way and they have the power to force your worst impulses.

We have all made these mistakes. All of us will likely continue to make these mistakes. But gradually the goal is to eliminate mistakes so they become farther and fewer in between and eventually come to the point where they become so rare that we achieve the ideal consistency we are striving for. We become consistent.

Consider a diet plan. I would argue that most diet plans work.

Whatever diet plan, you name it, if you can stick to it, you will likely lose weight. The the problem for most is that sticking to a diet plan is not easy. There are too many temptations for convenience, immediate gratification, lack of discipline. Especially when your weight loss stalls or you reach a plateau, you are no longer seeing the results that you were first seeing. That's when people start to give up. Think about your New Year's resolution, where you see gym memberships pick up at the beginning of the year, only for people to fall off after a month or two.

Similarly with trading, your PL will never go up in a straight line. It will never continue forever. There will always be drawdowns, setbacks, losses. It is in those hard moments that can make or break you, where you need to decide whether to continue to follow your plan or give in to temptations and impulses. Ask someone who runs.

I wish I could be a runner. I've tried many times to get up early and run and to run consistently. I have friends who are runners.

And getting up early, especially where I live in Canada, where oftentimes the weather can be cold. It's so easy to make excuses. But ask my runner friend and he'll do it. He'll get up even though it's cold, even though the sun hasn't even risen yet. He'll get up and he'll run. And now running. Running is part of his life. It's who he is.

And fairly recently he did have a foot injury where he couldn't run for five or six months and it actually felt like there was a part of his life that was missing. It had become such a part of their identity that it was quite devastating for him.

To not be able to run anymore. Similarly, in trading, it may be difficult at first to be consistent, but if you keep at it and keep doing it, you become it and then doing otherwise would seem unthinkable to do.

Now, in order to execute consistently, in order to be consistent, a trader needs to think a certain way. They have to think differently than the mass majority. They need to think differently than the 95%. And while the majority of people will focus in on individual trades, we as traders need to think in terms of probabilities.

From Mark Douglas, he says the typical trader is obsessed with the outcome of a trade. The professional trader is focused on the process of trading and letting the outcomes take care of themselves. There is no certainties in trading. There is no such thing as a risk free trade. There are too many market participants, too many different big players involved that you will never know with certainty the minds behind the collective whole. This doesn't mean that there aren't patterns that repeat themselves over and over again. It doesn't mean that you cannot have a statistical edge. It just means that on any individual trade by trade basis, you can never know for certain if that particular trade will work out. Every trade that you take, no matter how confident you may be, carries with it an element of risk. If you want certainty, if you can't accept losses, then trading is not for you.

If you want to be consistent, you have to accept the possibility of a loss on every trade and still take that trade. Therefore, your relationship with losses is important. Traders think in terms of probabilities and they do not judge their success based off any single trade because losses are unavoidable. Instead, success, whether win or lose, is whether you stuck with your edge and the outcome is seen over a series of trades.

Gambling. What's the difference between gambling and trading? Well, gambling is betting on an uncertain outcome. Where trading is is taking a calculated risk on an outcome backed by data. It's treating trading like a business. We are the casino. We are not the gamblers. We are the business, which is the casino. Casinos do not care about the outcome of any individual trade or any individual bet. We know that as long as we continue to execute on our edge, the results over a large series of trades will work itself out. Imagine if the casino deviated from their business just because they took a big loss against one lucky gambler. We are the casino.

Mark Douglas says rarely will a typical trader stay with this system beyond two or three losses in a row and Taking two or three losses in a row is a very common occurrence for most traders. The majority of unsuccessful traders are too focused on the outcome of individual trades. So what happens in the mind of a trader who is too focused on a single trade? Well, if it is a loss.

They may become hesitant to take the next setup. They may think that the strategy doesn't work and they start looking for a new strategy.

People naturally do not like to experience pain or loss. People are natural problem solvers. When pain comes, the immediate reaction is to think about how to solve that pain. Or in terms of trading, how do we make back the money as quickly as possible. Being so focused on any particular loss can cause you to revenge trade, or worse, size up inappropriately on the next trade. Often times the trade that you take immediately after a loss can be the least thought out, the least planned, and all emotional and can be the most dangerous trade that you can take.

What if the trade was a win?

Well, if the trade was not a part of your strategy, maybe it was a random pattern that you saw or based off a gut feeling. Well, this is just as bad, because winning a trade that was not part of your edge wires your brain into thinking that it is a trade you should be taking. Again and again. You may associate a good outcome with a good decision or a good trade, when in fact it was a bad decision or bad trade that just happened to work out in your favor. This time, instead of taking trades based off data, you begin to take trades based off of something entirely different.

And this can cause bad habits to occur that in the end will not produce the results that you're looking for. It will not allow you to be consistent.

Winning a trade can also cause you to be in a state of euphoria or overconfidence, often feeling invincible to the point where you take riskier trades and often with even more size than you should be.

Thinking on a trade by trade basis full of emotion is unsustainable and it is in your way of consistency.

Tom Hugart says most people when they trade, they think about the outcome. But success is not built on outcome. Success is built on process. What we're looking for is not perfection, but gradual improvement. So I am just following the process every single day and the outcome will come gradually. David Paul says traders need two levels of belief. At the level of one trade, you need to firmly believe anything can happen. But at the level of 30 trades, you need to firmly believe that your edge will work out.

Mark Douglas Remember, you don't have to know what will happen Next, in order to make money, let the law of large numbers work to your advantage.

You don't need to be the smartest person in the room or have the most knowledge to be the most successful trader. You just need a proven back tested edge and the determination and willpower to see it play out over a series of trades without sabotaging it.

You're paying for going against your plan. Every time you enter a trade out of FOMO or on a low probability setup, you're throwing away your hard earned money and progress. You need to decide what matters to you more, short term gratification or long term success. Discipline isn't optional. It's the foundation of every successful trader. Every undisciplined trade is just another step towards losing everything. Let that sink in.

It's simple. Trading is simple. It doesn't mean it's easy, but it does mean the path is clear.

An outsider who knows nothing about trading, they will find it extremely odd that traders have difficulties following their edge. If you have an edge, if you have a strategy, why can't we just stick to it and trade it? It's simple, but not easy. But if you want to be consistent, if you want to be profitable, this is the only way. You have to consistently execute on your strategy. And that's it. That's all you need to do, have a strategy, a proven back tested strategy, and execute on it consistently, again, again and again. And if you can do that, the outcome will produce itself in the end.

Now, what are some practical steps that you can take to improve your consistency? Well, the number one way to do that is to track your trades. Tom Hoogaard says true, profitable trading starts with awareness of where you keep going wrong.

Tracking your traits will give you the best chance of identifying your weaknesses in order to approve them.

A lot of people, they don't want to journal or they're too lazy to journal. They don't see the benefits of it, and it could be because they just don't know how to journal properly or.

They don't track the correct metrics.

So in order to journal effectively.

You need to track the metrics that are important to you. And part of that is going to be technical. So you're going to track the technical aspects of your system, of your strategy to find improvements, to ensure that it works. And especially early on when you are discovering your strategy or refining it, you're going to need to back test and track them to see what works and what doesn't and how to refine it for a better win rate. But the other part of the other metrics that you need to track are equally as important and that has to do with mindset. So here I'm going to give you an example of how I journal and how the metrics that I use that help me.

So here are some of the.

Metrics that I use. As you can see, some of them are technical.

The first part I do want to make sure that I'm trading with the trend for entry type. I do have different profiles such as conservative or aggressive with different rules for each and I do have different targets that I go for, either one to one or weak highs or weak lows or other specific targets. And then I want to track to see if the win rate differs between the two and.

And it is something that's important to me. Now regarding the mindset parts, you're going to want to measure and track your mistakes.

Otherwise known as the demon finder. So some examples of that can be did you enter too early or too late? Did you exit too early or too late? Did you move your stop loss too soon? Did you put on too much risk? Did you have incorrect stop loss placement or did you not notice a time such as New York Open or there was significant news that you weren't aware of that you should have exited your trade before?

And so those are going to be.

Important things to track. And if you find that you are doing these mistakes often.

And you will be able to recognize and.

Focus on these mistakes.

More seriously and make those improvements faster than if you did not track them. Other metrics that.

I want to track is my emotional state. Was I fearful during this trade? Maybe the trade was.

Initially moving strongly in my direction and then it starts to range and retrace on me, causing me to be fearful, causing me to play around and make mistakes. So what was your emotional state? Or were you in a state of euphoria where you put on too much risk.

Or you did something you shouldn't? Were you distracted? I know sometimes I have obligations at home with my kids and.

Sometimes they will distract me from.

A trade where I may have to exit the trade earlier than I want to. Or were you impatient? Were you on maybe you were on a stream and you seen other people taking trades and.

Making really nice profits and you wanted to get in on the action so you got impatient and forced to trade resulting in a loss. What was your emotional state? And so starting to recognize some of these states you'll be able to better track and recognize them. The key to.

Improvement is to recognize when these feelings occur and then to preemptively combat them and not give in to the impulses, but recognize them. And then to tell yourself the opposite or the correct state that you should have. Right. And also will help you to be aware and to maybe step away. Turn off your screen and then come back when you are calm, clarity and confident. Did you follow your plan right? Yes or no? And if you start seeing that you're not following your plan, then that's going to be one of the biggest red flags. You're going to need to track that and make sure that that you are following your plan. Trading is hard as it is. If your win rate gives you a 60% win rate, well, that 60% win rate will drop drastically if you're adding to it, if you're deviating from it, if you're sabotaging.

You cannot be successful if you're not consistently following your plan. Right.

And so that's it. This is a short video, but I hope to summarize. You need to be consistent. To be consistent, you cannot focus on the outcome of any individual trade because if you do, and when you take a loss, or even when you take a win, it can affect you from being consistent. Consistency means that you are thinking in terms of probability and you are consistently executing on your predefined strategy day in and day out. And you are letting the outcome show itself in the end. Be disciplined, get profitable.