Winning traders approach the markets with an optimal mindset. They trade "in the zone," but it's surprising how stress can impact your ability to enter this ideal state of mind. You can carefully delineate a complete trading plan, for example, in which every aspect is spelled out clearly, from when to enter and when to exit, and you may have a wealth of experience executing such plans, but when you are stressed out, even the most simple task can be difficult to carry out.
You might miss an obvious signal, which would be apparent in a more rational state of mind. When you are nervous and slightly overwhelmed, your psychological perceptions and intuition are restricted and closed off. You miss little things, and have a tendency to respond impulsively.
You may forget to place an order according to plan, or may misread a signal and close out a position too early. These little errors can be frustrating. Are you easily stressed out by trading, or do you approach trading with a carefree, relaxed mindset? Here's a quiz to see how you compare with other traders.
If the item is true for you, give yourself a score of 1 for the item. If you think it is false, give yourself a score of 0. Answer true or false for each of the following items, and see what score you get:
1) I often over-analyze an investment decision.
2) I often feel that there is too much information to take it all in.
3) I wish that I had more time to think through my decisions.
4) When I think about my life, I frequently think pessimistic thoughts.
5) I tend to hesitate at critical moments of trading.
What score did you get?
If you received a score of 0 or 1, you scored in the lower quartile, which means that fewer than 25% of those who took this quiz obtained a score as low as yours.
Individuals who scored in this range were more relaxed when approaching trades, and reported making profits trading the markets. In contrast, if your score was 4 or 5, you scored in the upper quartile, which means that 75% of the subscribers who took this test obtained a lower score than yours. We found that individuals who scored in this range tended to experience anxiety while trading, had difficulty handing risk, and tended to report mounting losses while trading the markets.
Why are some traders easily stressed while others are more carefree?
Some people are too wrapped up in trading outcomes and how an outcome reflects on their value as a person. They may think, consciously or unconsciously, "If I win, I'm great, omnipotent, and a champion. If I lose, I'm a sorry failure." When you take this approach to trading, though, it can create a roller coaster ride when it comes to your self-esteem. You'll be up one minute and down the next.
Experienced traders report that they make the most profits when they aren't expecting them. They observe the markets openly and freely, and suddenly they make a profitable trade. If you put pressure on yourself, however, you usually choke. Your mind isn't free, but cluttered with feelings of doubt and pressures to succeed. The frustration distracts you, and suddenly you find it almost impossible to make enough winning trades to come out ahead. It's better to trade in a relaxed and carefree manner. It may be difficult to completely view a trade as a leisurely activity, but there is a lot that you can do to make it fun. You can limit risk so that you know that you can handle a worst-case scenario. When you know that you can't possibly lose too much, you will feel at ease. In addition, don't put your self-esteem on the line with your money. It's just a trade. Don't seek out glory. Just enjoy the intellectual challenge of trading. You win some; you lose some. Focus on playing the game and how fun it is. This approach to trading will allow you to think clearly and freely. You will make more profits if you trade with a carefree attitude.
Sign up for our FREE weekly Chart Scan newsletter.
Master Trader Joe Ross wants you to learn trading and he created products to do just that, teach you how to trade. Click here to find which ones best fit your trading style. Learn the art of trading Joe Ross' way!