State of Mind

​Making profits as a trader is often a matter of trading in the proper state of mind. Trading expert Dr. Van K. Tharp, author of several best-selling books on trading psychology and head of the Van Tharp Institute, describes three states of mind that may dictate how you approach trading. As traders gain experience with trading the markets, they move from a "having" state of mind to a "doing" state of mind. They achieve profitability when they reach a "being" state of mind, though. Which state of mind best characterizes your trading?

Many traders start out using a state of mind that focuses on "having." Rather than focus on how to trade in concert with the markets, they are obsessed with profits, and what they can purchase with those profits. The main goal is to make money, money that can be used to purchase objects of desire, such as a shiny red sports car, a spacious, luxurious home, or a large wardrobe of fine clothes. They believe that great financial success will be the solution to all their problems. Trading isn't just a job; it's their salvation. Although many traders are motivated by money, there's a downside to focusing on what you can have as a result of your profits. When traders focus solely on accumulating wealth, on "having," they tend to act greedy and may take risks in an effort to win. There is a blind and unrealistic focus on trading at a high level of performance. Unless they trade at a high level of performance, they can't possibly "have" what they desire. But a novice trader can't achieve a high level of performance.

At some point, a trader's state of mind moves from "having" to "doing." In a "doing" state of mind, a trader focuses on learning trading methods, and on when these methods work and when they don't. According to Dr. Tharp, however, traders in the "doing" state of mind still tend to focus on performance issues. They ask the question, "What can this trading method do for me?" They are concerned with how the method can make them rich. Rather than become engaged with the markets, trading in the "doing" state of mind is about evaluating the method, wondering if it is "working." Trading, however, is not a simple matter of choosing a particular method and arbitrarily applying it. Becoming a winning trader requires sharpening your trading skills. It is vital that you develop your intuition by trading with a variety of methods under a wide range of market conditions, and finding ways that the proper method dovetails with optimal market conditions. Although it doesn't tend to lead to enduring profits.

The ultimate state of mind for profitable trading is the "being" state of mind. Rather than focusing on outcomes, a trader in the "being" state of mind is fully in tune with the markets. He or she trades in synchrony with the market action. A firm commitment is made to trading the market and accepting it on its own terms. When a trader works to trade in the moment, he or she intuitively sees profitable setups and effortlessly trades them. It may not happen overnight, but with enough practice and experience, you can trade with a "being" state of mind.