The Trading Mindset – Knowing the Rules to Success
The trading mindset comprises of fundamental qualities that must be developed in order to be consistently successful in the stock market.
In this post we’re going to look at the behaviors we know help construct a successful trader; knowledge we’ve accrued from several years of day trading and long-term investing.
So to start off – did you know that up to 70% of traders lose their money within the first year of trading?
Why, you ask?
Sometimes it can be just bad luck, or outright silly decisions – but most of the time, it’s down to the simple fact that the driver is inexperienced, greedy, and above all, impatient.
How to construct the trading mindset!
Having a good mindset is the central basis to any meaningful success in the stock market; so to help you get started we’ll unpick some of the characteristics of this golden approach.
Do your own research!
Arguably the most important, do your own fieldwork. Relying on other people’s tips and (sometimes bogus) claims may come back to bite you, so always ensure you’ve taken some time to look into what you’re investing in. Read more about the research you should undertake on our Factors that make a Good Investment article!
You need to be cool, calm, and collected
Don’t rush your decisions and do NOT make any panic moves, no matter how smart they may seem at the time. You may see a stock nose dive 3% on opening, but that’s not to say it won’t end the week 5% up overall. Stay the course.
You’re playing with real money here, money you’ve worked to earn. Having things go a different way to how you’d wish is all part of the game, you need to learn to embrace this if you’re going to be successful.
Accept that you could lose everything
Do not think of the value that has been lost, or punish yourself by wondering what it could have bought you. All the money you put in is in effect, dead money. See every penny you’ve invested as money you no longer have, and that way you’re more likely to make long termist decisions which could well pay off.
Only play with disposable income
This one goes without saying, if you can’t afford it to lose it, DON’T invest it. Do not rely on potential gains for any sort of living expense, as these are not guaranteed and if you mess up, you can only have yourself to blame.
Be humble with your wins and don’t get too hurt on your losses
You will have days where the market turns down, but on the other hand, there will also be many up days. Whatever happens, keep a clear mind and don’t let your wins or losses cloud your judgment.
Learn how to take a loss
What is meant by this is that you need to learn that when you’re wrong, you need to get out quickly. For example, a common swing trade we use is looking for an overreaction on a companies quarterly report, whereby, we’ll buy the stock once it levels out, in the hope that it will rise again. We’ll be the first to admit that on numerous occasions, we’ve judged a quarterly report wrong and had I of not set a stop loss between 2-5% lower than the buy price, I would have lost a lot more.
Don’t get greedy!
Take profits while it’s rising, by slowly selling off your stock, or by setting a trailing stop (more on what these are, coming soon!)
Reassess what you’re selling
Before selling off a stock think, would you still buy it now? If so, don’t sell!
Winning traders have losses too
Don’t get drawn in by these flawless tipsters you see claiming they’ve got the golden trading record, everyone loses at some point in their trading career. Often a lot of these people are trying to profit off of you falling for their seemingly pristine trading history; be skeptical of these tipsters and make sure you don’t fall for their nonsense.
So these are our thoughts on how to achieve a winning trading mindset – it all really centres on working smart, thinking it through and putting in the footwork yourself. We’ll be sharing our trades so you can see how these rules are working out for us!
Let us know if you have any other trading laws or mantras which we’ve missed on our list in the comments below – have you had any luck by following these ideas or have you found stock market success another way?