"Forex trading could be your key to financial freedom if you could consistently earn pips and at the same time realising the power of compounding".- Harwin Poon


Objective Mindset for Profitable Trading

Source: My FXroundtable yahoo group
Author: hunting4pips

In an interview with one of my colleagues several years ago, Curtis Faith described the mental edge he had over the other Turtles that made him the top performer: "I had a very detached perspective. I did not get emotionally caught up in things. And so I had the type of personality that made it easy for me to withstand long-term periods of losses. That let me continue to execute, and it let me approach a problem differently from the other Turtles." It is difficult to prevent feelings of anxiety, frustration, and loss from interfering with trading. When many traders face a drawdown, they feel stuck and afraid. But winning traders stay detached and objective. And that allows them to survive, continue trading, and get out of drawdowns.

If you are passionate about what you do, it can be difficult to avoid putting your ego on the line with every trade you make. And when your ego is on the line, it's difficult to stay objective. You may know intellectually that you shouldn't take the outcome of a trade personally, but you do. It's natural to show some concern about the outcome of a trade. Whether you are a systems trader, a discretionary trader, or a combination of both, wins and losses matter and it is often hard to keep feelings of euphoria, relief, frustration, and disappointment out of the picture.

Humans naturally avoid risk. They don't like losing. People are willing to gamble a large sum to avoid a potential loss than immediately accept a smaller but certain loss. Novice traders have difficulty taking risks. They don't have a rock solid track record, so they are not sure what to expect. Besides a lack of experience, many novice traders have limited capital. In the back of their mind, they hope that they will make enough winning trades to make up for losing trades. The pressure to
meet these expectations can be daunting, however. In an effort to do well, a typical novice may put on a trade that is too large, and may not delineate or follow an adequately detailed trading plan, in a fruitless attempt to get ahead or make up losses. But these actions are overly emotional. They are impulsive and based on fear, rather than on a cold, objective analysis of available information.

It can be difficult to take a long, hard look at your chances of success, especially when you feel the pressure to perform in an uncertain enterprise like trading. That said, in many ways, trading the markets is much like other businesses. For example, if you were to open a small convenience store, you would need to make an accurate assessment of the perishable goods you could sell. If you buy too little, customers
may be put off when they can't buy the products they need and you may lose customers. On the other hand, if you stock up on too many products, they will go bad, and you will end up losing money. Your survival depends on your ability to anticipate what your customers want and recover from changes in their demands. In running your trading business, you may not need to lease retail space or maintain an
inventory, but you do need to take risk, anticipate setbacks, and figure out a way to survive. People are inconsistent and difficult to predict. Your plans may not always come to fruition. The fickle nature of the markets demands that you have extra capital to weather the storm and reliable trading strategies that have a statistical edge.

Losses are a fact of trading. There is no such thing as a foolproof trading system. In the end, traders must look at the odds of success and live with the uncertainty of the outcomes. Across a series of trades, you may have to deal with losing streaks as well as winning streaks. Market conditions change with minor and major events. Last week, for example, we saw the impact of an impending fed announcement, but future world events may also impact the markets. Even without these events, though, the masses may change their mind regarding their perceptions of the markets. Sometimes, the masses behave according to prescribed and consistent patterns, but sometimes they do not. And that is where uncertainty really comes in.

Why do some traders fear uncertainty? People are used to protecting their resources. We like to believe that we can protect our assets, whether they are property, stocks or bonds. But trading the markets is risky, and loss is a certainty. Even if you use a trading system with a solid track record, profits are not guaranteed. Across a series of trades, a string of losses and a resulting drawdown can wipe out profits. It is common in some cases to lose 50% of one's account or more, even with a system or strategy that will produce a decent return over the long run. Living with such uncertainty is vital. You must have both psychological and financial resources to survive.

When your capital is limited and you are taking on too much risk, it's hard to control your emotions. Since you are not risking money that you can afford to lose, it is difficult to fool yourself into believing that you are. It is hard to forget that real money is on the line, and that losing your stake is quite possible. However, it is vital to take a realistic approach to trading. Take a hard look at your capital and your past trading performance. Based on your past track record, determine how much you can make realistically. Remember that drawdowns and setbacks
are a fact of trading, so it is necessary to honestly evaluate your trading skills, your financial resources, and your commitment to success. As simple as it sounds, many traders have difficulty facing their personal and financial limitations. But the only way to succeed is to accept your limitations and figure out a way to get past them.

Cultivating a rational, objective mindset is essential for profitable trading. But when your money is on the line, it can be hard to remain objective. If you are riding a rollercoaster ride with regard to your emotions, however, it may reflect real fears. The only way out is to take an honest look at your personal and financial resources and find capital, reliable trading strategies, and the committee to gain the experience you need to trade with the proper mental edge.