December 9, 2020

Trading Mindset Cheat Sheet

Trading Mindset Cheat Sheet

Click here to get a PDF of this post

To be a profitable trader you need three things:

  1. A trading system with an edge. 
  2. Proper position sizing per trade.
  3. The right trading mindset

If you don’t have the right mindset for trading then the other two will not work. 

Here is a trader cheat sheet of the principles you must understand to create the right mindset in trading. A trading cheat sheet for the psychology of profitability. 

  • A new trader must understand that trading is not a get rich quick scheme, it is a professional endeavor that requires learning how to create quantified trading systems that have an edge over other participants. 
  • Professional trading is not gambling it is like running a business. Profitable trading is more like operating a casino than emotional gambling if done correctly. Think like a business manager not an emotional gambler. 
  • Successful traders have an edge in trading systems and signals not predicting and having strong opinions. Traders don’t know the future, they know what has the best odds of working in the present. Traders should have a flexible opinion about price action. 
  • Great traders have losing trades, profitability doesn’t come from perfection it comes from creating good risk/reward ratios at entry. Losing trades must be accepted as just part of doing business. 
  • To keep a stable mindset, position sizing should be kept consistent and at a size that doesn’t cause excessive stress, emotions to become too loud, or ego engagement where you want to be right. 
  • A trader must have faith in their trading system. This comes through research and backtesting into a method that has a positive expectancy and fits their belief system. 
  • A trader must have faith in their self to execute their system with discipline. This comes with time and success in execution. A trader must trust their self to not let impulses cause bad decisions. 
  • Traders must have the mindset of discipline to follow their trading plan’s rules and believe that a good trade is one that followed their system regardless of results. 
  • A trader must have the perseverance to trade their system through losing streaks and drawdowns understanding that it is just part of the process.  
  • Trading results must be kept separate from a traders self worth. A trader can’t control market outcomes, they can only control their own actions. 
  • A positive mindset must be maintained to avoid a negative emotional spiral. Focus on the positives on every trade, like you kept losses small or followed your process with discipline. 
  • Don’t become euphoric with big wins or depressed during losses or drawdowns, keep your emotional equilibrium after each trading outcome. Stay off tilt in either direction. Each trade is just one of the next one hundred, divide you emotional reaction between them.