A Key of Trading Psychology Revealed: One Crucial Habit of Wealthy Traders

04/19/2010 10:31 am EST


A new video called “20 Habits of Wealthy Traders” caught my eye recently. I am always interested in what successful people do to build and sustain their success, so I was eager to see what this video offered. I wasn’t disappointed. Tim Bourquin of MoneyShow.com and TraderInterviews.com interviewed over 200 top traders and distilled what he learned into 20 key habits that all have integrated into their trading. Some of the habits—such as being patient with winning trades—are time-honored wisdoms important to successful trading. Others were surprises that yield new information and insight into what it takes to trade well. One of the surprising findings is that being uncomfortable trading is OK.

Uncomfortable in the Trading Chair

Tim learned that even after many years of trading, successful traders still feel ill at ease with their trades. In his interviews, Tim found that “Even traders who have been trading 20 years can still be uncomfortable in their trading chair.”

Despite discomfort, the wealthy traders interviewed got to a place where they became OK with their uneasiness. These traders found that they could still make good trading decisions and yet not be totally comfortable all the time. In other words, they might worry that they have missed something, have doubts about how the trade will turn out, and even feel anxious and apprehensive. Nevertheless, they still make and manage the trade. Over time, these successful traders realized that how one feels and the results of a trade are unrelated. This is an important insight.

How Traders Lose Their Focus on the Trade

Many traders attempt to control their worries and feelings. Many believe that if only they could get rid of their unwanted thoughts and feelings, they would trade better. Therefore, instead of learning to live with their discomfort, they try to control or remove it. As we learn from these wealthy traders in the video, even after many years of successful trading, distressing feelings will still arise. 

These wealthy traders have discovered on their own what cutting-edge psychology is learning:

  • It is unlikely that anyone can consistently control their thoughts and feelings
  • Attempts to control thoughts and feelings often have the opposite effect of what is intended—when traders try to suppress or get rid of unwanted thoughts and feelings, it can make matters worse
  • Traders probably don’t need to control or eliminate uncomfortable thoughts and feelings to trade well

Let’s see why this can be true.

When a trader enters a trade, he or she does not know how the trade will turn out. Trading is based on probabilities, and even the very best trade set up has odds of not working out. No one likes to lose, and this can naturally bring on discomfort. The trader notices discomfort by unpleasant sensations such as muscle tension as well as feelings of apprehension and even fear. Another important sign of this discomfort is what the mind is saying—those internal voices of worry, concern, and criticism.

When in a trade, most traders experience this discomfort, and many shift their attention from the tasks relevant to managing their trade to their internal state. This is subtle, but it happens frequently with traders with whom I work. This shift of attention is a significant source of poor trading performance. Traders begin believing what their mind is telling them about the trade. Uncomfortable emotions and body sensations seem to confirm their worries.

Attention shifts from the trade to uncomfortable internal events. As the trader becomes more focused on disagreeable feelings, not only is attention diverted, but the urge to control or escape the discomfort becomes compelling. And, the more one tries to control, the more the unpleasant feelings take center stage. The trader becomes involved in a struggle with his or her internal experience, and the focus on the trade is lost. 

MORE: Why Traders Don't Need to Eliminate Emotions to Trade Well


Trying to Control Feelings and Thoughts Can Lead to Trading Failure

As Figure 1 below illustrates, the trader struggling with their internal voices and feelings will typically exit the trade prematurely. This does give immediate relief from the stress, but it is a hollow reward because over the longer term, the trader never learns to stay with a trade. In a very real sense, the trader is trading their emotions. In the process, they teach themselves to trade poorly, cutting winning trades short as a way to relieve discomfort. 

Click to Enlarge

An unworkable cycle is created where the trader never develops sound trading habits, all because they are focused on their internal state and how to escape it. This may eventually spiral to the point where the trader even becomes fearful of pulling the trigger on trades.

Tim’s wealthy traders learned that making sound trading decisions and staying focused on their trade despite feeling uncomfortable is the correct path to profits. Everyone has difficult emotions, and everyone has worries about their trades. A hallmark of a competent trader is that they find a way to accept discomfort while trading.

De-center from Emotional Trading

Traders can learn to de-center from what internal voices tell them. It’s a mental skill. Like the wealthy traders in Tim’s interviews, traders need to see thoughts and feelings for exactly what they are—just temporary passing events that everyone has—rather than absolute truths. When the trader learns to accept the discomfort and decenter from it, the focus can be returned to what matters most…the trade!

One way to learn to decenter is through mindfulness. Mindfulness is an effective mental skill that can help the trader increase awareness and stay focused without being hijacked by the mind or emotions. Mindfulness is highly beneficial for the trader in a number of respects. With practice, the trader can maintain focus and concentration on the trade, rather than becoming distracted by internal experiences.

Click to Enlarge

Mindfulness may also help the trader “see” the market better, including background conditions and context that might have gone unnoticed before. In this regard, it is very much akin to what athletes call “Being in the zone.” Most importantly, mindfulness can help the trader see what the mind is saying for what it is, not necessarily reality. When mindful, the trader is in a position to make better trading decisions, despite feeling uncomfortable.

By Dr. Gary Dayton

You can learn much more about mindfulness and other trading psychology skills at Dr. Gary Dayton’s Web site: www.TradingPsychologyEdge.com

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