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by Jonathan AnthonyImprove Your Mindset, Become a More Successful Investor
“Hey buddy, what’s the quickest way to make a quick buck? Can I also trade like Ken Griffin or Bill Ackman to become rich and successful?”
I’m sure that you have gotten this question from your best friend or family member. In fact, many experienced and novice traders ask themselves or their closest friends these questions on a regular basis!
Success in trading comes from having peace of mind built through psychology and mindset. When you trade, you have to be prepared to face and handle risks, including losing money. The ability to react calmly to such situations over getting overwhelmed and making rash decisions will influence the outcome of the trades.
No one knows everything about trading, and there are no unlimited funds to spend. You won’t see the expected results if you have the wrong mindset.
Why Does a Positive Mindset Matter?
Financial markets have no emotions, but the people operating in them do. Trading is an activity that influences emotions and actions irrespective of good or bad market conditions. For every person that gains, there is another person losing on the other end of the trade.
All living beings act on instinct when facing danger, and humans are no exception. This is especially the case with traders, when compared with regular people who trade infrequently.
When markets move violently in either direction (especially downwards), most traders (and, to a lesser extent, investors as they are medium to long-term focused) react emotionally and may make decisions that can cause them to lose money.
Market Moves Based on Actions and Reactions
In fact, these and all market movements depend on how other traders act and react. This is why it’s crucial to keep emotions in check during trading and have a positive mindset.
What one considers a losing trade might be a good opportunity for someone else. So, winning or losing is out of one’s control, but the ability to manage that well with proper risk management will go a long way to developing that mindset.
What I mentioned above also applies to investing and to those people that don’t trade frequently. When they do the occasional trade, they will be influenced by where the stock price is moving and what to do with their portfolio.
Create Clear Goals
A good mindset starts with having clear goals. All of us who have jobs, have our own companies, or even retired like to have focus and direction in life to track our progress over time.
This is vital to understand where we are heading and visualize that end goal. This gives us motivation during hard times. Most of us had fixed capital when we started trading and investing, and those amounts varied.
This is why the priority should be on protecting this capital at all costs. Warren Buffett has been quoted as having two rules,
Rule No. 1: Never Lose Money.
Rule No. 2: Never Forget Rule No. 1.
Everyone enters the market with the plan to grow their money but not many focus on protecting that money. As you spend more time in the market, you are inclined to grow your capital and chase returns and short-term movements.
Short-term moves serve as a distraction, and it would be better to focus on long-term moves or trends that influence the market. There are a few benefits to this long-term approach:
- It allows your capital to compound by investing in good, blue-chip, or growing midcaps by not interrupting the investment process.
- It offers a learning opportunity about techniques, patterns, and market conditions to act similarly to a chess player. A chess player plays better with proper practice and determination.
Tips to Improve Your Investor Mentality
Achieving this positive mentality takes time and practice. Here are a few tips that helped me throughout my investing journey.
1. Write Everything Down; Keeping Track!
One straightforward way to achieve this is to maintain a trading journal, writing down observations of all trades being done.
Keep track of all trades, especially your closes, and the corresponding emotions when taking a particular trade in a single place.
This can help you understand and analyze what needs to be improved in your trading strategies, common mistakes made, and how to avoid them in the future.
What should this journal look like, and what should it track?
You can create a simple table in Google Sheets or Microsoft Excel with the following:
- Name of the stock
- Purchase date and price
- Number of shares
- Holding period
- Pattern or trigger that caused the trade
- Position average profit or loss
- Exit price
- Stock profit or loss
- Notes section for comments
You can also check with your broker if their trading platform has an integrated trading journal along with trading history.
Once this journal is consistently updated (daily is best or preferably weekly), then a review needs to be done periodically.
The review allows you to identify patterns that are causing losses or gains consistently and develop patterns/filters that can reduce the losses while maximizing gains.
Over time, one can relate and check whether these trading positions were taken on understanding how and where these broader sectors were moving in the markets.
This also allows you to review trading habits, especially adding or holding a big loss, taking trades early to avoid the fear of missing out (FOMO), and/or overtrading outside of fixed rules due to impatience.
The trading journal acts as a feedback system for improving risk management. If the data shows a gain or loss of 50% with few trades, it means that risk management metrics need to be developed, including the application of position sizing.
2. Avoid Negative News and Media
Another way to improve your mindset is to avoid negative news in the media as much as possible.
It is extremely hard in these days of Twitter, Instagram, and now Threads. If you become aware of the medium that you consume your daily news and regulate this heavily, it will greatly help you achieve focus and avoid taking short-term, emotional trades.
*NOTE: As you get a better, stronger mindset, you can use negative news to your advantage — as you won’t make snap decisions but will analyze things thoroughly before making a trade.
3. Visualize Your Movements with Real Market Data
A third way to create this mindset is to visualize this daily as you look at the markets.
Athletes are well-known to mentally picture their strengths and weakness and track their movement in the right direction. In sports, they always prefer to play from a position of strength than weakness, as the odds of winning becomes higher.
This visualization technique helps you focus on how you project yourself mentally, your self-talk, and even how you interact with others as a successful trader or investor.
Projecting successfully, even if you haven’t achieved a winning trade or are going through a lean patch, allows you to have a positive frame of mind and to always keep moving forward during periods of poor individual trading performance.
Creating this image of being successful allows you to be optimistic and continuously pursue higher goals and dreams, achievable as a successful trader or investor.
Combine Everything for a Powerful and Profitable Mindset
Combining the trading journal with the visualization technique is used by a lot of successful traders and investors. They use this approach to back-test their methods and hone their strategy over a long time.
Knowing what works and doesn’t work with detailed notes and projecting yourself as a successful person works well. Compare this to a beginner trader who is focused on a new strategy or system to make more money.
All successful people, including traders, understand well that it is the mindset and overall makeup of the mind that determines how to apply any given strategy suited to a particular psychological profile.
Remember to analyze and learn your own trading psychology and risk management issues. These need to get fixed before you tackle your trading strategy.
