By Lachlan Elsworth
What does it take to become a successful Day Trader and take advantage of the billions of dollars that are available in the markets every day? Lachlan Elsworth discusses trading psychology with thinkBIG.
thinkBIG: Most people think that trading is complex and difficult to understand. How does a new trader step toward a sound psychology?
LE: For new traders who are committed to their success, live mentoring in the market is the secret to a great start and a great psychology. Trading well as a novice is about getting your hand held from your first live trade. This mentoring must continue until a new trader has developed the independence and they are a semi-professional trader in their own right. Gone are the days where smart traders should 'go it alone'. I would suggest that 90% of new traders fail at trading because they adopt the lone-wolf mentality, choosing to compete in the market, instead of getting live 'in the market' mentoring from the word go.
TB: Once the foundation is set, what keeps a new trader on the path to a great psychology?
LE: Great question! There are many opinions regarding trading psychology, however I agree with all those that love simplicity. New traders need to be smart about what they are doing. They need to avoid the temptation to be dazzled by the abundance of trading opportunities, and instead stay focused on three key psychology building blocks.
Building block one: Refine your scope. New traders will tend to want to take a successful strategy and apply it to the entire market. Don't do this. To build a great psychology, identify an already profitable strategy, analyse the results achieved live in the market and then stick to the strategy. It is best to trade just one thing, say FOREX (Currency), and trade it in the same time slot each day. Be boring. Avoid the temptation to switch markets and strategies and indicators in search of that 100% return in a day. Discipline regarding the strategy that you use, what you trade and when you trade it, breeds consistency of trading behaviour and this breeds confidence and a good trading psychology.
Building block two: Keep your trading simple. Many new traders are attracted to hype and complexity and this must be avoided at all cost. Complexity may appear attractive at first, but for most people complex trading is hard to master and may eventually destroy your trading confidence. Ensure that the strategy you have been mentored in is easily understood and the key points that initiate a trade are easy to identify.
To test your own understanding of the strategy you use, label a chart and explain what you do to a complete non-trader. This practice will reinforce your understanding of the strategy you use and strengthen your belief in your own ability to trade that strategy. Both are excellent techniques to help you develop a great trading psychology.
Building block three: Set a realistic expectation. Experienced trading educators will tell you up front that trading is not a get rich quick scheme. In fact, trading should be a 'get rich slowly and learn how to keep it' scheme. Many people, me included, have been sold trading platforms and schemes on the pretence of amazing [and unrealistic] performance. When the performance inevitably does not come, we second guess our own abilities and this destroys our confidence in our ability to trade and our trading psychology.
Lachlan Elsworth is Managing Director of Traders International Australia and New Zealand.
tradersinternational.com
