The One Trading Psychology Tip (To Become A Profitable Trader)

Let’s explore the psychological aspect of trading because it’s an aspect that makes all the difference. It’s really important to cultivate the right mindset in order to become and remain a successful trader, and today we’ll do our best to help you get there, or stay there.

Now, as mechanical traders, we’re fortunate because mechanical trading is the only way that a human is able to trade without relying on things like emotion, best-guesses, predictions, discretion and so on. And here at WBTrading, we provide our clients with clear, concise and actionable rules to follow day in and day out to ensure consistency of performance, without relying on those aspects that hold so many traders back. But when it comes down to taking trades, whatever the strategy, whether you follow mechanical rules and have an edge over the market or whether you’re gambling and hoping for the best, there will only ever be five different types of trade we’ll ever experience; A large win, a small win, a break-even trade, a small loss or a large loss, ok.

But here’s the thing that sets the winners aside from the losers, and really take this in because it’s critical; When trading with edge, when trading a strategy that is statistically-proven to work and comes with clear rules to follow, it is virtually impossible to suffer a huge loss. Sure, you might suffer let’s say slippage on occasion or a gap, but in almost all cases, we remove those huge losses entirely. They just cannot happen. But, with edge, we allow those huge account-building wins to still take place. And by just removing those huge wins, that alone is enough to remain profitable and have an edge, because I cannot tell you how many times we’ve received Emails and messages over the years from traders who’ll get in touch and tell us; “Guys, I didn’t use a stop-loss, or I have a huge stop-loss that contains half of my account or more, and I’m currently underwater with price headed against me. What should I do?” And equally, I can’t tell you how many of these traders sadly never get back in touch ever again, after their entire account is gone.

But let’s look deeper and discuss a certain statement that we’ve likely all heard; ‘Let your winners run and cut your losses early’.  Let me cite Investopedia here, who say that; “While this advice is offered by many, it’s followed by few. This is because it’s more difficult than it may appear. Most traders tend to take gains off the table early out of fear, whilst tending to hold onto large losing positions in the hope that they will rebound. However, instead of letting profits run, some traders prefer to place a profit-target that will lock in a predetermined profit. Likewise, traders often use stop-losses that automatically enable them to exit a trade if a decline of a specified amount occurs. These few successful traders typically have gained this knowledge via education.

Now, you’ll have heard me highlight the word ‘education’ there, because proper education is the absolute key to success, it really is. I can’t emphasise that enough. Why waste the time, and lose the money to the markets, all for nothing, when successful traders are out there who can simply hand over their years of experience, saving you that time wasted and money poured down the drain and into the hands of the person who owns the trading platform you’re using? As highlighted by Investopedia, successful traders are highly knowledgeable due to having gotten educated. 

Have you heard about the disposition effect? Using Investopedia again as a reference; “Disposition effect means a type of loss aversion whereby traders hang on to their losing trades for too long, and sell their winners too early. This psychological bias, where losses loom larger than gains, can be detrimental. Letting profits run and exiting losses at a predetermined price, is the better and more rational strategy”. If you strip back what they’ve said there, they’ve pretty much said ‘put rules in-place’ haven’t they. Now, coming back to just ‘hoping’ that a large loss will turn around, one thing is for sure, we never teach our clients to use ‘hope’.

As mechanical traders, hope doesn’t play a part in what we do. We have strict, proven rules in-place that tell us exactly which market/s to trade and why, exactly where to enter and exit and pre-determined points within the markets, and so on. And I agree with Investopedia; Letting profits run and exiting losses at a predetermined point is hands-down the better and more rational way to trade, above taking your profits early and letting losses run because, as we know all too well from the Emails and messages we’ve received in the past, the latter can, and often will, almost definitely result in an entire account being destroyed. All of that money just flushed down the toilet for nothing in return but pain, frustration and embarrassment.

Don’t be that trader who puts it all at risk, who puts all of their money, their trading account, on the line without a plan, without an edge, without clear, proven rules in-place to follow because otherwise, the risk you’re taking is monumental. If as high as 85% of traders lose money, and most traders use guesses, predictions, hope, best-guesses, do the opposite of them. Get educated, trade well, with edge, and join the top 15%. It only makes sense doesn’t it.

So, to conclude, trading psychology is without a doubt a key element of profitable trading, but equally, without an edge, psychology is irrelevant. You must, as Investopedia said, allow your wins to get to your predetermined target, and your losses to be contained in a manageable predetermined stop-loss.

And as mechanical traders, we have our rules to follow that allow for this, providing us with an edge, and allowing us to steadily and surely build our accounts across the months and years, keeping us in that top 15% of profitable traders.

And if you would like to work with us, or you’d like to learn the rules behind the mechanical strategies we trade, just click here and we’ll help.

– Will (And team).