Home / Psychology / The Secret Ingredient If You Want To Become A Full Time Trader – What Nobody Talks About

The Secret Ingredient If You Want To Become A Full Time Trader – What Nobody Talks About

Looking back, I now realize that what allowed me to finally establish consistency into my trading was not a better trading strategy or a different method, but something I never expected when I started out as a trader.

In today’s society where the average attention span has dropped to 8 seconds, where 140 character tweets seem too long (#TLDR) and people skip YouTube videos after just a few seconds, we easily lose the connection to ourselves…

The concept of “self-awareness” has a woo woo ring to it and most traders will not listen to you if you start a trading conversation by referring to self-awareness. However, if you really want to make this work and if you want to finally realize your goal of becoming a pro trader, you have to listen and I am 100% certain that you will be able to relate to my story as well.

 

What is self-awareness? Forget the spiritual mumbo-jumbo

Unfortunately, most people, and especially traders who are often numbers driven and very rational, associate the term self-awareness with something spiritual and connect the wrong assumptions with it. This is very unfortunate because I have never met a successful trader who is not also very self-aware. You’ll see soon that self-awareness is something very different from what you believe it is.

In its essence, being self-aware just means that you are aware of what you are doing and how you do things. This sounds trivial and you probably think that you know what are you are doing since it’s you who are doing those things… From experience I can say that most people aren’t.

Next time you walk down a street, stop yourself and recall what you were thinking about at that very moment – the average human has 50,000 thoughts per day. Another example: how often have you checked your watch just to realize 5 seconds later that you don’t actually remember the time and you had to pull out your phone, or take another glance at your watch again? And how often did you open another browser tab just to realize a few seconds later that you already had the same website open in different tab?

The other aspect of self-awareness describes the ability of assessing one’s level of expertise accurately.  We all know those people who believe that they were born to be singers, but when they open their mouths you think a cat is dying. Or people who think that they are a “numbers person”, then follow the wrong career path, just to realize 20 years later that they should have done something completely different and that they are not very good at what they are doing.

Self-awareness, thus, means knowing yourself and being aware of the things you think, do and say.

 

Self-awareness and trading – success didn’t come naturally to me

A trader who is not self-aware goes through his trading day without really understanding what he is doing and I was guilty of that myself for years. I would just fire up my trading platform in the morning, flip through random markets and time frames and hunt for signals. I’d place my trades throughout the day, manage my orders to the best of my abilities (or at least I thought I did) and tried to squeeze out a few points here and there. In the evening I would then wonder what went wrong, why I did not make any money and I hoped that things would somehow turn out better the next day. I never really understood that my lack of success had something to do with my overall approach to trading and not with my methodology – I always assumed that it was just a matter of time until I would (somehow) find “what works” and that I was a well-educated trader already.

Success doesn’t come knocking at your door and you don’t just stumble over a profitable strategy.

 

Why lying to ourselves feels so damn good – healthy smokers, happy marriages and invincible bikers

You can probably relate to my story and many traders I have talked to went through the same process of blindly stumbling through their trading, never seeing any real improvements, but not questioning why they can’t make it work and misjudging their level of expertise.

The optimism bias is an effect that makes smokers believe that they will be among those who escape cancer, it gives bikers the confidence to speed during bad weather and it gives couples the certainty that they will die happily together after 50 years of marriage. 2

The optimism bias makes us neglect all the statistical odds and it makes us blind to all the examples that show us what is likely to happen. However, without the optimism bias we would feel terrible and scared all the time. At the same time, it keeps us from reaching our full potential when we don’t see the necessity to change our behavior.

 [Research shows] that people who are brutally honest with themselves are not as happy day to day as people with unrealistic assumptions about their abilities.

The illusion of control persists like the other positive illusions because you need to feel as though you can push against the world and notice it move. Without that belief, your spirit dwindles quickly. 1

 

 

Let me quote an interesting finding form a study done on traders:

Very few [traders] rated themselves as below average. They attributed their losses to difficult market conditions and situational mistakes. Surprisingly, they rationalized losses as part of their learning curves–even when those losses extended for many months and even years! 3

This nicely shows the optimism bias and a lack of self-awareness in action. Just look around you and you’ll see that most people see themselves as better than they actually are without realizing that this is stopping them from reaching their full potential. And this is not meant to be seen as criticism, rather as a wake-up call to help you develop positive behavioral patterns.

 

How I became a self-aware and better trader

As most traders, I was losing money for quite some time at the beginning and whenever I was looking around myself, I noticed the same behavior amongst all those failing traders. It finally clicked with me and I realized that I had to do something different if I wanted to see different results.

I took an honest look at myself and I realized that I was not being professionally enough about trading and I understood that I couldn’t reach the level of success that I wanted if I kept doing the same things. This first realization of self-awareness helped me understand that I needed to get serious.

I stopped trading for a few months and spent a lot of time thinking about the things I was doing that did not work and I was also thinking about those things I wasn’t doing (mostly because they sounded like hard work), but which I knew could make a huge difference.

Opportunity is missed by most people because it is dressed in overalls and looks like work. – Thomas Edison

 

My top 4 recommendations for the serious trader

Reflecting and becoming more self-aware allowed me to identify a handful of things that I needed to change. I realized that if I kept doing what I was doing, I would be wasting my time. I already had spent (wasted) a few years without seeing a real improvement in my trading.

The level of honesty definitely hurt initially and looking at the task ahead made me very humble, but I understood that this was what I needed to do or otherwise I had to quit trading.

Now let me give you some practical examples of how you can become more self-aware in your trading and why most traders fail when they don’t follow the steps:

 

(1) Mastery of one thing

Just like so many traders, I was guilty of “system hopping” and constantly making changes to my trading approach. Although I never saw any real improvements in my trading, I somehow hoped that it was just a matter of time until I would find the “right” method.

I once read the book “The one thing” and it made a lot of sense to me and I decided to pick my one thing and try to master it. I always felt drawn to reversal trading and I decided to devote all my energy and time to this trading style. I became obsessed with reversal trading and I never looked at anything else since then.

I studied all I can, I tested tools, indicators and technical concepts and I kept fine-tuning my approach. I would see what worked and what didn’t and made changes accordingly.

Self-awareness made me realize that I had to stay away from conventional trend-following because it did not make sense to my way of thinking. This is such an important point: don’t blindly follow what other people tell you. Audit yourself and find what works for you.

 

(2) Journaling my trades

I always saw journaling trades as a tedious and boring task. Truth be told, it still is today to some degree, but there is just no alternative to it.

For years I never really looked back at my past trades and I never really cared because I was following the “get rich quick” promises. Shortly after I started journaling, I was able to trace my trading failure back to 2 main problems and I remember that it felt like I found the Holy Grail back then:

1 – I was constantly widening my stop loss order when price went against me. My journal showed me that stopping this alone would already make a HUGE difference. I started accepting my losses and it immediately turned me into a break-even trader after years of failure.

2 – I kept messing with trade during the duration of my trades. My journal showed me that I just needed to stick to my original analysis and stop touching my trades once they were on. Set and forget is an approach that many traders could benefit from.

After all, it was shockingly easy and obvious to turn my trading around. My journal showed me what reversal trades worked best: reversals after a Bollinger Band signal after a two wave trend and at previous support or resistance; and the journal also confirmed that if I could stop messing with my stop and my trade in general, I had a very good chance of becoming profitable.

To this day I spend more time entering trades in my journal than looking at my price charts and it’s still helping me to improve my trading. Whenever I want to do something I know I should not be doing I think about my journal and that I have to face my mistake again later – most of the time, this alone stops me from making the mistake in the first place. That’s what I call self-awareness in action and it makes you look at your trading in a completely new light.

 

(3) Step back before making a decision

In the beginning, I would just flip through my markets and time frames until I found a signal and then just pull the trigger straight away.

Today, I approach my trading very differently. First, I plan all my trades in advance in my trading plan and I place price alerts. Then, before making any decision, I step back and review the situation. I pull out my checklist, confirm that I have all my criteria and I make sure that I am not overseeing something.

Many people argue that they listen to their gut feel and just make intuitive decisions. I recently came across an interview of the #1 chess player in the world and that’s what he said about intuition:

I usually know what I am going to do after 10 seconds; the rest is double-checking. – Magnus Carlsen

 

(4) Writing and reviewing

If you have been following my website, you’ll probably know that I post my Sunday analyses, my daily market recaps and my weekly trade reviews here as well. In the beginning, I wanted to provide other traders with insights about how I approach the markets. However, I realized that I was benefiting from this routine probably the most and it has become a very selfish routine by now. Taking time to sit by myself and writing down my thoughts and going over my past trades once again made me aware of some flaws in my trading. I recommend Rescue Time if you want to make sure that you can work without distraction.

In today’s world, the ability of sitting down and really thinking something through has been lost. I now look forward to my Saturday trade recap and I schedule a few hours every weekend to go over my past trading week once again. You don’t have to publish your ideas or recaps on the internet, but I highly suggest that you give it a try to experience the benefits yourself.

 

I hope that it has become clear that what I was referring to as self-awareness is more of a reflective and objective way of looking at yourself and your behavior. Whenever I talk to or work with traders I try to help them get a better sense of self-awareness first because I have seen firsthand that without self-awareness, working on other trading aspects is usually pointless.

Do you have questions or do you have any additional tips and want to share what helped you in your own trading? I’d love to hear from you in the comments below!

 

References

1 David McRaney  – You Are Now Less Dumb: How to Conquer Mob Mentality, How to Buy Happiness, and All the Other Ways to Outsmart Yourself

2 https://www.brainpickings.org/2014/06/04/david-mcraney-self-enchancement-bias/

3 http://www.forbes.com/sites/brettsteenbarger/2015/12/25/how-we-fall-for-the-greatest-con-job-of-all/#f9d14715d4c7

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40 comments

  1. Thanks for these ideas. I am still chasing for signals in the market, with no planning. It is like “ok! I know I want to see my indicators doing this…. so let’s see if there is today something…”. And… it’s very boring, and.. also… many times I don’t see my signals even when they are there!! I see them later and ask myself whay I didn’t see it!!. So I am understanding now the need of a plan for trading, and not just hoping that the market will give me a signal when I check ALL (40) pairs.

    And I am profitable, but…

    • Hello Marco,

      you describe a very common problem almost all traders will have. Regarding boredom, I recommend using price alerts or just walking away from your charts when nothing is happening. That worked extremely well for me.
      If you notice that you keep missing trades, take screenshots and notes and try to identify patterns. Often, you’ll find some reasons why you keep missing setups. Again, a trading plan and price alerts might help you here as well.

      Hope that helps. Thanks for taking the time and leaving a comment.
      Rolf

  2. Thanks, nice read…

  3. you have one of the best sites in this trading game and are one of the
    best informative and intuitive traders I have read. Also in trading as I
    think you know that you must never, ever stop learning no matter how
    old you get you will never know it all. It is much better to be humble and
    do well than to brag and really know nothing.

    cheers and continue your on your quest from a much older trader.

    • Hi Nolan,

      I really appreciate the kind words and it’s so great to hear that you find my articles and trading ideas helpful. Sharing my view on the markets and hoping that others can benefit from it was my goal from day 1, but I am so happy to see that it is actually happening 🙂

      Thanks for your comment.
      Rolf

  4. The moment I realized self-awareness and psychological are the most crucial thing was my personally “aha-moment”. When I started to journal my trades I recognized, that I have a big problem with to early profit taking (let winners run!). I won’t say that I am an expert now, but day after day I see significant and positive changes in my mindset and your blog really helped me in it. Thank You Rolf 🙂

    • Hi Benjamin,

      you perfectly described the purpose of a journal. Most are never really aware of their actual problems and they are left in the dark. Good to hear that you are on your way. Keep at it and thanks for your kind words 🙂

      Rolf

  5. Dear Rolf,

    Thank you for sharing and guide us. The way you find your potential that you are good at reversal trading. But is very hard to find what is our own potential sometimes. I completely understand your point of view regarding self awareness which is lost in today’s world. I am still jumping here and there website and news and holy grail trading signals. I am going thru the same problems what you had been went through. I am still thinking what is my potential at? what kind of trading styles suits to me? I hope I will find it one day like you did.
    Keep it up good works!

    Thanks

    • Hi Rick,

      yes, what you describe is the “normal” path almost all traders go through. Just listen to yourself and pay attention to what you are doing. At one point, you have to decide to stop hopping around and pick your “one thing”.

      Cheers
      Rolf

  6. Only 1 word.. Fantastic … Thanks mate

  7. Your article is right on. I am a new trader but have discovered some of my bad habits. It pays to set your trade, check it TWICE, and then click. Writing down what you have done and reviewing is eye opening and rewarding. Thank you.

  8. Hello Rolf,

    What a great site do you have, what a great place you are living. Wow…:-)

    Very good article.
    I have been trading for years… without strong or regular returns.. always learning, trying, discovering, searching and searching outside, external sources… UNTIL I see that the ‘holy grail’ was inside me, the self-awareness. Then I started to look inside, developing daily habits, taking care of my body, my food, daily exercises, therapy…everything to get my best version. The solution, the success is not outside, it is here, in our heart, you have to listen to yourself. After I have realized this… the thing are getting better and better.

    – I am mastering my setup, each day it is better, Focus,
    – Daily journal, this a challenge for me…BIG challenge, I have no discipline yet to do the daily journal and I recgonize that is a BIG fault (maybe edegewonk program can help me…)
    – Step back, I am working as you described, write down the alarms, after all analysis I step back with other cap, doing a checklist, trying to see the things from a different view… I am developing this…but just to get a second round…I am getting better results
    – Writing down and reviewing… this is a really good tool for me. It is like to connect the dots, every day in and out

    • Hi Edu,

      thanks for leaving such a great comment and I see myself in what you wrote. I have one tip regarding the journaling. Don’t be too hard on yourself and if it does feel hard, don’t force yourself to do it daily. Start by journaling 2-3 times per week and see what works and what helps you. It’s better to get started and do a little bit, than feeling too overwhelmed and not doing anything 🙂

      Rolf

  9. you are great am really exited please kindly send me your phone number

  10. Hey Rolf, excellent post. It’s just like how most people think they are above-average drivers — which is logically impossible!
    One of the things I love about trading is that it forces me to face reality, not what I wish reality is like.

  11. Hey Rolf,

    Congrats! Great post. Just discovered Tradeciety lately and I’m very impressed by the quality and the relevance of your posting. The psychological aspect of trading is what I need the most to work on.

    Thanks

  12. Hi Rolf,

    I am a new reader of your site and this is my favorite article so far. Thanks foe taking the time to put it out there.

    Just a question – can you please tell me how you record your trades/what you record about your trades?

    Would help with a template so I can start my own records!

    David

  13. Hi Rolf,

    I’m a regular reader of your blog, but this article gives me the clear path how to build good habits to become a pro trader.

    Thank you very much dear !!

    Karun
    India

  14. Michael John Cruz

    Thanks for this article.

    This awaken my self-awareness. I admit that I’m doing well in my trading system but the problem is sometimes I get lost of the track that I started correctly.
    Without journaling, I will not have a self-awareness on what I’m doing in the long run.

    Thank you very much I really like you website!

    • Thanks Michael for taking the time and I 100% agree. It’s so easy to get lost and we need something to hold ourselves accountable. That’s true for everything in life and not only trading.

      Rolf

  15. Hello, Rolf!
    Very nice article, congrats!

    I am mastering reversal trades too, and trying to capture price patterns / phases.

    Could u recommend any material to help me, or additional analysis that works for you?

    Awesome website!

    Cheers,

    Rizzo

  16. Hi,
    I do highly appretiate your work and methodolical approach towards the markets. Just one question that needs sencere answer. How long time it took to you to become consistently profitable trader? I know it is years but just qureous?

    Best regards,
    Emil

  17. Hello Rolf,

    Great article!
    How do you journaling your trades? What tool do you use to do this?

    Thanks for your time,

    Pedro

  18. I have now been Journaling for about 18 months and it definately helps. I recently went over my first 3 or 4 years of trading and noticed common mistakes like no stop loss, averaging down, too much capital in one stock etc. Not repeating those mistakes has a massive impact on performance.

    • Hello Grant,

      that’s great and it’s a big finding. And you are right, such things can make or break a system and a trader. Now you need to establish a process how you can remove those from your trading – pausing for 3-4 seconds before you make a decision can often help a lot.

      Keep me posted 🙂

      Rolf

  19. the best blog .very much same story ..after 2years…33 months in losses. I have started making some money!! i think i can keep improving if i follow my system that took years to build !! great site nd very useful blog. tnx

  20. Hello Rolf

    Amazing article,cannot be further from truth. Your blogs are really insightful.

    I am trading since 2 years, Unlike many traders i never fell in trap of perfect method or strategy hunting, from the beginning itself, I was aware thats it has more to do with myself and my beliefs. And as i proceeded i found abundance of flaws in my thinking about market, like i was totally wrong about how money can be made in market now i know it has more to do with process.

    And my biggest enemy, my emotions, once i enter in the zone of emotional trading , it totally hypnotizes me and I do everything that can harm me in trading only to regret it later and working on how i should eliminate this. I do work on it.

    But somehow after weeks of good trading i mess up one day and trade emotionally. I feel I am back to square one, both in terms of emotional progress and financial. Then i started hating myself and then i plan to tackle it again and the cycle repeats.

    I have tried many things, like preparing checklist, identifying when emotions take over me and stopping trading immediately after that, i do succeed for sometime, longest being the 3 months but after that same day repeats.

    I have also tried to identify if anything is common among those messed up days then i found 2 common triggers basically one is revenge against a trade about which i was very hopeful and second is also based on revenge its when a trade go against me so quickly then i get a very big loss than my previously calculated.

    But one day i mess up, I deviate from my plan on that day, i feel maybe this is because i have indiscipline behavior. I do not how how to tackle it. Please guide me

    I have also started using Edgewonk to observe in a better way.

    Thanks for your time
    Rohan

    • That sounds like a very common problem and I am sure that many traders can relate.

      Edgewonk is a good first step and keep focusing on the tiltmeter. In the end, there is no ‘trick’ or tip that will help. You just have to acknowledge your bad behavior when you are about to do something not according to your rules, step back and walk away from the charts.

  21. great article and was very helpful thank you

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