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Why Your Mind Will Forever Keep You A Losing Trader

“At the table, you are your own worst enemy.” – Stu Ungar, the world’s greatest poker player.

In front of the charts, you are your own worst enemy as well. Giving 100 people the same strategy will have 2 of them come out on top as profitable traders and the other 98 will blow their accounts sooner or later. This is the eternal truth of trading, and also the reason why there is no universal holy grail that holds redemption for everyone that drinks out of it. Really, there isn’t. You have to finally get this in your head, do yourself the favor, please.

YOU are the holy grail. And at the same time, YOU are also the one that keeps you from becoming your own holy grail. There is a great book on this topic actually, written by psychologist Dr. Alan Schoonmaker, called “Your Worst Poker Enemy”. I can highly recommend it to traders, as well. Reading it, I learned for the first time how our mind is manipulating us when we come under pressure. And in trading, most of us are under pressure as soon as a trade is opened. Many of us are even under pressure before they put a trade on because they want to make a million dollars right here, right now. Obviously, exactly this mentality will keep you from ever making single a cent in trading.

Let’s take a look at the two main reasons why we sabotage ourselves

  1. Unrealistic Expectations
  2. No Work-Life-Balance

These two are the mothers of all psychological issues you have in your trading – impatience, anger, frustration, fear, anxiety and greed. They all stem from unrealistic expectations and being in a bad mindset from the get-go. Obviously, unrealistic expectations stem from false marketing and claims of people saying that they turned 1000$ into a million dollars and that you can do it, too. No, you can’t. Even if their claims were to be true, they are outliers! Why do you think you would be the next outlier? Are you that special? I bet not. First, you have to reach profitability in any way. Then you can think about how to monetize that profitability. But you can’t start trading with the goal to make a fortune out of nothing, no. Once profitable, you have a lot of choices – signal services, mentoring, managing money. This is how the real money in this industry is made, NOT in any other way. So your goal should be to become profitable. 10% ROI a year and you are world class. That should be your ultimate goal. But before that, your first goal should be to protect your money at all costs. A closer look at the emotions that sabotage us will reveal that they are all our very own creations, as all emotions are, by the way.

  • Impatience arises because you want it all and you want it now. If you have to make 20% or more per month just to cover your costs or to reach your unrealistic expectations, this will lead you to overtrading, oversizing your positions, and forcing trades.
  • Anger is a result of both unrealistic expectations and no work-life balance. If all your satisfaction or your self-valuation as a human being is derived from your results in trading, you will be on a constant roller coaster ride headed straight for hell. You need to find other things outside of trading to satisfy your need for achievements.
  • Frustration will get you even when you are profitable – because even though you are already better than 99% of traders, you are never satisfied because you cannot reach your monetary goals which are set way too high. This will lead to frustration and eventually to losing everything you made in the first place.
  • Fear and anxiety will get the best of you because once you hit a losing streak, which is perfectly normal in trading, as we are in a game of probabilities, you will become worried about putting on another position as you think you are going to lose the next trade as well, anyway. This fear comes from not understanding expected value and not having a longer term view of things. Of course, if you have monetary goals, every trade you lose will steer you away from that goal. But losses are inevitable. Anxiety, on the other hand, will strike after a winning streak. You feel that somehow you finally “made it”, and that the next trade could be a loser and destroy your dreams once again. But the next loser will come, of course. You have to accept losses as part of the game. You absolutely have to.
  • Greed also stems from having unrealistic expectations towards your trading, causing you to take on too many positions, too big positions, holding them too long, widening your take profits, and so on. A bad work-life-balance, where your happiness is derived from how much money you have on your bank account, will nurture this emotion as well.

The thing with our mind is, that most people are controlled by it. It tells us what to think, when to eat, when to sleep, when to be happy, when to be sad, we are a playball of our subconscious. But in fact we do have the power to control our thoughts and our emotions, we have the power to make our mind work for us instead of against us. But this requires a lot of mental strength, and many simply do not have that strength or are not aware of how they are manipulating themselves.

In trading, there are a lot of things we can control, and we have to focus on these in order to create an edge for ourselves. If you can control how you feel about your trading by letting go of unrealistic expectations, seeing things for what they are, and creating a productive framework around your trading through healthy living, then why in the world wouldn’t you do that?

Would you rather keep feeling frustrated, angry, depressed, and disappointed by yourself by having a completely wrong definition of success, or would you rather want to shift your focus to a healthy process of learning, improving, and praising yourself for your hard work? It’s up to you. And remember, whenever you find yourself in a rough spot, do not let your mind get the best of you because it is indeed your own worst enemy. But it can also be your best ally. Learn how to control it.

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11 comments

  1. Awesome post! Many greetings from Munich, Germany.

  2. Great post! More please ☺ Trading can be such emotional roller coaster but it doesn’t have to be. I would advice any novice trader to have just two or three strict trading rules which can never ever be broken. For example: 1. Never risk more than 0,5 % of your account balance per trade, 2. Open max 6 positions per week, 3. Pass trading oportunities with reward:risk ratio <1 (set your own rules based on your system and risk tolerance, examples were just my rules to stop me from overtrading and losing more then 3% per week). If you brake any of your basic rules you should stop trading for a week to clear your head. If you find out that you can't follow them don't blame yourself just go back to demo trading and try to obey rules there. When you feel ready try trading live again.

    • Sounds reasonable, great ruleset! And yes, not too many rules is a good idea or we will just become paralysed.

  3. Hey Moritz,

    Thanks for this awesome post on psychology. You pretty much pointed out all my mistakes made in the past, some of them which I am fixing hard such as over trading driven by greed. I think the key to succeed in this game is to have the right discipline and risk management in order to let the law of large number plays out well. The compounding effect will take care of the greed 🙂

    Cheers,
    MJ

  4. Hi Mortiz,

    I’ve been trading fx for 5 years now…only in the past few months I became profitable, and I made more $$ this month so far that I’ve ever made before. My trading balance is at its peak now.

    Why I’m saying this, I worked on my mind more of Han I did on my methodology, I learned a lot about myself through increased self awareness using mindfulness techniques.

    They guy that helped me is Rande Howell, I encourage everyone to YouTube him and see for yourselves. He explains for example that we always are in an emotional state, whether calm, nervous, anxious…etc. Basically he says there is no freedom FROM emotions, but only freedom OF emotions. We can choose what state of mind we want to be in when we’re trading. He also explains that emotions are physiological not psychological (which I never knew), therefore any emotion must have a physiological signatures, like when you’re nervous, your breathing my become faster or shallow, you may grind your teeths…etc, which help intensify your nervousness, if you become self aware, you can break the cycle and become a better trader.

    Sorry for the long post.

    Cheers,
    Youness

  5. Is that true “10% ROI a year and you are world class”?

    Thank you.

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