Most Traders Lose Money — Mindfulness Can Help Change That
How traders can become profitable using science-based mindfulness techniques.
On any given day, if you head on FinTwit (short for Financial Twitter, a community that primarily uses the social network to discuss financial markets, the state of the economy, investing, etc.) you might see different trending topics — meme stocks or cryptos shooting 1000s of percent, rants about the central bank's shameless printing of money and traders' outlandish price predictions … but you'll rarely see traders discuss trading psychology.
Trading psychology (the mindset traders have when they approach trading) is an all-too-important but often overlooked aspect. It is often overlooked, because traders assume they have the right mental attributes to thrive in fast-paced environments such as financial markets. While many traders pass the chart analysis test with flying colors, most will fail the emotional management test. And that's why they're not consistently profitable in the market — conventional wisdom suggests that the failure rate amongst short-term traders oscillates between 80% to 90%.
Markets are fractal. Remove the time element on any chart, and you'll find no difference whatsoever in terms of price structure and patterns. The only thing that changes is the rapidity of market feedback, and people usually fail at short-term trading, because they're often not properly equipped mentally to deal with the fast-paced market action on the lower time frames.
On higher time frames, things are slower and more linear, so traders can carefully consider the pros and cons of each decision. On the lower time frames, this is more difficult. Traders are more inclined to sell low and buy high, not properly manage their risk, or they get too emotionally involved. But short-term trading can be very rewarding. It offers the opportunity for quick and consistent payoffs to those who approach it with both the right trading strategy and psychology.
I have been a trading psychology educator since 2014. My daily trading psychology reflections on Twitter, Instagram, and Facebook are followed by thousands of people around the globe. I believe that trading — especially short-term trading — is inherently a mental game. In other words, it's a game one plays against oneself. And I have created a series of mindfulness-based psychology trading solutions to help traders develop their trading psychology edge and be consistent winners.
Nowadays, mindfulness and meditation are well anchored in popular culture. Meditation is simply a "tool" to help us be present (mindful) with our experiences, without holding on to what's good and comfortable or pushing away what's bad and uncomfortable. I have spent many years studying this discipline, its epistemology and related philosophy under the guidance of renowned meditation masters from both the East and West before going on to teach it to traders and investors.
From my experience (professional and personal), the following attributes are necessary to succeed as a short-term trader:
1. Protection against stress
As market-moving news hits the wires, losing traders become emotional. Stress causes them to make compulsive buy and sell errors. Successful traders aren't immune to stress, but they have better protection against it, and this helps them stay in control and make superior decisions.
2. An empowering life philosophy
This builds on the first point. Uncertainty and losses are a reality of trading. You can't win all the time in financial markets. You can only aspire to win big when you win and lose small when you lose. That being said, if you don't have an empowering life philosophy to help you contextualize losses and adverse events, those can become traumatic experiences instead of insightful lessons.
3. Discipline and patience
Discipline means doing what you should do (based on your trading plan) rather than what you want to do (based on your emotions). And winning traders are good at the former. On the other hand, losing traders are usually highly emotional and impulsive. These internal conflicts cause them to compulsively buy high and sell low when they should be doing the opposite.
4. Ownership and organization
A recurring pattern I've observed among winning traders is that they're usually very organized and accountable. They own the results they get (complete ownership!) and don't think of themselves as victims. Such high levels of accountability and organization allow them to generate superior trading results.
5. A long-term mindset
Even short-term traders need a long-term mindset because of the probabilistic nature of trading. A long-term mindset is about having a trading strategy, showing up for the trades that strategy identifies, managing risk and staying in the game long enough for the results to compound.
Now, all the above attributes can be developed — one can learn to become an effective short-term trader — provided one puts in the work. And the good news is that mindfulness, if practiced daily, can help traders develop those attributes, polish their trading psychology and win the mental game of trading.
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