he idea here is that simplicity can be key in trading. When strategies or systems become overly complex, it can lead to confusion, mistakes, and difficulty in making clear decisions. Keeping things simple can help maintain clarity, reduce errors, and improve overall trading performance.
Everyone enters the financial markets for various reasons. Generally, these reasons are related to the future state, which has two distinct characteristics: first, it is higher than the current state, and second, it is different from the current state.
As humans, we have two states: 1) the current state, and 2) the future state (goal). To move from the current state to the future state, we need to engage in certain behaviors. These behaviors are controlled by our minds. So, when we trade, regardless of our trading method, trading plan, or risk management, we are managing and executing these aspects with our minds.
The mind can be defined as follows: The mind is a cognitive process that handles all perceptions and imaginations, decision-making, memory, emotions (fear and greed, hope and faith, etc.), habits, and decisions. Everything that is intangible but manifests in behavior originates from the mind. We are simultaneously two beings: our rational self and our mental self. These two are different and even have different talents.
Talent relates to the neural connections between different parts of the brain used for performing tasks (artistic work, technical skills, driving, cooking, etc.). Just as muscle cells grow and thicken with activity and exercise, neural cells are also strengthened, leading to the growth and enhancement of an individual’s talent. So, saying ‘I am a talented person and I do something very well’ is different from saying ‘this behavior originates from my mind and is controlled by my mind.'”
In trading, we deal with the part of ourselves that leads to our decisions, which is related to our mind. For example, if we have issues with setting stop-losses and adhering to them in our trades, we need to acknowledge that while we know the correct behavior is to adhere strictly to stop-losses, we are currently not doing so, even though we understand it’s wrong. This means we are activating and stimulating the parts of our brain responsible for memory and linking them with the parts involved in decision-making. Once we create this acceptance (which is a time-consuming process), we should impose a personal penalty if we fail to adhere to the stop-loss.
For instance, if we do not follow our stop-loss in the market, we should activate our personal stop-loss. After making such a mistake, we might confess to someone else (like our spouse) that we failed to adhere to this principle despite knowing we should, and that it caused significant losses. This is similar to knowing that our spouse dislikes a specific behavior but doing it anyway, or smoking in front of our child when we know we shouldn’t. Acknowledging these mistakes can serve as a form of punishment. Alternatively, if we fail to adhere to our stop-loss, we could punish ourselves by refraining from trading the next two positions. Our brain, driven by the need for serotonin, will resist this temptation and create internal changes to ensure we adhere to the stop-loss in the future.
Some traders may have previously involved themselves in various analytical methods without achieving good results, creating negative memories in their minds. When they now want to use a price action method (a method that aims to lead to success without complex tools and methods), past influences negatively affect their current trades. This means that past behaviors that caused losses still affect them negatively, and efforts to prevent those losses can sometimes result in the opposite effect. Addressing this issue, which can be time-consuming (e.g., if it took 7-8 years to develop, it might take at least 6-7 months to resolve), requires overcoming past fears and having faith in what we do (whether it’s confidence in ourselves or in the system we are using).
As long as we focus on these two aspects, there should be an obstacle or brake in our path to prevent deviation. These can be internal or external factors:
External Factors: Choosing a trading supervisor who will penalize us in case of deviation. This penalty should be severe enough to prevent repetition.
Internal Factors: Limiting the currency pairs or stocks we can trade to one or two to keep the number of trades low. This can reduce stress, helping us avoid the concern that a high number of trades will lead to losses. We want to eliminate this mindset and avoid worrying that having 3-4 open trades (even with currency correlations considered) will cause losses.
Without a healthy mind, we cannot achieve wisdom, and without wisdom, trading goals cannot be met. This is why trading is said to be 100% mental. Since trading involves the mind, which is vast and nearly unlimited—a characteristic unique to humans—wisdom emerges from this. Other creatures also display behaviors (responses to external and internal factors), but these behaviors in humans are accompanied by wisdom. Therefore, we must address issues with wisdom.
Mind in Trading
In trading, the mind plays a crucial role in decision-making. This includes
Self-Awareness: Recognizing that adherence to principles (like stop-losses) is crucial, even if one is not currently following them.
Memory Activation: Using memory to recall past mistakes and ensure they are not repeated.Decision-Making: Linking memories of past failures with current decisions When dealing with issues like not sticking to stop-losses:
Addressing Stop-Loss Issues
When dealing with issues like not sticking to stop-losses:
Acknowledge the Issue: Understand that sticking to stop-losses is vital for long-term success, even if current behavior doesn’t reflect that understanding.
Penalty System: Create a personal penalty for not adhering to stop-losses, such as not trading the next two positions or confessing the failure to someone close.
Impact of Past Experiences
raders who have faced failures with different analytical methods may:
Carry Negative Memories: These past experiences can create a negative bias toward new methods, even if they are more suitable.
Overcome Past Biases: To use a new method like price action effectively, one must work through past negative experiences and build trust in the new approach.
Managing Trading Behavior
Trading Supervisor: Having someone who monitors your trades and enforces penalties for not following rules can help enforce discipline
Severe Penalties: Ensure the penalties are significant enough to discourage deviation from trading rules
Limit Trading Options: Restrict the number of currency pairs or stocks you trade to reduce stress and prevent overtrading.
Focus on Quality: Prioritize the quality of trades over quantity to avoid unnecessary risks and reduce stress.
Wisdom and Mindset in Trading
Healthy Mindset: A clear, focused mind is essential for effective decision-making.
Wisdom: Wisdom comes from understanding and effectively applying trading principles and strategies. It is developed over time through experience and self-reflection.
Managing Mental Factors: Traders must manage their mental and emotional states to make rational decisions and adhere to trading rules
Practical Steps for Improvement
Set Clear Rules: Define and adhere to trading rules and principles.
Monitor Performance: Regularly review your trades and decisions to identify patterns and areas for improvement.
Seek Feedback: Engage with mentors or trading supervisors to get feedback and stay accountable.
Practice Patience: Recognize that improving trading behavior and overcoming past biases is a gradual process.
By focusing on these aspects, traders can improve their performance and achieve their trading goals more effectively.
