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The psychology behind a great trading performance

September 21, 2022 | 6:16 am | Forex Blog
September 21, 2022 | 6:16 am
Forex Blog
The psychology behind a great trading performance | Successful Traders

The Psychology Behind Trading: The Winning Trading Mindset

Anyone can learn how to trade. The technical trading know-how of the craft is readily available through online courses, tutors, and mentors. But this is only half of the trading equation. The other half, the part that can not be taught to just anyone, is the trader’s mental game to achieve the best trading performance. Technically proficient traders who don’t master the art of the mental aspect will quickly learn that all the book knowledge in the world can’t make up for a shaky mental mindset.

Tips and tricks can be taught (we’ve covered the mental game thoroughly in past articles), but it is only through experience and time in the market that mental fortitude can be built, and this is how traders really become successful. It is the psychology behind trading.


Fight or Flight Mentality

Fight-or-flight response – As humans, we’re conditioned to panic and freak out if a trade doesn’t initially go our way. The problem with this ingrained mindset is that many successful trades might take a while to develop. A trade that looked awful shortly after placement could develop into an incredibly lucrative win.

Successful traders need to be strong enough to face the reality that not every trade is going to look great from the get-go or even after a long period of time.

Rather than panicking, a good trader recognizes that losing or not winning immediately is simply a part of the trading job. Building up patience and tolerance for failure is critical.


Battling Counter-Intuitiveness

One of the first mental hurdles you’ll encounter in the market is the seemingly counter-intuitive nature of the arena.

For example, let’s take the well-known phrase “there’s no harm in taking a profit.” On the surface, sure, it would seem that taking a profit is always a good thing, right? Wrong.

That’s because if the profit is only after 1 pip, there’s going to be the harm in it.


The Perils of Trying to Avoid the Pain with an Automated System

In order to minimize the effects of anxiety, stress, and all of the other feelings that come with trading, many traders are turning to automated systems.

These systems effectively take the emotions out of trading by replacing the human element with a machine.

The problem with this approach is that it is very hard to find a system that will perform in a manner that brings consistent returns. The web is full of offers, guaranteeing immediate success, but the reality is most of these systems will not perform in a way that ultimately benefits the trader.

If you want to explore the automated system avenue, we recommend you build your own system. It may seem daunting at first, but with a good tutorial and expert advice, it is possible to create your own effective system.


Before Each Trade, Ask Yourself a Question

Ask yourself questions like, “If I take this trade now, and it fails, will I beat myself up?”

This question is especially important for traders who find themselves quickly making a trade only to regret it almost immediately after.

By asking yourself these types of questions, it will help you think through the consequences of each trade. It is very easy to lose sight of your goals while you’re looking for immediate market moves.

This question can help stop you from jumping right into a trade that you might later regret. That’s the psychology behind trading decisions.


Mentally Map Your Trades Out

Even if you have a good idea of why you made a trade, take a step back and try to understand it on a larger scale. Look at the weekly, monthly, and even yearly implications.

Constantly remind yourself why you’re pursuing a certain trend or system of trading. By doing so, you will help stop yourself from potentially jumping to and from trends, looking for a quick profit here and there.


Maximizing Your Trading Performance – The Trading Psychology Process

Let’s try to understand the process of the psychology behind trading-

High-Quality Preparation

Before any successful trader makes a trade, a succession of mental preparation has already occurred. Traders who rush into trades without preparing themselves might wind up lost and without the ability to get back on track. Traders who take the time to establish themselves in the right mental mindset will have an easier time managing the rigors of trading and dealing with the uncertainties that are bound to arise. 

At the heart of high-quality preparation are 4 main mental skills. Perspective, personal awareness, self-motivation, and mental discipline. There are other less major yet still impactful offshoots of all of these characteristics. 


This is not which angle you’re viewing your trading screen from. Perspective means understanding the role that trading plays in your life in relation to other commitments.

For example, how does trading fit in with your family obligations? Is trading going to occupy most of your days, or will it be work that you do in the evening? How does this schedule interact with your personal life? A successful trader sets up a framework for trading and is clear on where the borders lie.

The perspective will also enable you to enter your trading without other aspects of your life bleeding in and possibly distracting you. Distractions will, of course, always be a part of trading, or anything you do with a focus, for that matter. Having a clear perspective and drawing lines between trading and other duties will make it easier for you to manage those distractions

Going deeper into perspective, there is a trading perspective. This is a more narrowly focused perspective, and it refers to how you view the specific markets. What do you want to trade? What markers are you looking for before you enter a trade? Are there patterns that you prefer to focus on over others? If x happens, what is the probability that y will happen? 

There are so many questions that will arise, so don’t be intimidated if you don’t get around to preparing for them all at once. Allow your trading plan to evolve as more questions and scenarios come up. This preparedness is a fundamental core to your trading plan and readiness to trade. 

We, in The5ers, have made it easier for you and created a special free PDF trading plan that will help you build a personal trading plan.

Personal Awareness

The next big mental skill associated with preparedness, personal awareness, means understanding what you’re good at and what you’re not. What do you do better than average, and what do you do below average? It can be difficult to take an honest look at ourselves, but it’s crucial in terms of improving and evolving as traders. 

Knowing our weaknesses allows us to set up routines and habits that can steer us away from our shortcomings. If we know we are prone to certain behaviors, we can prepare ourselves to avoid them best. This does not mean that we necessarily succeed and avoid them altogether, but short of that, it’s important to give ourselves the best chance. 


What do you do when you’re just not feeling in the mood to trade? If you trade for yourself and there is no boss breathing down your neck pushing a deadline, it can be difficult to self-motivate and push yourself to work harder. 

The market is not always going to move in your favor, and there will always be times when you are down, looking up. You need to be able to set clear goals and pursue them enthusiastically, no matter what the external circumstances are. 

A goal can be vague, but the more specific and actionable a goal is, the clearer the focus and path towards success will be. Saying you want to make money is fine but setting specific weekly or monthly targets is much more tangible and actionable. It’s fine to dream big, but it’s important to set up smaller milestones and to take joy and pleasure from hitting and exceeding them.

Mental Discipline

The final piece of the pre-trade mental preparation is often referred to as willpower. We’ve gone on at length about the importance of a trading plan, but if you’re not able to motivate yourself and follow that plan closely, it won’t do much good. Mental discipline is the drive that gets you going each day, no matter what the conditions are, to follow and execute the plan as best as you can. 

A good way to strengthen your willpower is to come up with a daily mission. As we mentioned earlier, achievable goals should be a part of your trading plan, but on a smaller, more immediate level, you can create daily goals. These goals can be wide-ranging and are entirely up to you according to your strengths and weaknesses.

For example, you might wake up in the morning and decide that for this day, you won’t hesitate to cut trades that aren’t working. Maybe you’ve been timid in the past, but today there won’t be any exceptions. 




Executing Effectively

Once the pre-trade mental checklist has been completed, it’s important to not just jump into trades. There is still careful mental work to be done in order to execute trades in the most effective and efficient way. There is some overlap between this step and the previous step, so they should both be considered in the same mindset.  


One of the major keys to succeeding in life, self-confidence can be elusive but it can also grow as more and more success comes. 

In trading, there are two different types of confidence. There is external confidence which is based on things that are outside of us. Things such as how many winning trades you recently made or how much money you have. This confidence set is fine when you are winning and doing well in the market but doesn’t hold up when you hit a rough patch. A series of losses will hit this confidence hard because it is completely reliant on external factors. 

The other form of confidence, which can be more stable if properly nurtured is internal confidence. This is the self-confidence that comes from knowing your stuff and believing in your trading skills. Even if you’ve hit a rough patch, this confidence stays with you and can lift you up beyond your current losing state. 

psychology behind trading - confidence

Emotional Intensity

Part of mastering the mental game is mastering your emotions. Whenever you sit down to trade, it’s important that your emotions match the intensity needed (or not needed) for a given trading session. If you come in too passionate, you might make reckless decisions. However, come in without the right emotion and you might find yourself too passive to make good decisions. 


Constructive Self-Assessment

Any skill worth improving needs to be reflected on after each session and trial. In trading, this means looking back and keeping a log of all trades to understand what worked and what didn’t. Outside of technical analysis, this also means examining mental factors before, during, and after trades. How did a trade make you feel? Was there something emotional that distracted you or motivated you? At the end of the day, sit down and explore all of these feelings. 


Similar to self-confidence, self-esteem is a crucial element in a trader’s success. Imagine you had an entire day where your trades didn’t work out so well. How is this going to affect you going forward? Will you think less of yourself and be discouraged from trading with confidence or will you use this failure to boost yourself up and supercharge your self-esteem?

Performance Accountability

While we mentioned writing everything down in regards to trades, performance accountability is the ability to use all of that information to improve as a trader. It’s only worth writing everything down if you’re willing and able to look over it and learn from your mistakes. 


If you’re going to succeed as a trader, you need to be ready to work tirelessly towards your goals. Failures will come and it’s up to you to plow through them and not let them bring you down. Learn from them, apply valuable lessons, but keep your head up and move forwards. 

Continuous Improvement

This may sound redundant here but it’s a culmination of all of this mental preparedness. Take it all together and put it towards getting better. Every mistake, every success, they are not independent of each other. Everything that happens in your trading life can be reapplied in the form of a lesson, cautionary tale, valuable experience, etc. Never stop learning and never stop trying to improve yourself. There will always be something new to add to your repertoire and you will never be perfect as a trader. Strive to be and open yourself up to as much knowledge as you can retain.


The Psychology Behind Trading Performance – Conclusion

Finally, never forget that the most successful traders have all experienced losses. The difference is, most of them have been able to see the bigger picture and not get lost in the micro.

As you trade, constantly analyze and keep your focus broader so you don’t get caught up in the small day-to-day disappointments. Zoom out and see it as a long arch, not just a short, quick, jump up or down.

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