5 Ways to Manage Your Trading Mindset

Trading is a very mentally demanding profession. Your mindset is equally, if not more important as what happens in the markets. Among other things, you need to be able to deal with the stress caused by uncertainty and your emotions. This is something many professional traders struggle with, so in this blog post, I am going to teach you five ways to manage your trading mindset. By applying these five practices followed by professional traders, you will be able to learn from your mistakes, control your emotions, and ultimately make profitable trading decisions.

This article was written by Michael Thomas, professional proprietary trader and Tradervue user with over 10 years of experience trading futures and stocks.

1. Journaling

I can’t stress enough the importance of keeping a journal. Here’s why.

Back when I started trading, I quickly became successful at it. Some would call it beginner’s luck, but I believe it’s simply that beginner traders haven’t experienced big losses yet, so they don’t feel much fear and are therefore more willing to take risks.

However, after a year and a half, I went through a long period filled with terrible results. I was losing money frequently, markets were changing all the time, and I didn’t know exactly what I was doing wrong.

To deal with this, I shut down my fear and kept trading even after suffering big losses – without learning from them. And when I would score a big win, I would start trading recklessly out of euphoria and over-confidence, only to suffer big losses again. I got stuck on that roller coaster of big wins and big losses for a long time. Needless to say, this was very taxing emotionally and psychologically.

So how did I break through that phase? Well, I discovered Tradervue and started journaling on it. Documenting everything about my activity, from my trades to my results and my mental state, was a game-changer for me.

How Tradervue helped me manage my mindset

Thanks to journaling on Tradervue, I learned a lot about my own mindset, mainly:

• Emotions like euphoria and frustration were guiding much of my decisions.

• I wasn’t thinking for myself – I was copying strategies used by other traders, hoping to get the same results. Trading doesn’t work like that.

• My behavior was influenced by certain events.

This insight was crucial for managing my trading mindset. Once I learned my mistakes I stopped repeating them and figured out what to do instead. As a result, my profits increased while my losses decreased. This was thanks to journaling.

If you don’t journal your activity, you won’t truly know your patterns and common trading mistakes, even if you think you do. You might have a vague sense of what you did wrong, but you won’t be able to retrace the exact steps that led to that negative outcome.

You also won’t identify the scenarios that make you emotionally vulnerable. And managing your emotions requires you to be aware of them, hence why you need to write how you feel consistently. You will know which situations cause strong emotions so you can avoid emotional decisions.

So keeping a trading journal is your best tool for self-development and consistent improvement. It takes discipline to keep a journal, but to say that it’s worth it is an understatement.

Tradervue tells you what you’ve actually done versus what you thought you did. And on top of that, you can write manual notes and tag individual trades. Over time, you can learn what your true behavior is.

2. Meditation

There has been a surge of interest in meditation over the recent years, which makes sense given that many people lead busy and stressful lives. More than a trend, meditation is a healthy practice with proven benefits.

As a professional trader, there are times when you feel stressed, anxious, or disappointed. You may also:

• Overthink things

• Dwell on past mistakes

• Easily get distracted

• Overreact to market changes

If any of the above happens to you regularly, you should incorporate meditation into your daily routine. It will help clear your mind and get into the trading zone.

In fact, research conducted on stock traders in Thailand found that meditation does lead to better performance:

“In particular, the analysis confirms that the intensity of mindfulness meditation practice, as measured through several indicators [trading discipline, overreaction to news, panic selling], directly and indirectly correlates with high trading performance of the sample traders.”

Personally, meditation has helped me better manage my mindset. Specifically, I improved my ability to:

• Stay calm

• Reduce stress and anxiety

• Improve focus

• Develop patience

• Control emotions

• Develop emotional intelligence

• Avoid overreacting to trade results and the news

Curious about how to get started with meditation? I’m not an expert, but I can give you a few pointers.

How to start meditating

Try to dedicate a few minutes per day (preferably in the morning) to meditation. As you get used to it, you can increase the meditation time gradually.

Sit cross-legged or on your chair. Close your eyes and mouth and start breathing in and out deeply. Try not to think of anything. You can either meditate in silence or listen to calm music specifically made to help with meditation.

There are different meditation techniques used by traders, from mindfulness meditation to mantra meditation and visualization to mention a few. Feel free to try them out and find out which ones work best for you.

Meditation will help you reduce inner turmoil and keep a calm mind as you trade. Like journaling, this is a practice that doesn’t take a lot of time and pays off in the long run, so make it part of your daily routine.

3. Handling Losses

Losing money is an integral part of trading. Traders can go through periods where they don’t see a winner for days, weeks, or even months. When that happens, the psychological impact is often hard to deal with.

You know what losing money feels like. It can be very painful and frustrating. But here’s the thing: how you handle loss is crucial to your trading success.

Many traders cope with loss by resorting to revenge trading or stopping to trade entirely. This is terrible behavior that further compromises a trader’s results and potentially even their career.

Instead, what you want to do first and foremost is to accept loss as part of the game. This is a very important part of improving your trading mindset. You want to not take losses personally and move on. Admittedly, that was hard for me to learn. But even the best traders in the world still lose money sometimes — no exceptions.

Instead of focusing on the outcomes, remember to focus on the process. This means not trading outside your plan. If you follow your plan and end up losing money, take it as an opportunity to learn something new. As I like to say, never let a loss go to waste.

How to minimize losses

The first piece of advice I can give you is one you have already heard before: never invest an amount of money you cannot afford to lose.

Next, you want to reduce the frequency and size of losses. To do that, look back on both your most costly trades and your most frequent bad trades. Determine their causes. Your trading journal is your best tool to figure this out.

To do this, you need to set your:

• Maximum drawdown

• Risk per trade

• Daily loss limit

• Stop loss

• Bracket order

If you want to learn more about how to manage risk, read this blog post: How Professional Traders Manage Risk.

4. Handling Euphoria

Handling loss is a well documented topic in trading, but I don’t see enough traders talking about handling euphoria.

Euphoria is the state of joy you experience after a big win. It’s a positive emotion, but it can be just as dangerous as fear or frustration. Let me explain.

When you’re having a winning streak, you might trick yourself into believing your future trades will be just as successful, if not more. Your biggest goals seem within grasp. This exaggerated confidence is a common mental trap that leads to unwise decisions, which then are followed by a big reality check.

Letting euphoria drive your trading will cause you to make mistakes and lose a lot of money. Possibly even more than what you made in your big win. Remember what I said while I was discussing journaling: I used to have a euphoria rush after scoring big wins. That led me to make poor decisions and lose a lot afterwards. Going through these cycles of big wins and losses caused me a lot of stress, frustration, guilt, and even despair.

So keep your expectations for each trade realistic.

It might also help to take a break and let your emotions cool down, which is one of the 5 trading best practices and tips by professional traders you should implement.

So when you start feeling very excited after a win, take a moment to assess your emotions. Is euphoria nudging you to trade outside your plan? Evaluate the situation and decide if you should sell and take your profit.

Speaking of taking a break, it’s time to discuss the last method I use to manage my trading mindset: taking time off.

5. Time Off

Professionals in any field need time off to recharge, and trading is no different.

It’s easy to think of time off as losing an opportunity to make more money. But that kind of thinking can cause you to over-trade and burn out. Instead, schedule some time off to relax and recharge before deciding on your next move.

How time off helps you trade better

When I start feeling a strong emotion, like frustration, I take a break from trading. Doing this helps me calm down before I make an emotionally-driven trading decision.

I also take the time to reflect on my recent activity, specifically:

• Why did I make the decisions I made?

• Did I stick to my trading plan all the way through?

• What could I have done differently?

It can be hard to think about these questions while I’m trading. Taking time off helps me focus, review my current situation, and revise my strategy.

So be sure to take some time off to recharge and figure out your next course of action.

Also, try to think about what you wanted to accomplish when you started trading. Maybe you want to be able to work from anywhere in the world. Or you want more free time to work on passion projects. Whatever the case, taking time off helps you review your life goals and plan how to get there.

Additionally, taking some time off is also a great occasion to celebrate a milestone in your trading career. It’s great to reward yourself for your efforts, and you’ll be excited to resume your activity.

Personally, I take a break that can last anywhere between a half-day and a few days. I also like to take a small vacation every now and then.

Managing Your Trading Mindset: In Conclusion

Trading is in large part a mental game. In your trading journey, you will go through a lot of  ups and downs. Learning how to deal with both is a perpetual process.

In summary, you should keep a journal, meditate, learn how to handle losses as well as euphoria, and take time off. These five practices will help you manage your trading mindset to understand your behavior, control your emotions, and ultimately trade more profitably.

Maybe you have already implemented some of these practices prior to reading this blog post. If so, that’s great, but adding the others will yield even greater results.

One way you can start improving your trading mindset today with journaling. Chances are you are already keeping a journal, but have you tried Tradervue? Professional traders have been using it since 2011 as their online trading journal. You can start a free account with a trading template in just a few clicks and start importing your trades from your favorite trading platform. Explore the features of Tradervue and start journaling your activity to improve your trading mindset.