Mind
Mastering the Mind in Trading
"I can’t pull out of this trade now."
"The market will recover."
"You can't afford to take this hit."
"This trade has to be a win."
These are just some of the inner dialogues many traders experience, especially when they’re faced with a potential loss or have recently experienced a losing streak.
Think about the thoughts you have when a trade isn't going your way, when you're holding onto a winning position, or even when you're waiting for the right setup. What are these thoughts doing to your decision-making process? Are they serving you, or are they getting in the way?
The Challenge of Ignoring Thoughts
A common approach many traders take is to ignore these thoughts—simply trying to push them aside or replace them with more positive ones. This mental strategy, though common, often feels like a never-ending struggle. The harder you try to control or avoid certain thoughts, the more persistent they become.
Want proof? Let’s do a quick exercise.
Try not to think of a white bear for the next five minutes.
Sit quietly, and each time the image of the white bear pops into your mind, note it down.
How many times did the bear sneak into your thoughts?
This exercise comes from a famous 1987 study by Daniel Wegner on thought suppression. Participants were asked to avoid thinking about a white bear and were monitored for how often the image crossed their minds. The results showed that trying to suppress thoughts made the white bear even more frequent—a psychological phenomenon known as 'ironic mental processing.'
Even after the experiment ended, participants continued to think about the white bear more than they had before. Suppression is not only ineffective but also energy-draining, distracting you from your real goals in trading.
Embrace a New Way to Manage Your Thoughts
As a trader, you will always face challenging thoughts, particularly during moments of high pressure. Trying to stop them from arising is futile. Instead, the key is learning how to manage these thoughts in a way that allows you to stay focused and in control.
In recent years, a range of new cognitive approaches has emerged, providing more effective ways of dealing with these unhelpful thoughts and the emotions they bring. These strategies, which I’ve used with many professional traders and investors, help foster a more balanced and sustainable mindset.
Four Key Mental Skills to Improve Your Trading Mindset
Here are four key mental skills that can help you better manage your thoughts while trading:
- Awareness – The ability to notice your thoughts as they arise, without getting caught up in them.
- Workability – Asking yourself whether this particular thought is helpful in the given moment. Does it help your trading plan, or is it just a distraction?
- Defusion – Detaching from your thoughts by recognising them as just thoughts. For example, rather than thinking, "I can't close this position," you could reframe it as, "I am having the thought that I can't close this position." This simple shift creates some distance between you and the thought.
- Poise – Remaining steady and following your trading process, even in the face of distracting or difficult thoughts. It’s about commitment to your strategy, regardless of the noise in your mind.
Mind and the Trading Performance Scorecard
In The Trader's Mind Journal, the performance scorecard includes "mind" as a crucial factor for success. The ability to manage your thoughts and emotions effectively is essential for long-term trading performance. This process begins with recognising your thoughts, then managing them in a way that minimises their potential negative impact on your trading.
To evaluate your own mind management, ask yourself:
“How well did I manage my thoughts and emotions today?”
Score yourself on a scale of 1-5, and use this reflection to track your progress over time.
By moving away from suppression and towards mindful management, you'll find not only more focus but also more resilience in the markets. The markets will always throw up challenges, but how you manage your mind will determine your ability to succeed in the long run.