Many of my articles have discussed how important it is for the active trader to develop the proper mind set to trade. The concept of "psychological capital" is going to be the topic of this article.
As I have said may times, finding the right trading system or strategy represents about 10% of the equation on the road to trading profitability. What is the other 90% of the equation? You guessed it. It is having the proper mind set. That's where psychological capital comes in.
Have you ever taken a trade because you were bored or because "it looked good to you" only to have the trade fail, hitting your stop and taking away your real capital? When that happens, how do you feel? Do you beat yourself up mentally, vowing never to do it again? Have you ever been in a trade that just "doesn't feel right" and discover that one of your trading criteria wasn't met before you took the trade? Do you exit immediately or hold on and "hope" that the trade makes money.
If you are like most trader's, these scenarios have happened not only once, but many times. When these types of situations happen, they take away not only from you real capital, they also take away from your "psychological" capital. They drain you from being able to act in a rational manner or when making trading decisions. If you take a losing trade and don't have sufficient psychological capital, taking the next trade will be difficult. You begin to doubt yourself, your trading methodology, and your ability to pull the trigger next time a trading opportunity sets up.
Self Talk
This brings me to another topic: Self talk. As a student of the mind and the various aspects of the how the mind effects how you trade, one of the things that has become evident to me is how much your "inner voice" effects how you preform. If you are in a trade, do you say to yourself, "I know that I am going to get stopped out" or do you say to yourself, "I know this is going to make my objective!" If you get stopped out of a trade, do you say to yourself, "I just am not any good at trading, I can't do anything right" or do you say, "Taking a loss is just a part of trading and I am going to take the next trade with the same positive expectation that my trading plan dictates."
My point to this whole article is that how you handle that inner conversation, how you protect your psychological capital is as important to making money trading as having the right system or rules to trade. The biggest obstacle to being consistently profitable, is all of the small things that come into your mind while trading (this is just as true for all of your day to day activities as it is for trading). A trader needs to develop very positive, uplifting, and confirming internal talk words to keep your trading at it's peak performance.
I hope that creating a positive mental attitude and preserving you "psychological capital" helps you to: Catch a Whopper!