Opinions expressed by Entrepreneur the collaborators are his.
Any day, if you go to FinTwit (short for Financial Twitter, a community that mainly uses the social network to talk about financial markets, the state of the economy, investment, etc.), you may see different topics trend: meme or crypto stocks firing 1000 percent, dispossessions over the blatant printing of central bank money and weird traders ’price predictions … but you’ll rarely see traders discussing business psychology.
Business psychology (the mindset that traders have when they approach trading) is too important an aspect but often overlooked. It is often overlooked, because traders assume they have the right mental attributes to thrive in fast-paced environments like financial markets. While many traders pass the chart analysis test with grade, most will fail the emotional management test. And that’s why they aren’t consistently profitable in the marketplace: conventional wisdom suggests that the failure rate among short-term traders ranges from 80% to 90%.
Markets are fractal. Remove the time item from any chart and you will find no difference in terms of price structure and patterns. The only thing that changes is the speed of market feedback, and people don’t usually do business in the short term, because they are often not adequately mentally equipped to cope with the rapid action of the market in the shortest periods of time.
Related: Here’s what you need to know before you start trading
At higher time periods, things are slower and more linear, so traders can carefully consider the pros and cons of each decision. In lower time periods, this is more difficult. Traders are more likely to sell low and buy high, do not properly manage their risk, or become too emotionally involved. But short-term trading can be very rewarding. It offers the opportunity to receive quick and consistent benefits to those who approach it with both the right business strategy and psychology.
I have been a business psychology educator since 2014. My daily reflections on business psychology on Twitter, Instagram and Facebook are followed by thousands of people around the world. I think trading, especially short-term trading, is inherently a mental game. In other words, it is a game that is played against oneself. And I have created a number of mind-based business psychology solutions to help traders develop their advantage in business psychology and be consistent winners.
Today, mindfulness and meditation are firmly entrenched in popular culture. Meditation is simply a “tool” to help us be present (conscious) with our experiences, without clinging to what is good and comfortable or moving away from what is bad and uncomfortable. I have spent many years studying this discipline, its epistemology, and its related philosophy under the guidance of renowned meditation masters from both the East and the West before teaching it to traders and investors.
From my experience (professional and personal), the following attributes are necessary to be successful as a short-term trader:
1. Protection against stress
As market news hits the wires, losing traders become emotional. Stress causes them to make compulsive buying and selling mistakes. Successful marketers are not immune to stress, but they have better protection against it, and this helps them stay in control and make superior decisions.
2. An empowering philosophy of life
This is based on the first point. Uncertainty and losses are a reality of trade. You can’t win all the time in the financial markets. You can only aspire to win big when you win and lose small when you lose. That said, if you don’t have a life philosophy that helps you contextualize losses and adverse events, these can turn into traumatic experiences rather than insightful lessons.
Related: Increase your wealth by mastering trading techniques
3. Discipline and patience
Discipline means doing what you should do (according to your business plan) instead of what you want to do (according to your emotions). And the winning traders are good at first. On the other hand, losing traders tend to be very emotional and impulsive. These internal conflicts cause them to buy compulsively and sell low when they should do the opposite.
4. Ownership and organization
A recurring pattern I have observed among the winning traders is that they are usually very organized and responsible. They own the results they get (full ownership!) And do not consider themselves victims. Such high levels of responsibility and organization allow them to generate superior business results.
5. A long-term mentality
Even short-term traders need a long-term mindset due to the probabilistic nature of trading. A long-term mindset is about having a business strategy, presenting yourself in the operations that the strategy identifies, managing risk, and staying in the game long enough for the results to combine.
Related: Why Mindfulness is an Essential Mental Skill
Now, all of the above attributes can be developed: one can learn how to become an effective trader in the short term, as long as he is dedicated to the job. And the good news is that awareness, if practiced daily, can help traders develop these attributes, polish their trading psychology, and win the mental game of trading.