In a nutshell, the ability to trade successfully (the ability to do what needs to be done for the sake of your longer term results) depends on something called executive function, which lives in a little chunk of your frontal lobe.
The executive functions are a set of skills involving mental control and self-regulation, which aids in the achievement of one’s goals. Emotional Control, self-monitoring, planning/organization, flexibility… all these skills (and many others) are covered under the umbrella term of executive functioning.
For instance, when you’re entering a trade, you’re using executive function to look into the future – you’re imagining the future you desire, you’re generating options for behaviour that could create this future, and finally you’re deciding upon the best option to get from where you are now to that idyllic future you imagine (in which you are happy, successful, etc.).
Without executive function, you can’t look into the future, you can’t plan, and so you become impulsive, acting out in ways that pay off (emotionally) right now but may be bad for your longer term trading performance.
In short, if you have poor executive function skills, your decisions are bound to be impulsive and your actions shaped by blind reaction. Taking bigger risks, not adhering to your stop loss, not letting a winner run, all these things will appear to be good ideas in the present, but not in hindsight. And your trading performance will suffer consequently.
The unconditional adherence to your trading plan! That’s the antidote. At least part of it. Every day, as you approach the markets, your only excuse for failure is forgetting to do that. The key to being able to follow your plan is to put your future self in charge – to imagine that you’re looking back at this very moment in hindsight. What will you wish you had done?
The other part of the solution is practice. The only way to truly improve skills (whatever those skills) is through practice. In trading, this means that you stay active. You trade a lot! Yes. Don’t ever listen to the fear mongering around overtrading. Overtrading is not a thing! It can’t be. Because the more you trade, the better you get at trading, just like the more you swim, the better you get at swimming. The more you play guitar, the better you get at playing guitar. And so on. It’s all about practice!
The more you do something, the more you venture through all kinds of experiences – successes, failures…. and you eventually begin to develop a firm understanding of what works and what doesn’t.
That’s what practice does – it allows you to acquire knowledge, develop wisdom, and it prunes away the inefficient neural pathways of your brain that causes you to hesitate, jump the gun, or whatever…
In trading, the only prerequisite is that you have to trade small enough so as not to make ruin a feasible outcome for you. You’ll have all your time to increase your size when you’ve developed strong executive function skills.