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The Hardest Thing About Trend Trading — And What You Can Do About It

The Hardest Thing About Trend Trading — And What You Can Do About It

In trading, if you’re a typical trader who trades with the trend and looks for a higher reward to risk ratio, the hardest things you’ll ever need to do is to let your profits run. It’s even harder than having to cut your losses.

It’s so hard because the mind never stops telling us stories. It is constantly judging, evaluating, and fantasizing. And many of these stories are real attention grabbers. No kidding! Time and time again we get lost in them— we automatically think they are urgent and need to be acted upon.

Next thing you know:

  • You’re closing a trade for break even because you fear a loss. And you attempt to rationalize that move with additional stories.
  • You close your trade, taking some minimal profits off the table while attempting to convince yourself that this was the right thing to do. (even though somewhere deep inside you know it wasn’t.) And sure enough, price skyrockets right after.

But if thoughts are just stories, then how do we know which ones to believe?

There are three parts to this answer.

First, be wary of holding on to any mental construct too tightly. Mental constructs are thoughts, beliefs, emotions (intricately linked to sensations in the body) and everything else appearing in that space you call mind. We all have them, but the more tightly we hold on to them, the more inflexible we become in our attitudes and behaviors. So hold everything lightly.

Second, whether a thought is true is not that important. Far more important is whether the story is helpful. Suppose I am making a serious mistake by closing a trade (because this goes against my plan) and, in the moment, my mind tells me, ‘Great, you are doing the right thing.’ This is not a helpful thought. No matter how I came to that conclusion, it doesn’t help me achieve my long-term objectives because it goes against my plan. It is more concerned with avoiding pain in the short-term; it doesn’t inspire me to improve; it merely wants me to feel comfortable.

Third, if a thought is associated with some strong emotions, it shouldn’t be believed and acted upon. Of course, there are exceptions, so when in the grip of some particularly strong patterns of thought and emotions, the more pragmatic approach is to always ask yourself: “does this go against my plan?” If yes, then, by all means, it shouldn’t be believed and acted upon no matter how convincing it is. Your plan is there to protect you against your inconsistent thoughts, beliefs, and attitudes — i.e., you want some long-term results, but in the short-term, you want to avoid pain.

Sitting on your hands

You can waste a lot of time debating whether keep a trade on or close it; again and again, your mind will always try to suck you into that debate. But you can train yourself to become more resistant to your mind’s alluring propositions. You can train yourself to sit on your hands, so to speak.

A Harvard study revealed that a wandering mind is directly related to unhappiness. The study discovered that those with constantly wandering minds were less productive, resilient, disciplined, and by extension less likely to be happy than those able to focus on the tasks at hand.

The most startling part of the discovery is that unhappiness doesn’t just come from the mind wandering to unpleasant things. That same study shows that people with minds that wander to neutral or even pleasant thoughts are still less happy than if the mind wandered very little.

So it is clear: an unruly mind creates dysfunction and finds problems where there are not. And the way to more balanced approach to your life – the keys to happiness — lies in mastering the mind, teaching it to remain still in face of external factors that might otherwise cause it to react and meander.

And that’s exactly what you need if you want to be able to let your profits run and doing so consistently –you have to work on mastering your mind, thus placing your attention where it needs to be.

How…

Everything about our lives is a question of habit.

  • You want to be more patient? Practice it while waiting in line at the Grocery store.
  • You want to be more flexible? Don’t hold on to your beliefs too tightly.
  • Want to stop overthinking? Cut out as much as possible the distractions in your life. Focus on what is essential and useful.

The moment you begin nursing wholesome habits of mind instead of the usual unwholesome ones (overthinking, obsession with money, need to be right, unrealistic expectations, impatience,etc.), you slowly untie the mental knots that are preventing you from excelling in a field like trading.

This is the very principle behind Neuroplasticity. Connections and pathways in the brain that you use often are reinforced as they become bigger and stronger, while others that are used less frequently become smaller and less effective.

As you see, trading is not just about financial independence, it’s a journey of personal growth, that is, if you stay in the game long enough.

For those of you who don’t know, The Trading Psychology Mastery Course is a two week home intensive trader’s mindset program in which you learn to develop the ability to sit on your hands. Check out the reviews and maybe try it. It might help bring you the change you’re looking for.

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Yvan
I've been trading for a living since 2006. By merging mindfulness (an in-depth study of the mind and its tendencies in the present moment), a good trading process, and an efficient business practice, I went from being a losing trader to a consistently profitable one. Through my work here at Trading Composure, I aim at helping you do the same.
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  • Darpesh bhagat

    Very useful

  • knarf

    Fantastic lesson:
    As you do one thing, you do everything.
    Come a moment that you realize that the problem is you, not your methodology …
    Trade is not just about financial independence, it is a journey of personal growth in all aspects of your life. I liked the examples that you have explained to improve the habits.

    Congratulations for your work.

    • Thanks for reading! I truly appreciate the kind words.