Thinking like a professional trader will improve your forex trading exponentially. 

However, it does require a willingness to commit to understanding how you currently think, and then changing those elements of your trading psychology that don’t work in your favour.   

In this lesson, we delve deeply into the trading mind, so we can break through and create change. 

How to change your trading psychology

Trading is all about how we think.

By understanding how the best traders in the world think, we can take steps towards improving our own trading psychology.

However, mastering trading psychology requires a willingness to commit to changing yourself.

It’s through self-work that you’ll get from where you are now, to where you want to be.

Billionnaire hedge fund manager and Market Wizard Bruce Kovner said:

“The emotional burden of trading is substantial.”

When we approach the markets, we bring with us many of our personal problems, and a number of biases that arise from the way our brains work (thanks evolution!)

In many ways, we are poorly wired to be good traders.

Our natural inclination is to cut our profits short and to hold on to our losses – which is the exact opposite of what works.

Over time, if we work through our issues, not only will we become much better traders, it can also have great benefits to other areas of our lives too.

Many traders report that the self-development they went through to become a good trader had a transformational impact on their personal life, too.

Trading is 100% psychology

Market Wizard Dr Van Tharp, who is widely recognised as the world’s leading trading psychologist, believed that trading is 100% psychology.

Dr Van Tharp said:

“You do not trade the markets. You can only trade your beliefs about the markets.”

What he meant by this is, when you are trading the market, you are trading not the market itself, but your beliefs about the market.

Your beliefs are 100% psychological, thus trading is, too.

Dr Van Tharp believed anyone can be taught to trade by modelling the mental states and strategies of top traders.

If you know what they do, and you copy them, then you will be successful too.

In saying this, Dr Van Tharp was not referring to a particular trading strategy a trader might use.

Rather, he was talking about the way the world’s top traders conduct themselves in the market.

This includes:

• exercising emotional control
• exercising discipline
• viewing trading as a game
• not caring about money, etc.

I have covered many of these skills in the previous lesson.

Dr Van Tharp said:

“The psychological factor for investing has five areas.

These include a well-rounded personal life, a positive attitude, the motivation to make money, lack of conflict (such as psychological hang-ups about success), and responsibility for results.

Emotional ‘stuff’ that stops you trading well

Even if people understand what it takes to win in the markets, they have ‘stuff’ that comes up that stops them being successful.

This ‘stuff’ could be:

• a fear of success
• an aversion to risk-taking
• the need for excitement

(or any number of other psychological impediments.)

Though you may know what to do, you fail to execute, and this is where people fall down.

Where does this ‘stuff’ come from?

According to Dr Van Tharp, it comes from the mess of conflicting parts inside each of us.

Van’s supposition is that each of us has a mess of conflicting parts inside us.

Each of us might have:

• a trader part
• an excitement part
• a child part
• a parent part

(or one of 200 or more other parts.)

These parts evolve out of experiences we have had in our lives, and they generally have good intentions for us – but not always the best intentions for trading.

For example, the excitement part wants to make sure we live life to the fullest, but this is very dangerous when it comes to trading.

Trading out of excitement can lead to excessive risk-taking and overtrading.

You may have a part that was brought up believing ‘rich people are bad,’ or that ‘money is the root of all evil.’

This part could hinder your attempts to make money in the market, to help you avoid becoming ‘bad.’

As you can see, these parts unwittingly engage in self-sabotage.

On this subject, Market Wizard Michael Marcus said:

“If trading is your life, it is a torturous kind of excitement.

But if you are keeping your life in balance, then it is fun.

All the successful traders I’ve seen that lasted in this business sooner or later got to that point.

They have a balanced life; they have fun outside of trading.”

So now we need to look at how a trader starts to make the necessary transformations to become a Master Trader.

Start at the base, with the foundations

If you want to transform, surface-level changes will have little lasting impact.

If you focus on working on your trading system, you can spend years and get nowhere if the beliefs you are operating from are self-sabotaging.

Instead, if you change the foundations, all the other elements of your trading will seamlessly click into place.

Another Market Wizard, Tom Basso, an American hedge fund manager and founder of Trendstat Capital Management, said:

“If instead of saying: ‘I’m going to do this trade,’ you say ‘I’m going to watch myself do this trade,’ all of a sudden you find the process a lot easier.”

So how do we change our foundations?

It starts with becoming more aware of one of your parts – the part that is your true self or, as Dr Tharp termed it, your ‘divine.’

Each of the multitudes of parts inside you masks your true being.

In a sense, they are a construct of your ego’s desire for control.

These parts are the chatter you hear in your mind; your true self is the quiet behind the voice.

For those of you who have practised meditation, you will know what I mean.

For others, this may sound alien and probably like nonsense.

To that second group, all I would say is notice what you reject – because often that is what needs changing the most.

Separating the needs of your ego

Market Wizard Marty Schwartz put it this way when he said:

“I was able to separate my ego needs from making money.”

Once you strip away the chitter-chatter and get to a state of ‘quiet,’ you are in a very good place for trading.

Free from constraints, you can see the market for what it is, and trade ‘in the now’ – not out of fear (which is rooted in thoughts about the past or future.)

Zen and the Art of Trading

In the book ‘The New Market Wizards,’ Jack Schwager interviews an unknown trader in the chapter ‘Zen and the Art of Trading.’

After conducting the interview, the trader decided he did not want his name published, as he talked about subjects such as eastern mythology, dreams, and intuition.

He was worried about what his investors might think.

In the brief version of the interview that was included in the book, the trader talked about trading without ego.

The now-famous ‘unknown trader’ said:

“There is buying and selling going through me.

It’s like my personality and ego are not there…it’s just an awareness of what will happen.

The trick is to differentiate between what you want to happen, and what you know will happen.

The intuition knows what will happen.”

A different state of consciousness

In his book ‘Trading Beyond the Matrix,’  Dr Van Tharp talked about a super trader of his who traded in a similar state of altered consciousness.

This trader was consistently able to make large R-multiples of profit from the market, in an hour of trading a day.

If you want to find this ‘different state of consciousness,’ here’s some tips:

• Strip away the ego – focus on mental exercises that strip away the ego, and quiet the chatter of the mind.

Anxiety, anger, and other negative emotions begin to disappear, and you become more mindful of what’s going on.

This serves to make you a much better trader.

• Connect with your ‘divine’ – learn to form a connection with your divine (or intuition – call it whatever works for you) and receive guidance from your intuition in your trading.

Jack Schwager’s ‘unknown trader’ said:

“Every market has a rhythm, and our job as traders is to get in sync with that rhythm.

I’m not really trading when I’m doing those trades.

There’s trading being done, but I’m not doing it.”

What this master trader is referring to when he says ‘he’s not doing the trading’ is, that he’s operating in automatic mode.

He is letting his ‘divine’ or ‘intuition’ or ‘sub-conscious’ do the trading, separate from his ego, or conscious state of mind.

Create a self-development plan

A self-development plan will aid you in trading without interference from negative emotions or non-useful parts.

It’s beyond the scope of this lesson to cover the large range of psychological topics that may help you trade better.

There are far more qualified people in the field than me.

But I do want to encourage you to create your own self-development plan to work through any issues that are holding your trading back.

Realising your trading potential

In this lesson, you’ve seen how our beliefs, emotions, and internal conflicts can significantly impact your trading psychology, and therefore your trading success.

By understanding these factors and actively working on them, you can unlock your full trading potential.

Remember, mastering trading psychology is a journey, not a destination.

It requires self-awareness, discipline, and a willingness to confront your limiting beliefs.

The good news is, you can transform your trading mindset and achieve consistent results.

In the next lesson, I’m going to take a further deep dive into ‘Trading in the Zone.’

See you there.