Here are three things you can evaluate right here, right now to help your trading and improve your trading psychology:
1) Look at how much heat you take on your trades relative to how much they move your way - In other words, examine each trade you place and see how far the position went against you during the life of the trade and how far it went in your favor. This tells you if you are truly achieving good reward relative to risk in the execution of your ideas. If you tend to undergo meaningful downside before positions work for you, how might you refine your entries? Studying what would have been more optimal entry points will help you reduce downside during your trades and that promotes a sense of mastery. On the other hand, if you tend to take little heat on your trades, are you sizing up positions adequately when you do enter? Might it make sense to size the entries larger and scale out of positions as they go your way, creating more consistent and larger profitability? That can help our psychology as well.
2) Look at the productivity of the time you spend when you are *not* trading - There are many junctures during the trading day and week when opportunity is slim. Do you use this time to research new ideas, update existing ones, and review performance in detail? Or do you find yourself staring at screens, worrying about P/L or searching for trades to put on, even if those aren't necessarily in your wheelhouse? When we are productive in our time outside of trading, we create wins every single day, and that bolsters our mindset. Using the time unproductively reinforces a sense of self that fails to achieve.
3) Look at what happens to your positions after you exit them - After you've exited a trade, what tends to happen to your positions? If you took a profit, did the positions move meaningfully further in your favor? If you took a loss, did the positions reverse and eventually prove profitable? Many times we exit positions and leave considerable money on the table. Might it make sense to exit positions in stages, rather than all at once? Might it make sense to hold portions of profitable positions longer for further potential gain? Would it make a difference to hold those portions of positions in the form of options, reducing capital at risk? Many times we enter for sound reasons and exit for emotional reasons. Studying and optimizing our exits gives us greater control over our risk, enhancing our sense of efficacy.
The bottom line is that some of the best ways to improve your trading psychology is to improve the mechanics of your trading. All the positive self-talk and work on mindset cannot substitute for skill and its consistent execution.
Further Resources:
Finding a Trading Edge - Video
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