The power of beliefs is a double-edged sword that can cut both ways. It can help you and it can hurt you. Take the placebo effect, and the fact that physicians have been doling out sugar pills forever with amazing results. Or, I’m sure you’ve no doubt heard about people that were diagnosed with some horrible and incurable disease only to go into spontaneous remission or have the condition turn around overnight! It’s incredible, isn’t it? It all speaks to the awesome nature of holding a strong focus of belief on health and well-being and, presto-chango, you’re cured. Well, that’s the way it often seems.
Yes, there’s no doubt that a strong belief in yourself in any context is going to, in many cases, be the difference between thriving and going down. Of course, this notion also applies to your trading. If you are saddled by limiting, irrational or negative beliefs about yourself or your trading, you are going to experience some tough times. Also, beliefs can be used as a tool; and like a new suit of clothes, you can try on a new belief that is designed to take the place of a belief that doesn’t work for you, just to see how it fits.
Essentially, regarding your internal self, there are core beliefs and non-core beliefs. Core beliefs are those closely held, hard-to-change convictions about your goodness, integrity, intelligence, worthiness as well paradigms about the world and whether it is a safe place. These beliefs are deep and do not respond easily to change. Additionally, they are often unconscious and result in unforced trading errors leaving you scratching your head as to why. They begin forming very early in life and last, in many cases, unchanged until the end. Non-core beliefs express a strong opinion about the market, the price action, your plan and/or your platform that are much easier to change if it they don’t serve you. It is crucial for you to become aware of your beliefs, especially those that are working at cross purposes to your trading.
Here is a belief that can truly erode your ability to be consistently successful. This deals with strongly believing that you must win this trade that you are in. Such a belief can cause you to implode and either turn a winner into a loser or increases your risk and unjustifiably initiate extensive draw-downs. Here’s what I mean.
Have you ever been spurned by a lover? You feel rejected or betrayed and this pain can be quite debilitating. You might be so hurt that you become severely distracted and erratic in your behavior. The same thing holds true for your belief in the notion that you must win in all trades. You see, you might have a strategy that works well. Perhaps it is well-constructed and built from years of pattern analysis that correlates to a high probability of wins. But, this is only a probability, meaning that the edge that the pattern delivers is over many trades and over time. Any one trade within that strategy, no matter how strong it is, has a probability of loss just as it has a probability of profit. If you believe inordinately in that trade, meaning that you convince yourself that it has to be right; then you are setting yourself up for great disappointment and a sense of betrayal. In other words, you have fallen in love so to speak with the notion of this trade being a winner. When it fails to provide you with the expected gratification, disappointment and emotional pain initiates an over-sensitivity causing trepidation and hesitation or revenge anger in the next trade.
Of course, this experience could happen at any time and it could be extended wreaking havoc on your ability to remain focused, calm and centered which is where you must remain to be consistently successful. This may not appear to be a very important point, but on the contrary, it is monumentally important. Many of you initiate a plan based upon a good strategy, but you have invested yourself emotionally in it. You have not adjusted your perspective to take into account that at any time and in any trade, you can and sometimes will lose. When you internalize this inevitability, you will be able to emotionally distance yourself from the outcome of that trade. You will develop, over time, the capacity for the emotional strength and endurance that is required to be a consistently successful trader.
Another point that is important to remember is that when you fall in love with a trade by believing that it should and therefore must win, you fall into a confirmation bias. You begin to pay more attention to, and therefore attribute more weight to, the data that is confirming your beliefs about the trade and consequently disregard equally important contrary information that in many cases might alert you to another eminent outcome. Understanding this, will poise you to accept whatever the outcome of the trade. This trading position creates a more relaxed view of the data. Given this view, you are likely to be patient and more focused, whatever the outcome. Additionally, you are much less likely to feel the pain of betrayal, rejection, and loss.
So, accept the randomness of the markets. Accept the fact that no matter how powerful your strategy, it is a game of probabilities and the quicker you consistently enter trades with the full understanding that they can and sometimes will fail, the quicker you will position yourself to take advantage of your edge. Over time, as you consistently maintain your focus and execution you will take better advantage of those times when the pattern is working and you can let your winners run.
This is what we teach in Mastering the Mental Game online and on-location courses. Ask your Online Trading Academy representative for more information. Also, get my book: From Pain to Profit: Secrets of the Peak Performance Trader.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Editors’ Picks
AUD/USD drops toward 0.6500 after RBA's steady policy
AUD/USD is extending losses toward 0.6500 in Asian trading on Tuesday. The Aussie Dollar remains offered after the Reserve Bank of Australia extended the pause while markets digest the less hawkish policy statement ahead of Governor Bullock's press conference.
USD/JPY rebounds firmly to 150.00 on the expected BoJ rate hike
USD/JPY rallied to test 150.00, as the Japanese Yen tumbled amid a classic 'sell the fact' trading on the hawkish BoJ decision. The BoJ lifted the interest rate by 10 basis points (bps) from -0.1% to 0% for the first time since 2007 and abandoned the YCC framework.
Gold price flat-lines above one-week low, awaits the crucial Fed decision on Wednesday
Gold price oscillates in a range and is influenced by a combination of diverging forces. Hawkish Fed expectations, elevated US bond yields and a bullish USD cap the upside. Geopolitical risks lend some support to the XAU/USD ahead of the key FOMC meeting.
Bitcoin price shows weakness, but new BTC whales have created solid support at $56,400
Bitcoin price downside momentum continues to gain strength, giving sidelined and late bulls a chance to buy the dip. The market remains focussed on the oncoming halving, expected to kick off the next bull cycle. For the meantime, however, spot BTC ETFs remain the main play in the market.
Lots of tension ahead of this week's Fed decision
Last week, we got a strong round of US economic data accompanied by hotter US inflation reads. The takeaway of course is that there might be a lot more pressure on the Fed to be looking to scale back its rate cut outlook at this week’s meeting.
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