Trading lore is replete with stories of novice traders who work tirelessly to achieve big rewards, yet success eludes them, time and time again. Even seasoned traders may start to believe they have lost their touch when market conditions change and they can't seem to take home enough profits. A positive, optimistic mindset is essential for trading success. Eternal optimism is an asset when it comes to mastering the markets. On the other hand, it is important to show the proper amount of optimism. It is important to be humble, but also sure of your abilities and the positive outcomes you can achieve if you put in the proper amount of time and effort.Popular inspirational books, such as "The Power of Positive Thinking," imply that optimism is "good" and pessimism is "bad." This view sometimes extends to professional psychology as well. For example, Dr. Martin Seligman argues in his book "Learned Optimism" that optimists are more likely to persist when faced with severe setbacks, while pessimists tend to give up easily after only a minor setback. But optimism may hamper some traders.
Dr. Terrance Odean, a behavioral economist, argues that traders can often be too optimistic and too overconfident. In his studies, he has shown than overly confident traders take risks that they should not, and end up with lower amounts of capital than if they had been more cautious. Dr. Seligman similarly notes that pessimists may not feel very happy most of the time, but they are more likely to view circumstances more realistically than eternal optimists.
In the end, a trader should be optimistic yet also realistic. Many trading coaches advise novice traders to "expect to lose" when they trade. At first glance, this may sound like a pessimistic outlook, but it is all a matter of perspective. Unrealistic optimists expect life to be easy. They expect big rewards with relatively little effort. Novice traders with this approach may naively think, "I'll make 10 trades and I can expect 8 to be profitable." A more realistic trader may think, "I would be happy at this stage of my trading to make profits on 4 out of 10 trades." Traders who have genuine self confidence are realistic and committed. They expect to make heroic efforts to achieve success. They do not unrealistically believe that high probability setups are easy to find. Traders with low self esteem, in contrast, are afraid to look at the downside. Admitting the amount of work and effort it takes to trade profitably is daunting. It is so overwhelming that they would rather fool themselves into thinking that trading is easier than it really is, and that even a minor effort will produce success. But in the end, they are just setting themselves up failure. Winning traders are truly self-confident. They are not afraid to admit their limitations and accept the obstacles they must overcome to achieve success.
Thinking like a winning trader requires a combination of realism and optimism. It is useful to remind yourself of the facts of life in the trading world. First, it isn't necessary for every trade to be profitable to make an overall profit across a series of trades, and indeed, many trades result in losses. Thus, it is vital to assume you'll realize more losses than wins, and to manage risk on any one trade accordingly. Second, it is a fact that many times, novice traders lose a lot of money trying to survive the learning curve. One will become very disappointed if he or she is not prepared to lose some money early on when first starting to trade. It is useful to look at the lost capital as "tuition" you spent to learn valuable trading lessons. An optimistic attitude is powerful when used properly. It is important to be optimistic when it comes to the big picture; remind yourself that if you put in enough time and effort, you'll eventually achieve profitability. But at the same time, don't set yourself up for disappointment and failure by thinking that trading is easier than it is. Trading is difficult, but if you persist and overcome obstacles, you will trade like a winner.
Source:Innerworth