For people who are new to crypto-trading, there is a question I first heard asked by Mark Douglas, the author of several classic books on trading psychology that is well worth considering:
“How much skill does it take to find yourself in a winning trade?”
Douglas answers that putting on a winning trade requires no more skill than is needed to operate a keyboard and mouse successfully. I know this to be true because, as a greenhorn, the first altcoin position I ever opened turned a nice profit in a matter of days. To say that I had little idea of how to trade profitably or at all at that time is more than accurate. This trade occurred in the summer of 2017 when the crypto market was so hot; a blind monkey literally could have used darts and a dartboard to pick winners. In this case, it was Cloak Coin, which I bought because it was a “privacy coin” (we all want privacy after all) & because I liked the name. After I sold it about a week and a half later for about 30% profit, it was down the crypto-rabbit hole for me. That time, I got lucky, which does count, but good fortune is not a recipe for consistent success trading.
For our purposes, a better question is: WHAT skills are needed to enjoy consistent success trading? For the answer, let’s look at another Douglas quote:
“Putting on a winning trade or even a series of winning trades requires absolutely no skill. On the other hand, creating consistent results and keeping what we’ve created does require skill. Making money consistently is a by-product of acquiring and mastering mental skills.”
Douglas knew that learning mental skills involves re-tooling one’s thinking, which is a challenging task for anyone. That high level of difficulty also explains why many people will dismiss learning to understand trading psychology.
As the following process moves forward, you will find that keeping a close and detailed journal of your trading experiences will provide you with an invaluable record that allows you to make adjustments as you move forward. The journal should include your mental and emotional state and any other details pertinent to the trade in any way. One benefit of keeping a trade journal is that it forces one to be honest with yourself about what you are doing and why. It does so at a higher intensity level than merely maintaining a mental record ever could.
The big step forward begins when one realizes the crucial role that one’s thinking plays in making consistently profitable trades and starts to do something about it. Many people have heard or said something to the effect of: “you have to take the emotions out of trading” without having a clue as to how to make that a part of their trading. The Herd will always allow their feelings to drive their thinking without ever knowing they have it all ass-backward. Today, you’re standing at the beginning of that journey to self-mastery & the gate ahead of you is wide open.
As with anything else one wishes to learn, the very basics are your starting point. In this instance, that means you must learn how to become an objective observer of your stream of conscious thoughts.
The inner dialogue that we have running through our mind can reveal why we are experiencing emotions such as the fear of missing out that leads to opening poor trading positions or any other number of trading errors. When people speak about “removing the emotions from trading,” learning to listen to your inner dialogue is where that process begins.
It can be challenging to begin to pay close attention to what one’s inner dialogue is telling us. Still, with consistently applied conscious effort, it will soon become more natural and then a habit.
First, let your thoughts move like the turtle: slow enough that you can look them over good before you act on them. As you are going through your day, always remind yourself to think about what you’re thinking. At first, it isn’t easy, because you’re thinking in a way about yourself that you’re not used to doing. Don’t quit. You’ll maybe think you’re not making progress, and perhaps you’ll feel a little foolish at times. Don’t quit. It may take weeks, months, no one can know, but with practice, it gets easier & at some point, your thinking will shift into this mode at will & eventually, as second nature. I learned to do this many years ago now & these days, it’s just how I roll.
One way I have found monitoring my inner dialogue to be most useful is in countering the four classic fears Douglas identified: The Fear of Missing Out, The Fear of Losing Money, The Fear of Leaving Money On the Table & The Fear of Being Wrong.
As inexperienced traders, we tend to commit the same errors in the execution of our trades over and over again. While each of us may not be guilty of breaking them all, we all fall prey to some of the mistakes generated directly from the faulty thinking that results in trading out of emotion.
For some, The Fear of Missing Out leads them on a merry goose chase for profits after seeing the long green candles that tell the experienced trader that the horse has left the barn and waiting for a retrace or a flag-pennant is the sound idea. Chasing green candles by opening a position when the price action is likely due to cool off is asking for trouble and should be avoided. By paying careful attention to one’s mental/emotional state as revealed by our inner dialogue, you can recognize FOMO as its occurring and make the conscious choice to take a different course of action.
The Four Fears Douglas identified are not the only reasons why traders will make thinking-based errors that lead to poor execution, and monitoring one’s inner dialogue to determine why one is thinking about taking a given course of action is effective at preventing those errors.
Ultimately, learning how to trade successfully is as much a process of self-realization & mastery as it is learning T/A & risk management. The potential to change one’s life rests in our hands, seizing that opportunity is up to us.