As a matter of fact, I was planning to pen another topic today... but I realized, I have to prioritize and touch on a very important aspect of trading, one that is so primodial and yet very often overlooked by traders (and investors).

If I were to tell you this: “When it comes to trading, you are your worst enemy.”, would you agree with the statement?

I wish I could run an objective poll on this, but, let me venture to guess that a good number of people would not agree with the statement. Afterall, it is hard to believe that why or how could we go against ourselves, right..?

Allow me the pleasure to show you a pie chart that I have created, below:

How many times have you heard from anywhere or anyone that your psychology makes up a big portion of your trading success or failure? You see the pie chart right, Trading Psychology makes up a good 60% of trading process. To put it in another way, here's another picture to help you to visualize the full picture:

Picture adepted from: akoute.gr

Next, let me illustrate further..

An experiment here:

Image source: pexels .com

So, tell me, what me what do you see..?

I am sure many answers would be forthcoming, BUT, the 'answers' would be quite different.

According to Bill Williams (trader and psychologist, author of books: "Trading Chaos" & "New Trading Dimensions"):

“Nobody Trades the Market;

Everybody Trades Their Individual Belief System.”

~ Bill Williams, PHD, CTA

And, that sentence pretty much summed it up.

In reality, each participant in the market trades their beliefs of the market and not the market itself. Like the golf game itself, where too much focus is on the best golf clubs, best swing techniques or even the golf shoe, trading, like golf, is pretty much a mental game.

The right side of the table below shows what are some of the qualities that one must possess to be a good trader.

What Does Not Guarantee / Detrimental to Making Money as a Trader

What will help one to be a Successful Trader

Emotional

Self-Mastery, Patience

High Eduction

Money & Risk Management

High IQ

Discipline

Gambling / Betting Mindset

Business / System Mindset

Too serious / Tense about Money

Carefree State of Mind

Every successful trader need to understand themselves and their weaknesses and there exist a fine balance between respecting the market without fear and confident yet not overconfident. See the statements below:

“The Market is A Dangerous Place to Be.”

vs

“The Market Offers Unlimited Opportunities to Enrich Ourselves.”

Hence, to be a successful trader, one must transformed from seeing the market as a dangerous place to be and enter the realm of seeing the market as a place that could potentially provide opportunities from time to time (and this is not just from a trader's perspective but also from an investment perspective).

image source forexht .com

The above diagram shows, very broadly, how a trading process incorporates 3 important aspects: Trading System, Money Management, and Emotion (Psychology).

To achieve a more carefree state of mind when comes to trading, one very important aspect to have patient and wait for the trade / market to come to you, and then follow through with a trade objective / trade plan, and here's a broad example:

• I will only take trades that I have a trading edge.

• I will do proper position sizing for my trade.

• I will let winners run and cut losses short.

• I will take note of both winning and loosing trades and have a trade journal.

As a matter of fact, with some effort, learning about technical charts, fundamentals and financial ratios about companies are quite achievable, the psychology part could potentially be the more challeging part. For example, for some people, after losing some money, they will give up and walk away, while for others, its a motivation for them to ask themselve how they can prevail in their future trades, hence, mindset is very important in trading. 

[(Edited / Addon (Date 29 Jul 2016):

While doing some reading and research on a stock, I come across this post (lightly edited before posting below) in a forum, 1 month or so after the article was written, which almost exactly reflected the sentiment and thoughts that I have written above (12th Jun 2016), thought I share it here:

"To others reading this forum; in 1997-1998 there was a grapevine column in our local Business Times:

2 undergraduates all lost their family savings during the 1997 stock market crash.

1 is a Hong Konger, the other a Singaporean.

The Singaporean says he will study hard and will never to touch the stock market.

The HKer says, " I will become a stockbroker when I graduated and make back the money I lost ". ~ Source: Shareinvestor Forum]

In summary, whichever level one is at, if you recognize that you / your psychology is a major portion of the trading (and / or investing) process, maintained and continually raised that self-awareness, have proper money and risk management, focus on the process, and have a trade (investment) journal, your results will improve over time.

Enjoy the journey.