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Three Tips to Build a Professional Trading Mindset

Today, we will talk about creating a professional business mindset. As a trader, you need to control your physical and mental health. Also, you should take control of your thoughts and feeling to make a good trade. Continue this article to see how to control your mind in practical ways.

 

1.) Start thinking about possibilities

Let’s take a look at one of the most important concepts in business and life: expected value.

The expected value is simply a number that, based on probabilities, indicates the value of performing a particular action. It can be positive or negative. Does this business make money? Do I have to change jobs? Should I marry my wife? Everything comes to the expected value.

So what is the expected value?

2 things: Bat Rate% and Win / Loss.

Bat Rate is the percentage of wins against total results and Win / Loss means the average winner size is divided by the average loser size. In other words; What is the chance of this? How big is the range? How much is the loss? When you combine these numbers, you can clearly understand whether it makes sense to take a particular action.

 

For example, suppose a particular business idea that has a 50% chance of working. A win brings you $ 2, while a loss brings you $ 1. Do you have to make a deal?

Let’s find out. In this example, you do this transaction 100 times. 50 times you win $ 2, and 50 times you lose $ 1. Eventually, you will have a total profit of $ 50! ((50×2) – (50×1)). This transaction has a positive expected value! So, even if you make the deal and end up losing money, you still made the right decision.

 

the bat rates and win/lose numbers are not tough. They are estimates. Therefore, creating a sense of the possibility of something happening, and creating an understanding of the range of wins and losses, is a key skill for creating business and life. An easy way to better calibrate antennas for this is to simply write down what you expect to happen in your trading journal. With more repetitions, your ability to guess results should improve.

 

 

2.) Self-awareness

In trading, the actions of all market participants at all times are caused by two fears: fear of missing out and fear of loss. In other words, fear and greed. The problem is that depending on your brain chemistry and life experience, one of these fears may affect you more than the other.

Consider the following scenario: You make a trade and the position moves in your direction. The asset then begins to trade sideways. Let’s look at two ways:

 

A) You close your position. Then, the asset starts to rip in your direction once again, and its price triples. You have lost this extra momentum, now you have lost your position for a small profit.

 

B) You do not delete the position and the asset returns to your stop loss and you get an L in the trade.

 

Which of these scenarios is more painful for you?

There is no right or wrong answer, but it is important to know which fear has a stronger effect on the decision set in your brain. If you find that you are more prone to FOMO, then try to find a strategy in which you can press the last drop of the winning deal. If you are more prone to fear of loss, then try to consider a strategy in which the probability of large or continuous losses is much lower.

 

 

3.) The appropriateness of the strategy is very important

This is the last point about self-awareness and emphasizes the importance of stability in dealing with markets.

Having a well-written and well-understood business plan is the key to success when dealing with markets. The largest and most elite hedge funds in the world have clearly defined their investment tasks, best practices, and business plans. What makes you think you do not need a program?

 

When designing a trading plan, many new or intermediate traders focus only on making money. As in, “Which strategy is going to get the highest profit in a given period?” How can I get an advantage? Retrospective tests, basic research, vision, and more often play a role in determining the criteria for a profitable strategy.

However, expert traders know that there is something more important than determining your advantage which is ensuring consistency.

 

For example, let’s say you have a great trading strategy that, in theory, should allow you to trade more efficiently in the future. This plan provides an excellent set of criteria for buying at the bottom of the market and selling at the top of the market. For beginners, this is the Holy Grail. However, just because you understand a strategy does not mean that you will be able to execute the strategy.

Source: tradingview.com

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