Does Negative Thinking Plague Your Trading?

You see, I'll freely admit that early in my career, I was something of my own worst enemy. Sure, I felt a sense of pride and elation following winning trades and positive outcomes, but negative thinking would run rampant on the heels of anything less. Like I always "Should've known better" if a trade ultimately went against me, and even when one worked out, I'd examine things and think, "You should've gotten in earlier, or held on longer."

Because a New Year is a great time to pursue positive changes in our lives as well as our trading, if negative thinking is a problem for you, then let's begin working right now to get it under control. Here's some of the prevailing psychology behind negative thinking, as well as tips on how to use mindfulness and positive self-talk to become your best ally, not your worst enemy.

Why Some Traders May Be Prone to Negative Thinking

One of the best explanations I've ever heard regarding negative thinking involved a sketch that looked a lot like the below graphic. It was shown to me by a trained psychologist, who explained that the blocks on the left represent the human psyche, and the shapes on the right represent our thoughts as they try to make their way into our consciousness. Notice how perfectly those negative thoughts seem to fit right in?

Trade Psychology: How Negative Thinking Originates

This is representative of the plight for those most prone to negative thinking. But notice also that the positive thoughts can also be arranged to fit the open space…all it takes is a little shuffling, and, of course, bumping the negative thoughts away on the way in. Practices like mindfulness and replacing negativity with positive self-talk are valuable tools for helping positivity prevail in this ongoing battle, which occurs literally countless times each day.

But enough psychology speak for one day; here's how negative thinking tends to manifest itself in trading, and what we can all do about it…

How to Help Positive Trading Thoughts Prevail Instead

If you're not already, start "listening," or paying closer attention to what you're thinking about while trading, and what you tell yourself in both good times and bad. Awareness is the first step, and from there, you can learn to identify and reverse negative thinking. Here are some examples that occur pretty regularly in trading:

Negative thinking dictates: "Stupid! You should've known that was a bad trade!"

Prevailing, positive thoughts: "Nobody can predict the market's outcomes. And my trade journal says that this particular set-up satisfied all my rules for entry, so I was justified in taking it. The good news is that because I followed my rules for risk, the loss is one that's deemed acceptable, so despite the outcome, I can stand behind my decision to trade, and will simply move on to the next potential set-up."

In this case, identifying that you really couldn't have known the direction of the market beforehand is a key starting point. But it's also crucial to have documented facts on hand that can help you defeat any negative thinking that's based purely on emotion. See again why it's so important to not only be disciplined and selective with your set-ups, but to carefully document each trade in your trade journal as well?

Negative thinking dictates: "That was OK, but it could've been better if…"

Prevailing, positive thoughts: "Remember that there's no such thing as a 'perfect' trade, and I'm trading for the long term anyway, so I have plenty of time to refine my methods if there's a better or more efficient way to do things. In the meantime, though, positive outcomes are worth celebrating, and I owe it to myself to do just that!"

Aspiring for "perfection" in trading can easily do more harm than good, so first, identifying the existence of a counterproductive thought like the one above, and then replacing it with a more realistic and positive one, is excellent indeed. Thinking more positively and overcoming negative thinking will help you become your own best ally, and will make trading more fulfilling. Afterall, trading tends to be a solitary activity, so if you don't recognise your own successes, who else will?

Negative thinking dictates: "You'll never be any good at this!"

Prevailing, positive thoughts: "Now, one or a series of negative outcomes can't predict the future. But because it's been rough going of late, I'd like to take time to analyse what I've been doing, ensure plan compliance, and maybe get some help. That's a more constructive course of action than just sitting idle and beating myself up about it."

While nobody among us would even dream of saying anything so hurtful to anyone else, it's astounding how often we might think or even say these things to ourselves. Trading has a way of stirring up emotions like that, but in this case, sensing the purely emotional response, and choosing a more rational and constructive one instead, is part of being a more mindful and less-emotional trader.

See related: Faulty Thought Patterns Common Among Losing Traders

With that, we take this opportunity to wish everyone who will celebrate a very happy and healthy holiday season, and look forward to ringing in a New Year alongside many of you next week! In the meantime, anyone who'd like to give themselves or someone else the gift of lifetime trading education can click the banner below to claim a no-risk trial membership to our flagship Lazy Trader premium service.