Totally Objective and Rational

Winning traders maintain an objective state of mind. Rather than react to every setback with frustration, they just brush it off, as if it really didn't matter. But to the novice trader, it is difficult to take losses and other setbacks so nonchalantly. It's hard to avoid thinking, "I have lost a lot of cash. I could have paid a lot of my living expenses or bought some great stuff with the money I've lost this month. I need to win it back right now." This sort of thinking, however, can be very unproductive. The minute you equate losses with actual money, you will start reacting emotionally. Your emotions will start to play a significant role in your decision-making. In the end, emotions should have no place in trading. It is useful to cultivate a more objective, unemotional approach when trading the markets.

Cash is a strong motivator in our society. It's the ultimate reward. It has meaning. The more money we have, the more freedom we have. Money can change people's lives. People's attachment to money is understandable. Every dime we lose hurts. Every dollar we win makes us feel great. But when it comes to trading, you must divorce your emotions from the money you are trading. It's like when you spend money on credit cards. When using credit cards, it's easy to forget you are spending real money. The money is abstract. It's not as real. When trying to trade objectively, it's essential to learn to look at the money you're trading as objectively and abstractly as possible, as if they are merely percentage points or ticks.

Psychological studies have clearly demonstrated that by cultivating an objective state of mind, you will react less emotionally. Creating psychological distance can help you cope with upsetting events. If you were to view a distressing film, such as a film showing a surgical procedure for example, it is easier to watch it and feel at ease if you objectify the ongoing action. Rather than fully emotionally engage, you must keep your distance.

When it comes to trading, there are a few simple things you can do to maintain an objective state of mind. Many say that when money is committed to a trade and the risk and potential loss is experienced, "objectivity goes out the window." Thus, anything you can do to minimize the feeling of risk and potential loss will help you cultivate an objective mindset. First, it's helpful to trade with money you can afford to lose. Trading is a profession where you should go in expecting to lose. If you can't afford to lose the money you trade, it will be difficult to maintain objectivity. Deep down, you will know that you are risking money you just can't afford to lose in a worst-case scenario. Second, it is also crucial to manage your risk. By carefully managing risk on any single trade, you call tell yourself, "I've got little to worry about. I can afford to take the loss." At first you may have to consciously remind yourself of this fact (again, make sure it is a fact), but over time it will automatically be in the back of your mind. You will be calmer, and can more easily cultivate an objective mindset. Finally, view profits and loses in an abstract framework. Rather than focusing on concrete dollar amounts, try to focus on percentages, or just abstract, theoretical numbers. Don't think of the dollar amounts in terms of what can be purchased. Equating dollar amounts in terms of tangible terms, such as car payments or sought-after luxury items, will weaken your objective mindset. You'll be more prone to experience elation from big wins and disappointment from losses. Rather than trade emotionally, you will make more profits if you trade objectively.