As a trader, you’ve likely come across the term “trading mindset” numerous times. It’s a topic that’s often emphasized by fellow traders, coaches, and experts, who consider it essential for achieving success in trading. But is mindset really that crucial when it comes to trading? Does having the right mental attitude actually make a significant difference? In this article, we’ll dive into this question in detail and explore the scientific basis of the concept of trading mindset.
In the world of trading, one of the most frequently cited pieces of advice is to have the right mindset. From motivational speeches to self-help books, experts in the field emphasize the importance of having the right mental attitude when it comes to making successful trades. However, when we examine this advice from a logical point of view, an important step is often missing.
At its core, the concept of mindset refers to a person’s mental attitude. But where does this mental attitude take place? The answer is in our brain. To understand how the brain functions when it comes to trading, it’s important to have a basic understanding of its structure.
Conscious and logical thinking takes place in the prefrontal cortex, which is the most evolved part of our brain. However, the prefrontal cortex is extremely limited in its capacity. It can only hold onto about four thoughts at the same time. When we consider the fact that 65 mental impressions per second reach us via our five sensory organs and flood our prefrontal cortex, we begin to see the problem.
Now think about the number of impressions you have per second when trading. There’s an overwhelming amount of information that comes at you from multiple sources: news feeds, charts, quotes, and much more. All of this information floods the prefrontal cortex, quickly overloading it. When this happens, the limbic system, the seat of our emotions, intervenes. Emotions don’t make logical decisions, and this is the main reason why 95% of all traders are not successful.
If we want to be successful traders, we need to understand how our physical brain works. It’s not enough to simply have the right mindset. We need to understand how our brain processes information, and how our emotions can influence our decision-making processes.
So, what can we do to improve our chances of success as traders? The first step is to recognize the limitations of our prefrontal cortex. We need to understand that our conscious and logical thinking processes are limited, and that we need to rely on other parts of our brain to make decisions. We also need to recognize that our emotions can be a powerful force when it comes to making decisions, and that we need to learn how to manage them.
One way to manage our emotions is through mindfulness techniques. Mindfulness is the practice of being present and aware of our thoughts and emotions without judgment. By practicing mindfulness, we can become more aware of our emotions as they arise, and learn how to manage them in a healthy way.
Another way to manage our emotions is to develop a trading plan. A trading plan is a set of rules and guidelines that govern our trading decisions. By having a plan in place, we can remove some of the emotion from our decision-making process and make more rational decisions.
In conclusion, the right mindset is certainly important when it comes to trading. However, it’s not enough to simply have the right mental attitude. We need to understand how our brain processes information and how our emotions can influence our decision-making processes. By recognizing the limitations of our prefrontal cortex and learning how to manage our emotions, we can improve our chances of success as traders. If you want to be a successful trader, you need to know how your physical brain works.
Best regards
Markus
