When navigating through the minefields of the trading day, it’s vital to stay calm and optimistic. There can be days when you have to overcome setback after setback, and unless you’re mentally resilient, you can get beaten down to the point where you don’t feel like getting back up. It’s necessary to trade with the proper mindset. You must be ready to act effortlessly and skillfully. You must be in the right state of mind.


We can involuntarily and unexpectedly move back and forth between different states of mind. Have you ever gotten into an emotional fight with a family member or friend? You may not know what came over you, but you may suddenly conjure up old memories. You may feel wronged, manipulated, or disrespected. The next thing you know, you’re yelling at the top of your voice. In this angry and frustrated state of mind, you’re likely to strike out in self-defence. There are positive states of mind too. For example, you may fall in love with someone you just met and believe that you’ve found the love of your life, a person who makes you feel safe and secure and can do no wrong. At that point, you are consumed with thoughts and feelings that take over.

States of mind consist of thoughts, emotions, and expectations. They are powerful. When we are in a particular state of mind, we can lose control and act on impulse. It’s essential that you trade in the right state of mind. The proper state of mind for trading is that of a logical, calm, and objective thinker. But many times, we enter states of mind that aren’t conducive to trading.

For example, it’s easy to get yourself worked up by thoughts and images that create a sense of panic: “I’m losing too much money. If I keep making losing trade after losing trade, I’ll wipe out my account. And worse yet, I won’t be able to meet my future financial responsibilities. What will I do?” When you start thinking negatively, you’ll be consumed with self-doubt, and even a minor setback can cause extreme feelings of frustration and panic.

If you let this negative state of mind take over, however, you’ll start making trading errors. You’ll stagnate and become blind to new market opportunities. You can also fall prey to positive states of mind. For example, when you let your fantasies of fame and glory take over, you may start to believe that you’ve found the perfect trade that will make all your dreams come true. Or you may think you are on an invincible winning streak. In this overconfident state of mind, you may take unnecessary risks and fail to look at the markets objectively.

Don’t let overly positive or negative states of mind bias your ability to read the markets accurately. Be aware that your states of mind can change rapidly while under stress and uncertainty. And when you are in the grip of these thoughts and feelings, you can lose some of the psychological control you need to trade the markets objectively. If you find yourself in a state of mind that interferes with your ability to stay objective, you might want to stand aside until it passes.

In addition, it’s also useful to identify which states of mind are likely to creep up while you trade, and script an “internal dialogue” to counter it. When you’re overconfident, for example, you might think, “Don’t get too excited. Stay objective and rational. Don’t blow things out of proportion.” While frustrated with minor setbacks, you might think, “Look at the big picture. As long as I manage risk, I can get through this. I just need to keep my cool and concentrate.” States of mind will overpower you only if you let them. If you can identify them quickly and counter them, you can cultivate the peak performance mindset you need to trade profitably.

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