In every profession, there are psychological barriers stopping us from reaching the peak of our profession.
One of those barriers is our mindset.
If we continually believe the wrong narrative we tell ourselves or others tell us, all the work we put into attaining mastery in any craft will definitely fall by the wayside.
Subconsciously, this has made most people reach a psychological ceiling in their career they cannot surpass.
In my opinion, It is more evident in forex trading than any other profession because forex trading is closely intertwined with a trader’s psychology.
Becoming a consistently profitable trader has more to do with a trader’s psychology than his trading skills.
Looking through my trading journey I have encountered several psychological hurdles, Some which took me time to surpass and some which I still deal with today.
There are psychological stages you have to surpass as a trader before you even start dreaming about trading as a career.
Each psychological stage is ruled by a villain who ensures you never develop as a trader.
The same villains are responsible for the less than 10% success rate in forex trading.
These three villains are no other than:
- The pseudo trading villain
- The mediocre trading villain and
- The transition trading villain
1. The pseudo trading villain:
These group of traders believes that trading is easy.
I mean, there are only two ways a market could move, UP or DOWN, ain’t it?
True.
They quickly open a demo account on their device and start learning how to BUY or SELL any pair their eyes fancy.
Boom…
They make some good profits and they repeat the process long enough to know the function of each push button on their trading platform.
After doing this for a few days, they quickly register with a broker and fund their account.
Within a few days, they turn that $100 to $250 dollar. (wow, what a fit)
They go around bragging to their friends that they have finally found a way out of their financial woes.
They begin to imagine themselves owning their dream home in some few weeks. They wonder why they never tried this career path all this while.
A few days later their $250 turns into $18.
Shiiiiittt!…
“I should not have made that error, I know what happened” (they tell themselves)
They work harder in their day jobs and refund their account with even more money ($500) this time.
The taste of victory the last time was too sweet to just let go. This time, they are more careful, they apply a level of money management to their trade.
But…
The only problem now is:
They hardly make much money, which is not really satisfying.
In fact, after a few days of not making any substantial profits, they get bored.
So, what do they do?…
They go big again, and the market doesn’t fail to place them where they belong.
A $500 account reduces to $295 account.
“What have I done”? they think to themselves
Panic sets in, then anger and finally just like Thanos said:
The inevitable happens:
A series of revenge trades are executed and in a desperate attempt to make their initial capital back, margin call becomes the case.
Does this sound familiar?
I am sure it does.
Most traders never grow past this stage, they find it difficult to trade REAL MONEY simply because they cannot beat the psychological villain who continually dangles their outstanding demo trading results right in front of them
Such traders have this unquenchable desire to replicate their demo trading performance on a real account, but they forget that there is a colossal difference in psychology when comparing both.
2. The mediocre trading villain:
This villain, in my opinion, is one of the most difficult to beat.
The reason is quite simple…
This psychological barrier has to do with our relationship with money.
Some traders do have a negative psychological relationship with money, hence self-destruction after attaining a certain financial level is inevitable.
Subconsciously, these traders suffer from a certain level of guilt or boredom whenever they accomplish a certain financial goal through trading.
They begin to nurse a feeling that the profits made from trading, came too easy, they become complacent and they start depleting their account by obviously taking bad trades.
In other cases, some traders have a difficult time looking at trading as a profession. They still view it as a sort of game which to them is used to kill boredom. So these traders will trade both in good and bad market days.
For example:
If a trader has a financial psychological barrier of $80,000.00 (mind you, this could be any amount)
After growing their trading account from let’s say $5000 to $80,000.00, he will find it difficult to go beyond the $80,000.00 mark.
As soon as he hits $80,000.00, they self destructs. In most cases, there is a subconscious feeling of guilt and the feeling of cheating their way into success.
So they continue to take lousy trades till the guilty feeling they experience is eroded.
In other cases, some traders starve their other hobbies during the process of learning how to trade.
When they finally learn how to trade profitably, they find it difficult leaving their trading screens, because they are used to spending that much time in front of the screens when they were still learning.
These traders become addicted to trading.
So, when the market has no good setups to present to these traders, their gun-slinging spirit takes over. They jump into unplanned trades and flush their money management ethics down the toilet while pretending to themselves that they are still in control.
These crop of traders are profitable but hardly ever surpass a financial level.
3. The transition trader villain:
You know what?
I will tell you one truth about trading right now.
You have two options after reading this truth:
- Embrace the hard cold truth about trading, and do something about it, or
- You could roll your eyes backward and hiss at me, and continue to live in denial
Do you know why the majority of profitable traders continue to battle the transition trader villain almost throughout their entire trading career?.
Let me start by saying:
A majority of profitable traders close the year with profits which range between 20-40%.
A microscopic few make 100% and above R.O.I consistently each year.
The sad truth about this is that:
You can barely live off of that type of returns if you are not trading with a large amount of capital.
The only way to make 20-40% per annum count for most traders, is to either:
- Build your trading account over the years to a point where 20-40% return per annum translates into a decent amount which can fuel your lifestyle and still have enough to save (the most difficult route for a profitable trader) or
- Manage funds for high net worth individuals and making a kill through profits sharing (The fastest route).
The problem is:
Only a handful of traders are able to beat that psychological villain that prevents traders from transitioning into a successful funds manager.
For those few traders who are able to beat the transition psychological villain, their financial growth through trading could be exponential.
That said:
For a few traders, managing funds for others is not just their thing, simply because it doesn’t just take a lot of psychological and emotional strength to do so.
It also takes a level of maturity to manage clients, who in most cases have a level of financial expectation which in some cases could be unrealistic.
Also, some traders will not trade their independence for anything.
They would rather manage a small account, and build it over the years, than feel trapped managing investors funds.
Though the third psychological villain holds for a percentage of traders who would love to transition into a becoming a funds manager, others would rather pass and create other channels ofincreasing their trading portfolio which will be discussed in another article.
In conclusion:
The first two psychological villains could really pose a big threat to any trader who is planning to take his trading career to the next level, and sometimes both stages could get some traders stuck for years, going round in circles.
A trader going through this phase could help himself/herself by reading some good trading psychology books and also being conscious of these psychological villains whenever unleashed.
If I may ask you, which of the villains do you still struggle with?
