If you’re feeling frustrated because you can’t seem to achieve long-term profitability as a trader, then this episode is for you!
Designed for the data-driven, research-oriented, no-fluff trader – you’ll hear why it’s essential to work as hard on your mindset as you do on your trading plan.
In this episode you will learn:
- Why is trading psychology important and what does the research tell us?
- Can self-development help make you more money?
- What separates the majority of traders who fail from the small minority who are profitable?
The majority of traders are likely to fail. So how can you place yourself in the minority that achieves predictable long-term profitability?
Essential Topics Discussed
Bag lady syndrome
Louise says: “when the markets dropped, I would be crushed. I’d envisage that I’d be living in poverty, like a homeless bag lady.”
The tendency to imagine the worst. We think of disasters when really, that level of pain and destruction is unlikely.
It’s a funny name – catastrophising. It basically means making a catastrophe out of the things that happen to us.
The majority of traders are likely to fail
The research backs this up over time. One study by Brad Barber and Terrance O’Dean is even titled “Trading is Hazardous to Your Wealth”. You can’t get much clearer than that, hey?
Upwards of 80% of traders consistently lose money and only 1% achieve predictable, long-term profitability. An individual’s trading career will often be brief and expensive.
Trading is a learned skill and not innate. The research strongly suggests that you can learn how to control your own psychology. https://www.nber.org/papers/w11243
Carol Dweck, author of “Mindset: The New Psychology of Success” puts people in two general buckets:
- Fixed mindset
- Growth mindset
The FIXED MINDSET person:
- Looks at CHALLENGES and avoids them
- Quits easily when OBSTACLES stand in their way
- See EFFORT as fruitless
- Ignores useful negative feedback or CRITICISM rather than changing their behaviour
- Feels threatened by the SUCCESS OF OTHERS
What about a person with a GROWTH MINDSET? They:
- Welcome CHALLENGES
- PERSIST in the face of setbacks
- Sees EFFORT as the path to mastery
- LEARNS from criticism
- Finds LESSONS and INSPIRATION in the success of others
About Louise Bedford
Louise Bedford is a highly accomplished and experienced trader, educator, and author, with over 30 years of experience in the financial markets. She is the co-founder of The Trading Game, and is known for her unique approach to teaching trading psychology and market analysis.
Louise has authored several successful trading books, including Trading Secrets, Charting Secrets, and The Secret of Candlestick Charting. She is also a regular contributor to Ausbiz, the Your Trading Edge magazine, and is the host of the Master Your Trading Mind Hub at IG Markets Australia.
To get in touch with Louise
Research this show is based on:
- Bag Lady Syndrome: In a 2013 Allianz study of 2,213 women with household incomes of $30,000 or higher, 49% of respondents, and a third of those with incomes of $200,000 or more, said they “often” or “sometimes” fear losing all their money and becoming homeless.
More info: https://www.forbes.com/sites/nextavenue/2015/03/06/what-women-must-do-to-ditch-bag-lady-syndrome/?sh=298a335b2708
- Optimism bias research: https://www.sciencedirect.com/science/article/pii/S0960982211011912
“when it comes to predicting what will happen to us tomorrow, next week, or fifty years from now, we overestimate the likelihood of positive events, and underestimate the likelihood of negative events.”
- Catastrophising research: https://journals.lww.com/clinicalpain/Fulltext/2001/03000/Bias__Effects_in_Three_Common_Self_Report_Pain.8.aspx
“an exaggerated negative “mental set” brought to bear during painful experiences.”
- Activity Research: W.B. Canoles, S.R. Thompson, S.H. Irwin, and V.G. France in their paper ‘An Analysis of the Profiles and Motivations of Habitual Commodity Speculators’ – Activity is the goal research
- Overconfident subjects are found to earn relatively low trading profits. https://www.researchgate.net/publication/228236716_Psychological_Traits_and_Trading_Strategies
- Growth mindset: When you have a growth mindset, you believe you can gain the knowledge and skills necessary to succeed – which makes every challenge a learning opportunity.
- Trading failure rates: http://faculty.haas.berkeley.edu/odean/papers/returns/Individual_Investor_Performance_Final.pdf
For more content that is similar to this refer to: https://www.ig.com/au/master-your-trading-mind