How Beliefs Influence Your Trading
Beliefs are what we perceive as being true. It is different for everyone but it plays a very important role in our lives. Although the whole topic is very interesting, let’s see how that applies in trading and more precisely how beliefs influence your trading. I also show you how to build up the right beliefs.
Beliefs about yourself
Who are you? What can you make happen?
As you think about those questions, there is something you must understand. Whatever you think about yourself will turn out to be true.
That idea can be shocking but if truly believe in something, your brain will find a way to make it happen. However, there’s a huge difference between wishful thinking and believing. The entrepreneur, investor & author Tai Lopez really opened my eyes on a bunch of different topics. In his summary of The Magic Of Thinking Big, he mentions you have to understand the difference between wishing something and believing it. Wishful thinking won't get you far.
What if you want to achieve financial freedom? You may think about it and wish it will happen in the future. That will only get you so far.
If you truly want to change your life and achieve financial freedom, you must believe you can. That means you must put doubts aside and trust your ability in making it happen at 100%.
One way I’ve found to boost my personal beliefs is this:
1. Write down the belief you want to have (do it now!)
For instance, “I can reach financial freedom through Forex trading”
2. Write down 3-5 reasons why that belief is true
Here are examples:
“I know other traders who made it happen and they are no smarter than me.”
“So far, when I committed to something, I could achieve it.”
“There are several resources around me that can help.”
3. Think of an action you can take that would help make your belief come true.
As an example:
“Research and select a trading strategy.”
4. Once that action is accomplished, congratulate yourself and build upon it.
You may think:
“Ok so I have a strategy…how about I write a trading checklist now?”
This is how I built my beliefs. You basically build confidence in them through action. Do not make the error of simply writing your beliefs and reviewing them. You MUST take action and find reasons why those beliefs are true.
If you strongly believe something, your brain will act in order to find how to make it real in spite of the setbacks and disappointments.
And at a certain point, you’ll see what you believed for so long come true. Period.
Beliefs about your trading strategy
Again here, you can’t wishfully think you have a winning strategy. You must believe it. From what I know so far, there’s only one way of doing that…through seeing and experiencing results.
Now, that may sound abstract to some of you. How do you do that? The best answer I can give you: testing your strategy BEFORE trading it.
There are several ways you can do that and I’ll go into more details in the future. One way is to trade on a demo account and execute several trades. Although that is feasible, it may take a long time. You actually have to wait for the setups and then take the trades.
The other way of testing your strategy involves backtesting. In very simple terms, you use past data to see how your strategy would have performed in the past. I’ll definitely get into more details on that one because it is the fastest way to test your strategy.
If you see that your strategy isn’t solid, don’t necessarily drop it. A simple tweak in your take profit or in your stop loss could make it more profitable. You must experiment…and re-test.
Beliefs about the market
How is the price moving in the market? Are counter-trend trades successful most of the time?
You must realize that your trading strategy must be in line with your beliefs about the market. If not, you may have a problem.
I was a bit confused writing this article. In fact, I defined a trading strategy I would stick to a couple of months ago. However, these days, I am not confident that the market reacts according to what I had planned. The thing is that if I do not believe that the market will react as I thought it would, my strategy isn’t right for me anymore.
Instead of dropping your strategy straight away though, think of ways you can tweak it. Sometimes, you don’t need big changes to get big results. A simple modification in your entry point could make the trick.