Wednesday, January 10, 2018

Bigger Profits thru Flexible Psychology | Trading Psychology

Today I want to share with you a trading psychology strategy that will help you earn more profits while making it easier to overcome losses by using what I call “flexible psychology”…

But before I go into today’s lesson, I need to remind you that this psychology lesson is the most recent in a series of videos that I publish every week, and these videos build on the topics we’ve already discussed, so if this is the first video you’re watching, you might want to go back and start from the beginning to get the most value out of these lessons.  I’ll leave a link below…

Here’s the link to watch from the beginning

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Ok, now that we got that out of the way… let’s get into today’s lesson.

Today I want to share a strategy with you that’s helped my clients grow their accounts and earn more profit each month by using a simple term called “flexible psychology”

But first, let’s consider this example…

Three different traders take the same trade, and it each trade results in a loss.

The first trader loses money, curses at his monitor, throws his mouse across the room, says the markets are out to get him, and quits trading for the day.

The second trader gets angry at the loss, decides the market was wrong, so he doubles-down on his next trade and loses even more money, erasing his gains from the entire week before.

The third trader takes the loss, writes in his journal, takes a step back to re-think his analysis and patiently waits for the next trade set-up which occurs 20 minutes later, which is a winner, and puts him back in the green for the day.

What’s the difference between these three people? 

What I call… “psychological flexibility”, or the ability to hold a positive and focused mindset when we’re placed under stress.

Just like someone who losses their job… they regroup, they find a new (usually better) job, and upward they go.  Not the person who loses their job, blames it on their boss, starts self-medicating, falls into depression and never recovers.

What’s the difference?  The difference is taking the event personally

In other words, flexible people deal with events as they come, knowing they are only small hurdles along the way, whereas inflexible people personalize the events which makes them weaker and less-equipped to overcome the obstacle next time.

Here’s an example…

Someone without flexibility thinks they’re a genius when things go well, but when it goes bad, they take it personally, they lose self-confidence, they can’t imagine life getting any worse, and they struggle with finding a solution.

Flexible people know that struggle only makes them stronger and more equipped to tackle the next challenge that will certainly come soon enough.

Usually, people have flexibility because they have a larger goal in mind, and they know that they will get there eventually; they just need to work through this specific obstacle to get there.

Most importantly…psychological flexibility must be developed like a muscle.  If you don’t use it, you lose it.

As a trader, you can build this flexibility by taking small risks to your account on high-probability patterns.  Don’t take big risks on low-reliability patterns because that will result in big losses, which scar our psychology, and prevent the development of flexibility.

Familiarity also develops flexibility.  If we’ve “seen it before” then we know that we can recover from the negative events that occur.

I did a lesson on building self-confidence a few months ago, and that video is a great resource for people who want to develop this type of psychological flexibility in their trading.

The most effective way to develop flexibility is to familiarize yourself with small losses on highly-probable trades so that you can build those muscles. 

Every time you take a small loss and you rebound by following your rules and finding the next winning, you develop those flexible muscles… which are going to allow you to overcome even bigger challenges along the way.

Eventually you will add more trades and more risk as your flexibility develops, and as you increase your risk tolerance in this manner, you now have a margin to play with to start adding new patterns to your trading plan.

For example, start with your favorite trade set-up and risk 3% of your account to earn 6%.    

Let’s say for example that 3% is a $100 risk, and 6% is a $200 reward.

As your account grows, you keep risking 3% to earn 6%, and soon your risking $500 to earn $1000. 

You’ll still be trading the same familiar patterns, nothing has changed, but now you’re income is rising.

Here’s the important part…

Now you can start researching another pattern, starting with a small $100 risk, which is now only a 2% risk to your account.

Now you’re able to add another pattern to your trading strategy, risking 2% to earn 4%, and as your account grows your income grows along with it, and the best part, you’re focusing on the percentage risk to your account, not the dollar amount of each trade, which allows you to develop and maintain a flexible psychology when you take losses, while earning more money on each trade in the process.

Continue this process until you have 3-5 highly-probable trade set-ups that you’re familiar with and you now have a rock-solid and highly-profitable trading career.

It all starts with small percentage risks to your account using highly-probable trade set-up that you are already familiar with.

Familiarity develops flexibility.  If we’ve “seen it before” then we know that we can recover from any negative events that occur.  Familiarize yourself with small losses on highly-probable trades so that you can build those flexibility muscles. 

Build flexibility over time by taking small risks to your account on high-probability patterns.  Don’t take big risks on low-reliability patterns because that will result in big losses, which scar our psychology, and prevent the development of flexibility in your trading career.

The most important step in building flexibility is trading with a risk that you can afford to lose, which removes the psychological stress from the equation and allows you to focus on the process of trading rather than the profit or loss from trading.

I call this the “I don’t care” amount… (in other words, I don’t care if I take a loss because the loss is so small in comparison to the size of my account).

Whatever that “I don’t care number is, everyone is different, and sometimes we need to put a little more money in our account to make us more comfortable with losing a certain amount of money.

Once you define your “I don’t care” number, then each time you take a loss, your job is to take a step back, update your journal with ways you can improve on the next trade, and get back into the mindset you need to find the next high-probability pattern.

Remember, flexibility does NOT mean jumping into another trade as soon as you take a loss.  Flexibility is our ability to return to our positive & focused mindset after a negative event.

Lack of flexibility means you look backwards rather than looking forwards.  In other words, you allow the previous event to affect the next event. 

Flexible traders are proactive after a negative event such as a loss, whereas inflexible traders are reactive, chasing the market, trying to take revenge, or giving-up on trading altogether.

Lastly, remember this…

In the business of trading, we are responsible for developing our mindset and our skills.  Each winner is an opportunity to develop the ability to fight greed, and each loss is an opportunity to build a better strategy and develop psychological flexibility to overcome adversity that is guaranteed to happen in a long-term trading career.

We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

Today we discussed a term that I call “psychological flexibility”, which is our ability to return to our positive & focused mindset after a negative event.

Traders who have this type of flexibility can easily overcome small losses because they have a bigger goal in mind, they are familiar with their trading strategy, they are risking a very small percentage (not dollar amount) of their trading account, and they understand that the most productive use of their energy after a loss is getting back into the positive mindset that will make it easier to find the next winner.

Trader without flexibility take every loss personally.  They often aren’t familiar with their strategy, they take big risks on low-probability patterns, and when they take losses, they blame someone else, they allow anger to take control, and usually results in losing more money before they finally quit the business of trading.

We also said that this type of flexibility is like a muscle.  It needs to be developed, and if we don’t use it, we lose it.

The most effective way to develop these types of muscles is to take small percentage risks using only the highest-probability trades.

Ever more importantly, I gave you a strategy to grow your account so you can make more money on each trade while systematically adding new trade set-ups into your strategy as often as possible.

We talked about risking 3% of your account to earn a 6% reward, and as your account grows, your income grows right along with it.

At the same time, as your account grows, now you have the “wiggle room” with margin to start adding new set-ups into your trading strategy, now risking less than 3% while you become familiar with those new trading opportunities.

Wrapping things up… I hope you found a ton of value in today’s trading psychology lesson…

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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