Monday, January 29, 2018

Success Patterns for Day Trading | Trading Psychology

In today’s psychology lesson, I’m going to talk about pattern recognition, but not the candlestick patterns you might assume, but more importantly, the skill of recognizing our patterns in behavior and decision-making that are affecting our trading results.

Today I want to show you how to identify four (4) simple psychological patterns, that if identified and used correctly, will help you create positive, lasting, and life-changing growth for your trading career.

In my previous lesson we talked about using a trading journal, because when we start keeping track of our decisions we begin to see patterns in our personality, and today I want to talk about how to identify those patterns and how to use them for positive change in your trading career.

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 on this YouTube Channel, 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. 

Here’s the link to watch from the beginning

I also want to remind you to subscribe to this YouTube Channel and click the “bell” icon so you get notified every time I post something new…

And if you really want to stay in-tune with what’s going on here at SchoolOfTrade, head on over to our homepage and join the mailing list so you never miss a new video.

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

The topic of today’s psychology lesson is… how to use pattern recognition in your trading journal to activate positive changes in your trading career.

Have you ever heard someone say that “times may change, but people never do”?

It’s actually quite accurate… We can’t change our personality, it’s basically born inside of us. 

Ask your parents to tell you stories about your childhood and you’ll likely see that you your personality, the way you handled success, the way you handled failure, the way you interacted with other people, probably hasn’t changed much since the day you were born.

Our individual personalities have both weaknesses and strengths to them, and our job as traders is to work around our weaknesses and maximize our strengths.

It’s important to understand that it’s almost impossible to remove those weaknesses in our personality, we need to work around them, rather than try to remove them.

At the same time, there are certain parts of your personality that are AMAZING, and we should seek to maximize those, build our careers around those, because that’s the easiest path to success.

Knowing this, I’m sure there are many traders who never see their true potential because they haven’t learned to identify (and work around) their weaknesses, and they can’t leverage their strengths because they don’t know what they are!

This is why using a trading journal is so important; it gives us the priceless data we need to identify these patterns so we can start making positive changes in our trading.

When it comes to finding the patterns in your personality, the easiest solution is to break them into two categories.

1.      Patterns that are helping you
2.      Patterns that are hurting you

First, you need a journal with at least 30 days of journaling, so if you haven’t started your journal yet, now is the time to start. 

I always joke with you guys and say…  “the best time to start a journal was yesterday, but if you didn’t, you better start today.”

After you invest enough time in your journal, then you can start looking back at your journal to start seeing the patterns emerge.

To do this, look at your journal and find times when you were trading at your best, and times when you were trading at your worst.

An example of this would be… you look at your journal, you identify times when you went on a winning streak, and times when you had consistent losses.

Looking back at these times in your journal, you might notice that when times were good you took fewer, more selective trades and you were methodical with your targets and stops.

You might also notice that when times got bad for you, you started over-trading, taking more trades, and your stops and targets weren’t as consistent as before.

The key is using your journal consistently, making notes for each day, notes for each trade, and writing down the summary.  I gave you a strategy in my last video.

For example, one of the things I noticed in my journal was that when times were going well I would write the word “patience” more often.

On the flip side, when times were tough for me, I saw myself writing “you forced it” a LOT more frequently.

These weren’t just once or twice, I noticed these (what I call) trigger words consistently over many weeks of journaling, and it’s amazing how my results matched my words, which helped me identify the patterns in my decisions that I needed to address if I wanted to be successful.

Reading my journal, it was also easy to see that trades taken after lunch were remarkably less successful, which helped me make the tough decision (at the time) to focus only on the morning session.

After reading my journal, there was no question what I needed to change, and with that knowledge, I had the power to change, which is the first step in turning the corner.

Let’s dig deeper into these patterns I’m referring to…

There are two basic patterns you should be looking for:

1.      Emotional Patterns
2.      Behavioral Patterns

Emotional Patterns

Let’s start first with emotional patterns…

Emotional patterns are how you felt at the beginning of the day, how you felt when you entered the trade, and your feelings during and after the trade had been closed. 

This would also include your level of focus, what was going through your mind during the trade, and how you felt afterwards.

One of my best clients uses his journal to give himself an “emotional score” for each trade he takes, with 10 being confident and a positive emotional state when he took the trade.  This simple trick using his journal allows him to look back and see these patterns easily over a 30-day window of time.

Behavioral Patterns

Now let’s talk about Behavioral Patterns…

Behavioral Patterns are the physical act of preparing for the trade, entering the trade, managing the trade, and closing the trade.  This would also include the markets you trade, times you trade, position-sizing of your trades, etc.

I’ve seen other clients of mine, use their journal to classify each trade as a level 1, level 2, or level 3 trade.  Level 1 trades are almost perfect, whereas Level 3 trades are borderline gambles.  By using this system of classification, it makes it easy to see these patterns emerge over a 30-day window.

Blending these patterns together:

An interesting aspect of these patterns (behavioral & physical) is that they often blend into each other…

For example, a behavioral pattern such as entering a trade too late in the day, may cause a loss, and that loss triggers an emotional pattern, revenge trading, which causes another loss, and results in low concentration and low energy levels, which are additional emotional patterns.

In other words, emotions, lead to behavior, which leads back to emotions… interesting, isn’t it?

The goal of your journal is to be consistent, be specific, methodical, and try to use what I call “trigger words” and phrases that will help you identify these patterns in the future.

Knowing this now… how do we put this into action?


First, I would suggest you use a methodical approach to your journal, rather than just scribbling down whatever comes to your mind.

In my previous lesson we talked about a journaling format which included…

·        Writing the opening plan of attack
·        Writing about each trade that I take, with the reasons why, how I feel, etc.
·        Finishing the day with a summary of the actionable things that you saw today.

Taking strategies from some of best clients, I would also encourage you to assign an “emotional score” to each trade, and classify each trade as a Level 1, 2, and 3.

This simple format, combined with these little shortcuts will make it easier for you to identify these priceless patterns over a 30-day window.

Standardized Phrases:

I also recommend using some form of standardized language, or “trigger words” in your journal.

For example, I use the word “forced” when I find myself chasing trades, entering trades that don’t fit my plan.  I use the word “patience” a lot when I’m on a winning streak, etc.

It becomes a lot easier to see these types of behavioral patterns when I’m using the same phrases consistently, so think of your own phrases, you can’t do this incorrectly as long as you use them consistently.

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

Today we talked about using our trading journal to identify patterns in our emotions and patterns in our actions.

We learned that there are two basic types of patterns; those that help us, and those that hurt us.

We also learned that that we can broke those into two more patterns; emotional and behavioral.

We learned that our emotions affect our behavior, and our behavior affects our emotions.

We then talked about using our journal to identify those different types of patterns.

I gave you a format for your journal:

·        Writing the opening plan of attack
·        Writing about each trade that I take, with the reasons why, how I feel, etc.
·        Finishing the day with a summary of the actionable things that you saw today.

We talked about keeping an “emotional score” on each trade, and classifying each trade as a Level 1, 2, and 3.

We also talked about using “trigger words” consistently in your journal, and when you combine this all together over a 30-day period you have the data you need to start to finding the patterns.

Once you know those patterns, you have the priceless information about everything you need to be successful.

And I’m my next psychology video, later this week, I’m going to show you how to use these patterns to become the best trader you can possibly be!

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 additional 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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