Home > 5 Beliefs You Must Accept to Improve Day Trading Performance

5 Beliefs You Must Accept to Improve Day Trading Performance

Fully accept and integrate these 5 beliefs to improve day trading performance and remove a lot of stress from your trading. Fail to implement these beliefs and trading will continue to be a stressful struggle.

Even many professional traders will say that day trading is stressful and difficult. Day trading does take focus and discipline, but it doesn’t have to be stressful. Stress, at least in trading, is created by an internal conflict between what you want to happen and what actually happens. We can’t change what actually happens in the market, but we can change what we want or expect from the market. This is where the 5 beliefs that you must accept to improve day trading performance come in.

In his book “Trading in the Zone” Mark Douglas reveals what he calls the “5 fundamental truths” all traders must accept to improve day trading performance and make trading a less stressful, even stress-free, endeavor (see Mind Over Market – Video Interview with Mark Douglas).

Here are the five beliefs, along with additional comments, which explain why they are important. Knowing that you should adopt these beliefs, and completely accepting them on an internal level, are very different things. If the beliefs make sense, but you’re uncertain how to make your actions align with the beliefs, I suggest picking up a copy of the book.

Belief 1. Anything Can Happen

This belief goes against many financial marketing campaigns which declare they know what is going to happen, can pick exact tops and bottoms well in advance, and win 95% to 100% of their trades.

One market order, one trader, a surprise news event, or any host of factors can throw your analysis out the window. Accept that anything can happen, at any moment.

Yes, you will find examples of published proclamations which called the exact top or bottom of a market move; but consider the millions of analysis pieces published each day and distributed via TV, websites and radio. Some calls are bound to be spot on, but it doesn’t mean it’s the norm. Abolish the notion that you need to know exactly what is going to happen…

Belief 2. You Don’t Need to Predict to Make Money

Many aspiring traders believe they need to predict what is going to happen next in order to make money or improve day trading performance. You don’t. We just established above that anything can happen, which by extension means we don’t need to, nor should we, try to predict everything.

From trading my strategies I know I will win about 65% of my day trades over a great many trades (and the average win is about 1.5 times greater than the average loss). Some strategies are a bit lower, some strategies are a bit higher. As long as I trade the setups my strategy dictates, that is what will play out. I don’t need to predict where the market is going. All I need to do is trade all valid trade setups, which in turn will produce a 60%+ win rate and profits.

Don’t think winning 60% of your trades is good enough? Think again, read: How Much Money Can I Make as a Day Trader.

Belief 3. Wins and Losses Are Randomly Distributed

You must believe and accept this truth, otherwise, a string of wins or losses will make you think your system is better or worse than it actually is. When you start to believe that your system is worse or better than it actually is, there’s a strong tendency to deviate from your proven plan. You may think yourself a great trader and start doing random trades because you have the feeling you can’t lose. Or on a losing streak, you may abandon your plan, or start changing it constantly, because you feel it isn’t working.

With a 60% win rate I could theoretically have 40 losing trades in a row followed by 60 winners in a row, or 60 winners in a row followed by 40 losers. This is highly unlikely but possible; over 100 trades my win rate is still 60%. More than likely my wins and losses are going to be somewhat alternating: win, win, loss, win, loss, loss, win, win, etc, but the point is you could have a long winning/losing streak and it is still within the conceivable parameters of your strategy.

A string of wins or losses doesn’t really mean anything in the big scheme of things. Failing to believe this will likely result in being afraid to trade, or overtrading when you hit a winning or losing streak. Both of these erroneous actions will randomize your results, and likely turn your winning system into a losing one.

NOTE: if you are trading real capital using a system that hasn’t been tested, stop wasting your money. Read 5 Step Plan for Trading Success for a method on developing consistency.

Belief 4. Your Strategy Simply Indicates One Outcome Has a Slightly Higher Probability Than Another

A strategy is not a crystal ball. A strategy simply tells us that when we take a trade the odds of the price hitting our target is slightly more than it hitting our stop loss.

With only a slightly higher probability of a favorable outcome, anything can happen on a single trade. But over many trades that slightly higher probability is evident in the form of profits.

A casino (the house) is a good example of this. On any given hand of blackjack the house or the player could win. The house only has a slight advantage over the player. The player could go on a winning streak, or so could the house. Anything is possible over a number of hands. Over many hands the house will win though, because they have a slight statistical edge. The house doesn’t need to analyze each hand in order to make money, all they have to do is stick to their system and not be bothered by short-term ups and downs. This is the mind frame traders must have as well.

Belief 5. Every Moment in The Market is Unique

Certain patterns occur all the time in the market, such as triangles, head and shoulders, flags, etc. But one pattern is never exactly like the ones prior. This pattern may occur during a range, when the last one occurred during an uptrend. This one covers a price area of $5, while the last one only covered a price area of $2. This one tends to overshoot its boundaries (false breakouts) a little, while the last one didn’t have any false breakouts.

Things look the same, but aren’t. Don’t assume that because something looks familiar the outcome will be the same. Remember the prior truths, especially “anything can happen” and “you don’t need to predict anything to make money”.

Final Word on Improving Day Trading Performance

This can all be summed up by this simple advice: develop a system, test it, and if it’s profitable stick to it through the inevitable ups and downs. In doing so, you will realize the profit potential of the strategy over many trades, like “the house”. If you do so, and accept the above beliefs completely, you will also find trading can be largely stress-free. A stark contrast the hair-pulling experience many traders have.

By Cory Mitchell, CMT

If you want help with your trading, check out my Forex Strategies Guide for Day and Swing Traders 2.0 ebook.
300+ Pages and more than 20+ strategies combined with trading psychology and a proven 5 step method for becoming a winning trader.

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