As I spend more and more time mentoring other traders, it is becoming clear to me that a traders' mindset is critical is achieving the level of success they desire. In order to achieve what they want, they have to move any negative or limiting beliefs they may have.
Subconsciously, these beliefs can act as a glass ceiling, or a brick wall. Success is on the other side. The good thing is that beliefs can be changed. If you can identify these mental obstacles, a change in mindset can be effected quickly. This can lead to a significant change in performance. It is for this reason that people like Charles Faulkner, Adrienne Toghraie, Steve Ward and Dr Van Tharp are so highly regarded in trading circles.
These limiting beliefs can also affect people such as elite sportsmen and women. Some achieve far more than what others feel their level of ability warrants, while others, who have a perceived higher level of talent or natural ability, fail to get the success they should. Some over-achieve, others under-achieve. In my opinion, the difference comes down to their beliefs and desires, and controlling the mind.
I used to play a lot of golf when I was younger, and reached a reasonable standard. However, I never got to the level I feel I should have got to. I had lessons on the technical skills from more than one teacher who coached European Tour players, and people who would watch me hit balls would wonder why my handicap was not scratch or better (I got down as low as a 3 handicap).
What held me back was a lack of mind control. One or two bad shots, and the head would metaphorically come off, clubs would be slammed or thrown, and I could get into a negative mindset. I knew I had the ability the hit the shots, I practiced for many hours on a regular basis, so why couldn't I do it on the course? On the bad days even the simplest shots would end up being difficult.
Suppose you want to hit a 100 yard wedge shot. On the practice ground, it is no problem. If you mishit it, or the ball doesn't end up close to the target, you can always drag across another ball and try again. On the course, with a card and pencil in your pocket, you face the same shot. Except this time, the flag is on a small green surrounded by water. The wind is blowing. The golf club you are using doesn't know the difference. The ball doesn't know the difference. As for the player, in his mind it can be completely different.
How your mind talks to you is also critical. Two golfers, of equal physical ability, may stand on the tee waiting to drive. Golfer A may say to himself "Whatever I do, I mustn't hit it in the water on the right. Don't swing too fast. Is my grip right?". He becomes tight and tense. He's trying to over control things. He has just increased the odds of doing what he wanted to avoid.
Ten seconds later "Splash!" followed by "You idiot, what did you do that for???". The offending club gets thrown back in the bag (on a REALLY bad day, the club might end up in the water as well!)*. Well, of course, its the club's fault, isn't it? Golfer A is now in a negative spiral mindset. He is being controlled by how he thinks.
Golfer B, on the other hand, will be saying to himself "There's a lovely wide fairway out there. Visualise the shot I want to play, pick your target, go through your routine, and let it go". He has significantly increased the odds of hitting the ball where he wants to. Both golfers have the same skill set. Both want the same results. Yet, because of the way they think, they almost certainly will get different results.
Instead of thinking about the consequences should he mis hit the ball, Golfer A should focus on the process, perform the swing to the best of his ability without fear, and see what happens. As noted golf psychologist Bob Rotella would say, you can gain control by giving up control.
You can easily relate this to trading. Negative or limiting beliefs, if not identified and eliminated, will manifest themselves in some way in your trading. These can lead to self-sabotage issues, which again will keep you having a negative mindset.
Once you have a system you are happy with, and have set prudent risk controls, your ultimate success will come down to your mindset. It is for this reason I do not place a great deal of reliance on paper trading compared to actively trading real money. The psychological issues do not show themselves up when you are paper trading. Even if you are following exactly the same entry and exit rules, the two scenarios are so far apart you might as well be trading different methods.
*Yes, I can personally relate to this story!