Video Transcript:
Hello everyone, it is Sterling here from Trader Dale, and in this video we’re going to be talking about psychology. To me, this is the most interesting topic when it comes to trading. We’ll get into why that is and I’ll try to rein myself in from going on long speeches here, but this is the number one reason, in my opinion, why traders can pass evaluations but continually blow up a live account. That doesn’t mean they won’t blow up an evaluation account from time to time, but the real train comes off the tracks once the account goes live. You might see a little consistency, but as soon as there’s a little bit of drawdown, that’s when things go down a negative path.
So in the 20 years that I’ve been trading, what I’m really going to cover is the core of how you can fix this. This is a very long topic. I’ve spent probably a decade on a ton of courses from many different avenues, years of talk therapy, and even psychedelic-assisted therapy, which to me is the approach that can create the fastest transformation in people and in myself. From my personal experience, that was the case. There are deeper ways to address these issues that most people don’t really want to explore, especially guys. We’re usually not very comfortable talking about our feelings or experiencing past emotions and reliving them so they don’t affect us in the future.
It can be difficult to get people to do those harder things. We can talk about them, and in the Funded Trader Academy we actually spend a lot of time discussing this, because this is the part that holds people back. You can learn a strategy, but we’ll illustrate how you can determine whether this is holding you back or not.
The number one thing I see when it comes to trading is psychology, but you have to start with a positive mindset. So what does that mean? I wrote down a couple of things. A winning mindset in trading is patient. A winning mindset is disciplined. It’s focused. It’s calm. It’s all the things you cannot be when you’re revenge trading, when you’re overtrading, or when you’re searching for an entry because you’re experiencing FOMO and the market happens to be moving without you.
So how do we manufacture this mindset? It’s difficult to simply say, “Okay, I’m calm” or “I’m patient.” Instead, we have to do things in advance. We have to put building blocks in place so that we can create this mindset before we enter the trading environment. It will get deeper later, but we’ll start with some basic checkpoints.
Number one: do you have a written trading plan? It’s impossible to be patient if you don’t know what you’re waiting for. I’ve been trading for 20 years, and I always laugh about this topic because I ran a live trading room for over a decade. I would joke with the traders in the room because we were friends. I saw them every day for three hours, chatting and trading together.
I would always tease them and say that half of the losing traders couldn’t even send me a trading plan if I asked for it right now. And I would hassle them every single day about it. They would laugh and say, “Yeah, you’re right,” even though they had been there for six months. An educator can only do so much. At some point, if you haven’t defined your strategy in a written plan, you can’t expect to trade in a patient, disciplined, focused, or calm manner.
If you don’t have a trading plan, you will revert to revenge trading, overtrading, system jumping, doubling down, flipping positions, and reversing trades. That’s exactly what happens. So if you don’t have a trading plan, that’s the first place to start.
Number two is journaling every one of your trades. However, a journal is really useless unless step one is in place. That’s why we covered the trading plan first. If you’re journaling random trades, the journal itself becomes irrelevant in my opinion.
So first start with the plan, then journal every trade. When you’re journaling those trades, this is where people who doubt the importance of psychology can test themselves. Many traders want to jump from system to system and never analyze what’s actually happening in their own behavior.
So here is a simple test to see if psychology might be holding you back.
I call it the 20-Trade Challenge.
The challenge is simple. Look through your trading journal and see if you can find 20 trades in a row that exactly followed your plan. It doesn’t matter whether those trades were winners or losers. You might have multiple losses, then a win, then a couple of wins, then another loss. The outcome doesn’t matter.
The question is: can you follow your plan for 20 trades in a row without reverting to your personal emotional spiral?
Everyone has a different spiral. Some people lose confidence and stop pulling the trigger after a loss. Others become overconfident and think they can read every tick of the market. Some traders move their stop loss until one trade wipes them out. Others start flipping positions.
Whatever your spiral is, the question is whether you can take 20 trades without falling into it.
This is a powerful metric, especially if you have a trading plan in place. If you take two to four trades per day, it can take several days to complete the challenge. In that time, your weaknesses will usually reveal themselves.
I’ve been doing this long enough to know that 20 trades is enough of a mirror to show you exactly what’s happening. It quickly reveals whether you are following your process or sabotaging yourself.
And that honesty is important. Because once you identify the pattern maybe you spiral after a loss or start taking random setups that becomes the lowest-hanging fruit for improving your results.
And that’s actually a positive thing.
Because once you identify the problem, you know exactly what to fix.
At some point, you have to act bigger than the emotions that are present. For guys, 80% of us are going to have an anger response to trading. That’s just how it typically works. A lot of men experience sadness in childhood, and we often cover sadness with anger. This is very basic psychology. Anger becomes the safer emotion for a grown adult male to express in society, and that comes out in a variety of ways. That is just how it is. You’ll notice that in your trading, and most of you guys are probably nodding your heads along right now.
Women can have a variety of responses. It could be anger. Guys can have a lack-of-confidence response. Anybody can have any response. I’m just saying that, on average, anger is what tends to happen for men, and it’s a hard thing to overcome.
The beauty of this whole process is that just like you can’t necessarily overcome these responses easily in real life like when someone cuts you off in traffic and you get mad for the next hour over something extremely small if you fix it in trading, you’ll also fix it in life. That’s why I love trading psychology. One thing is everything. You can’t be a disciplined trader and be a slob at home. You can’t have dishes in the sink for two weeks and then be a disciplined, super-focused trader. I just don’t think those two things exist. How you do one thing is how you do everything.
That’s why in a lot of other videos I talk about how you start your day. I talk about the first 30 minutes of your day, about the book The Miracle Morning, and about getting those things in line. Because who you are as a person in general is who you’ll be as a trader.
So you have to eliminate these things. Speaking as someone who has mastered all of these issues, and many others, you can’t trade profitably while doing these things.
So how are we going to fix this? Let me flip over, actually, to a section from the trading psychology course inside the Funded Trader Academy. This is a one-on-one trading program that we do with Trader Dale students who are looking for more direct support, working with myself and our team of prop firm funded traders. You get to watch them trade live. One of the aspects we need to clean up is psychology, so I’m going to flip over to that section here on the screen and we’ll cover a little more useful information on how to fix this once you’ve recognized the problem.
So, okay, I’ve recognized the problem now how do I go about fixing it? Like, “Sterling, okay, you’ve pointed out the problem. Thanks for showing me the problem. But how do we fix it?” All right, let’s go ahead and look at that, get to the fix, and get you started in the right direction.
Hey guys, before we go on to the next point, I want to spend 30 seconds just to show you the Funded Trader Academy. All of you are probably familiar with our self-study packages that’s the primary way people access Trader Dale but the Funded Trader Academy is where you work directly, one-on-one, essentially, with Dale and our other team of prop firm funded traders. You’re going to go into the room, see them trading live day in and day out, be able to ask them questions live, go over the market live, discuss potential trade setups, ask questions after the fact, post trades, and get video feedback on those trades. It’s really more of a white-glove, hand-holding service that helps ensure you’re making progress toward becoming a profitable prop firm funded trader.
So if you want to learn more about that, you can click FTA in the main menu on Trader Dale. You’ll see the option to book a call. You can book a call, learn more about the service, and see whether it’s right for you or not. All right guys, let’s get back to the video.
All right, so we’re going to give you kind of the abridged version here, a little more simplified. But what I’m also going to do is give you a name, and that name is Jared Tendler. I’ve studied many different trading psychology courses over the last decade, and from that perspective, this is one of the best models I’ve found for helping traders become more aware of what they’re doing wrong while they’re trading. That’s really what we’re talking about here.
There are many different models for this, but to me, this is the one I’ve found to be the most effective when it comes to actually seeing it applied and seeing it work for traders. So if you want more information on Jared Tendler, his psychology work is extremely deep. He has a ton of information out there. I have no association with him personally, from either a business or personal standpoint. I just liked his work personally, and in my experience it has been very effective in helping traders make that turn, without necessarily having to go through some of those deeper methods we mentioned earlier.
So to begin with, what happens in a trade is that he essentially identified eight things that tend to occur prior to the mistake, with the eighth factor being the mistake itself.
The first thing is the trigger. There’s going to be something that happens. Maybe you had a win. Maybe you had a loss. Maybe the market ran away without you. Maybe it missed your entry by a couple of ticks and now you’re experiencing strong FOMO. Maybe it missed your take profit and came back and hit your stop loss. Whatever it might be, there is some type of trigger that causes you to have some type of thought.
That thought could be something like, “The market is always screwing me,” or “I’m never going to get this,” or “I’m such an idiot.” Usually it’s some type of internal self-deprecating talk. That would be the second thing.
Then comes the emotion that follows that thought. In many other videos, I talk about how the way you deal with loss is often set between the ages of zero and six. This is not just my opinion or some brilliant breakthrough on my part. This is based on psychology and how the mind forms. Ages zero to six give you your lens for life.
If you experienced a lot of loss during that time, if you had one parent and a lot of uncertainty, as many of us did, or maybe food scarcity, or whatever it might have been, those things shape how you view life. Often, loss later in life will trigger very similar emotions to the ones that were formed in that zero-to-six period, along with the way you were taught to deal with them.
Again, maybe you grew up in a two-parent household and dad came home, you had a problem, and he walked you through it. He gave you a solution, that solution worked, and then that happened 5, 10, 50, or 100 more times. Well, guess what? You learned to work through problems.
Whereas, if that support system wasn’t there when problems came up, then you likely developed a more negative response. You might get down on yourself more easily. You might quit more easily. So this lens and I always joke with guys in the Funded Trader Academy about this I can’t get to that zero-to-six lens of how your parents shaped you and why you are the way you are or why you feel the way you feel. That’s in those deeper methods we talked about earlier if you really want to explore that.
But what you can do is learn to recognize what you are feeling in the moment and choose not to act on it. And that’s what this is really about.
So when that emotion comes up, it is often a deep emotion. Your entire life, you’ve been acting on emotions that were shaped in childhood. You’ve been conditioned to respond in a certain way when a certain stimulus occurs.
That stimulus means something to you. Somebody cuts you off in traffic one person sees that as an insult. Another person sees it as, “Oh, they probably didn’t see me. I hope they have a good day.” That difference in interpretation was not developed on that day. That lens was developed very early in life, along with genetics and many other factors.
So the emotion gets triggered, and it’s deep. The behavior that follows is often ingrained and often self-destructive, especially in trading. This is where we start to look at different setups. We start flipping between time frames. Maybe we go down to the 1-minute chart. Maybe we’re on the 5-minute, then the 500-tick chart. We start narrowing our focus more and more, trying to make something happen.
Your behavior changes. Your actions begin to change. Behavior and actions are basically the same thing in this case. There’s a little difference between them, but they run together here in my opinion. Then your decision-making changes. You start saying, “Okay, well if it’s not doing this, maybe this is happening.” Your plan becomes less coherent. You begin constructing an idea in real time based on market movement rather than rational thought. Rather than following a well-thought-out plan that was not driven by emotion, you are now being driven by that emotion.
Then that creates a change in market perception. “Yeah, that’s exactly what happened. Okay, now I know what that means. Yep, we’re going to catch this move. I’m going to double the position and make the money back.” Then you put on that trade, and it turns out to be nothing more than a little liquidity sweep before continuing in the original direction. You’ve now made the mistake, you take triple the loss, and things likely get worse from there as more random chasing trades appear.
So the faster we can stop you in that sequence, the better.
What I always say is that once you’re at the point where you’ve taken three revenge trades, you’ve already dumped a massive amount of stress chemicals into your body. Physically, that takes an extreme amount of time to wear off. At the same time, your frontal lobe starts shutting down. The more emotion is driving you, the more your logical thought process shuts off.
So by the time you’re three revenge trades deep, you’re done for the day. The only advice I would have for you at that point is to pull the plug on the day. It’s done. It’s over. You’re not making any more logical decisions for the rest of that day.
But if I can get somebody to notice the trigger maybe they take a loss, then have the thought, “Oh my God, it happened again. I thought I was finally on the right track, and now I’ve taken another loss” and if I can get them to inject logic at that moment, then that changes everything.
For example, I can get them to ask, “Do the best traders in the world take losses?” If the answer is yes, and I’ve just taken a loss, then that doesn’t mean I’m a bad trader. It just means this trade was a loss. That’s it. It doesn’t say anything about me as a human being, my value, my intelligence, or whether I know what I’m doing. It only means this trade was a loss.
If I can get you to that point where you recognize the thought, inject the logic, and say, “You know what, yeah, I am irritated, and even though I know logically that the best traders lose, I still feel frustrated” then at least you know you cannot trade in that environment. You cannot trade in that state. You need to go take a 20-minute walk.
If I can get you to take that 20-minute walk in that moment, then you can clear the stress hormones, restore blood flow to the frontal lobe, and come back in a much more logical state. The science on that is pretty clear. A 20-minute walk is one of the easiest and most effective ways to reset.
So what is the difference between those two traders?
One trader is three revenge trades deep. The other trader is one loss deep. Both of them started with a loss. One spirals into three revenge trades, mentally blows up for the day, and often damages the account. The other trader takes the loss, recognizes the chain of events, stops the spiral, takes the walk, comes back, and maybe puts on a good trade. Maybe he ends up with a profit. Maybe he doesn’t take another trade at all, which is also a win. Maybe he comes back and takes another loss, and that is possible too. But if it’s a good loss, taken according to the plan, then I’m okay with that.
The main point is that he comes back and continues making logical decisions. That is the entire point.
So what is the second thing here? The second thing is injecting logic. And it’s pretty simple. You’ve caught yourself somewhere in the sequence, and that is the key.
I should probably follow that up by saying that in the Funded Trader Academy, we use a journal to process and track this. But you guys can absolutely make your own journal. It’s not rocket science. Open Excel, put in the date, put in the trigger, and leave a little space next to it so you can describe what the trigger was. I’m not doing the work for you here, but this is a very simple exercise that you can easily do yourself. And I believe you can probably even download something similar from Jared Tendler’s website.
Make sure you are doing that for every trade. The more clearly you can identify your triggers, the faster you can move from catching the problem only after the mistake like, “Oh, I only took one revenge trade, that’s better than three” to catching it earlier. Maybe you catch it when you start switching from the 5-minute to the 1-minute to the 500-tick chart. That’s still pretty deep in the sequence, but it’s better. What we really want is for you to catch it when the thought or the emotion first appears.
And ideally, we want you to catch it at the trigger itself, where you simply know yourself well enough to recognize that when a certain thing happens, you tend to respond in a certain way.
The earlier you catch it, the easier it is to stop. That first one-to-three range in the sequence is really the sweet spot. Emotion is often the key area, because that’s the point where you can feel something starting to build, and with enough practice you can learn to catch it there.
But you have to journal it. Especially for guys, feeling what you’re feeling in the moment is not as easy as people think. It just isn’t. Many men have been trained not to do that. Some can, but many struggle with it, and that’s why they keep repeating the same mistakes.
That’s why they keep saying to themselves, “Why do I keep doing the same thing over and over? I know what to do, but I keep doing the same stupid stuff.” This is the problem.
So now let’s talk more about the fix.
What you are doing is injecting logic. You must learn to recognize when you’ve entered the mistake loop, and the faster you can recognize it, the better. That’s the first thing.
Then comes disruption. You may need to shut the computer off, go for a walk, meditate, breathe, or do something else that gets you out of your trading space. For me, meditation is huge. I meditate for at least an hour a day. I don’t usually have to get to the point where I need to go take a walk, but for most people, in my opinion, that is probably the best option. Just get out and take a 20-minute walk. It’s simple, physical, and highly effective.
So again, inject logic. That’s the main point of this next section.
As an example, ask yourself: Do good traders lose? If the answer is yes, then why would you expect yourself to never take a loss? That’s irrational. So let’s keep going.
For FOMO, one of the best things to remember is that the market is a constant stream of opportunities. Is that not true? There are always going to be more opportunities. The problem is that many traders take a bunch of terrible trades early in the day, then 30 minutes later they see the perfect A+ setup come together, but they can’t take it because they already blew themselves up mentally or financially for the day.
They sit there and think, “If only I had just waited for the right setup.”
That’s the key point with FOMO. So what can you do? Go do something. Go for a walk. Set alarms on your phone. Tell yourself, “I’m going to meditate for 20 minutes because I’m having a hard time keeping my hand off the buy or sell button.” Get away from the screen. Break the pattern.
Another one is fear of failure. Sometimes the greatest risk of all is staying on the sidelines. If you want to make money, then risk is part of the game. That’s just how it works. Again, if you think back to 2008, I know a lot of people who never wanted to invest again after that. And what has that done to them? You have to get involved but you have to get involved at the right times. That’s where patience comes in. If you’re only stepping in on the best setups, then that fear is reduced.
Then there’s hating to lose. Even the best traders take losses. Again, that goes back to the same point.
Mistakes should equal learning. Learn from them. Consider them part of the investment. Then move on.
Mistake tilt is a big one. You make a mistake maybe you forgot to put a stop loss on, which does happen to people and the mistake can hurt. Sometimes a lot. But the point is not to let the same mistake happen again.
If you forgot to place a stop, then create a system for yourself. For example, if you leave trades open or carry positions overnight, you might set an alarm at 4:00 or 5:00 p.m. every day to check your positions, place stops, place take profits, or close the trade. There are ways to build checkpoints into your process so that the same mistake doesn’t keep repeating.
Then we move on to injustice tilt, which I always like because I’m a golfer, and golf has the same thing. At the end of a round, it’s easy to say, “Man, I should have scored way better, but I got screwed on this and this and this.” You hear it in golf, you hear it in poker, and you hear it in trading.
In trading, that injustice tilt might show up when you get stopped out by one or two ticks and then watch the market reverse and hit what would have been your target. That can create a lot of frustration and start the downward spiral.
What I encourage people to do to fight this is what I started doing in golf. I created two columns one for good breaks and one for bad breaks. Every time something slightly positive happened, I put a check in the good column. Every time something slightly negative happened, I put a check in the bad column.
I would encourage you to do the same thing in trading. What you’ll find is that over time, the distribution is surprisingly even. There is never a constant stream of only bad luck if you are actually following a plan. There will be times when you hit take profit by a few ticks and the trade would have otherwise come back and hit stop loss. There will also be times when you miss your stop by a tick and the trade runs to your target.
So keep that check column. It becomes a great reference point. When something bad happens, you can look at the bigger picture and remind yourself that the distribution is actually fairly balanced over time.
Then there’s lacking confidence. This happens all the time. A trader can be doing well for a week, two weeks, or even a month, then one trade goes wrong, they don’t handle it properly, and suddenly one trade wipes them out, or it creates enough frustration to lead to 15 revenge trades that wipe them out.
One of the best reminders here is this: I’ve spent X amount of hours learning, refining, and documenting my trading plan. Am I really going to let one trade change all of that?
That’s a powerful reminder. It’s actually a great thing to write down and keep on your desk if you’re someone who tends to blow up live accounts after doing everything right for a while.
If you’ve built the plan, kept the journal, and done the work, then one trade should not have the power to undo all of that. Keeping that one trade in perspective is critical.
Now again, I’m not going to spend a ton of time on each of these because you could spend hours on the deeper psychology behind each one and how it affects your trading. What we’re doing here is covering the basics and giving you simple, logical injections you can use to ground yourself in the moment.
Over time, you may find three or four custom reminders that are especially effective for you. You may end up with your own page of logic injections a page you can look at when you recognize that you’re about to take another random trade, when you’re starting to FOMO hard, or when you’re getting overconfident. At that point, you need to ground yourself.
You need to stop focusing on the desired outcome and start focusing on the process again. That always comes back to your trading plan. If your process is solid, then your confidence will naturally be stronger, because the plan already tells you exactly what to do.
Then there’s boredom trading. Gamblers look for trades to take. Traders only take trades that fit their predefined trading plan. That is such a key point.
Everybody wants to be in the market. A lot of people build systems or ideas just so they can trade more. But the statistics show a very clear inverse correlation: the more trades you take, the less profitable you usually are. I have never seen that deviate. In 20 years in the market and 15 years of educating traders, every statistical breakdown I’ve seen points in the same direction. As the number of trades goes up, profitability tends to go down. That is just how it is.
So boredom trading is a killer. If 10%, 20%, or even 50% of your trades are boredom trades, then you are taking focus away from the really good setups. You are draining mental capital that should be reserved for the moments that actually matter the moments when you need to size up on a quality setup and stay emotionally composed while managing it.
That’s why boredom trading is not the proper action to take.
So when you’re analyzing your trading and asking, “What do profitable traders actually do?” one answer is very clear: they do not take a lot of trades. That automatically rules out boredom trading.
Focus is another major one. Trading is a job. Treat it like a business. When the trading session is over, then you can focus on whatever else you want.
A lot of traders have too many things going at once. They have five streams open, CNBC running, Twitter in one hand, random YouTube traders in another window, and all of that noise happening at the same time. In my opinion, when it comes to trading, the simpler your plan is, the better. The simpler the plan, the more repeatable it is. And the more repeatable it is, the better your results can become, because you are always going to be the biggest variable in the process.
When it comes to focus, you need a dedicated window of time. Pick your trading hours. Then focus during that time. If you find yourself getting distracted, bring yourself back to that simple reminder: this is a business, and I’m treating it like a business.
Maybe you trade from 9:00 to 11:30. During that time, you stay focused. You don’t have your phone open. You’re not tweeting. You’re not watching a bunch of random YouTubers trade. You are simply executing your setup with focus and discipline. Maybe you listen to some light music, relax, and sip some coffee, but you are not overstimulated. Your focus is only on your setup.
Again, these are all things you can write down. You can take each one of these topics and build your own set of reminders around them. If you know losing focus is a problem for you, then start there. If boredom trading is the issue, create reminders for that. You could even print out a chart showing a day where boredom trading led to a small loss, then to revenge trading, and eventually to a blown day. Sometimes pain is the biggest motivator.
In my life, pain has always been the biggest motivator. Maybe I’m just a little slow, but for me that has always been true.
So throughout this whole process, you are using this framework as a blueprint. When you identify your trigger maybe your main trigger is lack of confidence then focus especially on that. Build around it. If hating to lose is your issue, then build around that. If FOMO is your issue, then build around that.
Ask yourself: what other reminders can I create? What other activities can I use? What sequence of actions can I put in place to make sure I don’t allow myself to spiral emotionally?
All right guys, I have rambled on for quite a long time, probably 30 minutes here, so I’m going to wrap this one up. I hope you enjoyed this video on trading psychology.
Honestly, I could talk about this topic for a very long time. You are never going to regret the time you invest in trading psychology and in finding out who you are and why you do what you do especially if you keep repeating things and can’t seem to stop yourself from making the same mistakes over and over again.
Because at the end of the day, it doesn’t matter how good your strategy is. If every time you take a loss, you follow it with five revenge trades, then you’re not going to make it.
So if you recognize yourself in these patterns and these sequences, then I would encourage you to make psychology the single most important thing you focus on until you get to the point where you can complete that 20-Trade Challenge and actually pass it.
So that’s going to do it for this video, guys. I hope it was helpful, and I’ll see you all back for the next one.
Until then, happy trading.
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