How Do You Optimize Your Trading Mentality?

There are significant psychological and subconscious hurdles to trading. Some may even say you are "wired to lose". So the question is, how do you avoid falling into the traps of self sabotage? How to you find a routine or strategy or series of habits that allow you to trade at your best? How do you optimize trading?

The mentality of trading requires maximum mental functioning which is why you may want to have an optimal exercise routine. You may also want to optimize your diet and get the maximal nutritional benefits to your physical health.  But you can also optimize your mental health through nutrients and supplements. Getting all the vitamins, minerals, amino acids, enzymes and cofactors and probiotics will allow for more optimal mental functioning.

Being at your best is more than just being healthy physically and being able to produce the right mental chemicals. It is also about being able to maximize your IQ. Perhaps equally important (and arguably more importantly) is managing your emotions. You can maximize your emotional IQ or your EQ.  This is done through a series of things to work on. Develop a robust emotional vocabulary, develop curiosity for people,  embrace change, know thyself, judge character, develop thick skin, say no, let go of mistakes, be charitable but expect nothing, don't judge, defer challenging people, accept imperfections, show gratitude, detach, quit coffee, optimize sleep, use positive self talk, ignore the doubters/haters and don't let anyone inhibit joy.

One of the habits to having the right mental state is understanding risk and reward. You actually want to achieve a goal at the minimum risk possible and then leverage up that risk. You can do this through a money management spreadsheet, such as the Kelly criterion. By establishing a high reward on minimal risk, you don't require a high winrate to profit. A part of managing risk is not just the individual trade but learning to protect what you got.

I talk a lot about trading psychology on this blog since it is important to understand things like how and why trades move in a particular manner. The reason is because if you understand why, as patterns of the market change, you can still be quick to anticipate why and how it will play out. Trading psychology is one of the core principals along with trade management that make up sound principals. For example, volume profiles. Psychology is always involved, just in different ways.

Buying demand may increase on a catalyst, but if there are a lot of people with psychology that makes them likely to sell the news, the response going forward is very different. Conversely, on very similar news if there is not a lot of price history and the price breaks the backs of the sellers that suddenly are caught in a short squeeze, the price may respond very differently.

Optimizing your trading mentality first requires knowledge. This is why I supplied many of my own links along with other people's work. Of course having the physical and mental health will help you absorb more of the materials you read and more accurately determine which information is quality and worth accepting.

Optimizing your trading psychology also requires experience. This is that which cannot easily be conveyed by words and provides the flexibility and confidence to respond accurately in the moment. Having a sound psychological understanding of the right process certainly can go a long ways. This may include having a checklist.

Having a routine can also help optimize your trading. The routine acts as a mental/emotional anchor to get you "into the zone" and keeps you in the right frame of mind. It keeps your mind in the right perspective. That awareness will be conducive to your trading success.

Having sound technique and solid risk management in individual position sizing but also portfolio optimization and management can allow you to keep much more optimal allocation levels. That can reduce the volatility without substantially lowering the reward. That provides a more clear conscious to be able to execute the trade.

Ultimately you optimize trading mentality through a combination of the factors listed throughout this article, but when it comes down to it there are trading intangibles. Those intangibles have to be learned through doing or simulated trading. That should help reduce or eliminate most mistakes and by effect dramatically boost your returns by the end of the year.

What things are you doing to optimize your trading?