Your Mindset Can Make or Break Your Trading Career

Editor's note: Every trader faces hurdles. Some come from unpredictable markets – while others come from our own emotions, mistakes, and lack of discipline. Ten Stock Trader editor Greg Diamond learned these lessons on the track long before he entered the markets. Now, in this issue originally published in November 2023, he shares three strategies that can help you become a more disciplined trader...

Back in high school, I lived for competitive sports...

Growing up in North Carolina, basketball was everything. I played all four years. Our team made it to the playoffs against many athletes who went on to play professionally.

While competing against these future pros, "everyone" said we weren't good enough. The best part was, we often proved them wrong.

It taught me to ignore the critics... And it convinced me that I could succeed at anything.

That mindset was also critical during the basketball offseason...

No matter how much I practiced shooting, dribbling, and passing, there was nothing like competing. So in my junior year, the track and field coach (who had seen me play basketball) advised me to consider hurdles.

The races were intense. With a lot of training, I got into great shape and became faster than ever.

Most of all, though, running hurdles took my competitive mindset to the next level...

You see, the first two hurdles are the most important. You need to perfect the sequence of steps and the speed required to jump over the first hurdle, then prepare for the second.

If you jump too soon, you could land in an awkward position and take longer to prepare for the second hurdle. If you jump too late, you risk hitting the hurdle, which could cost you the race.

But once you get into a good rhythm across several hurdles, that can guide you the rest of the way. It's a largely individual sport. So the right mindset is more vital than ever... After all, in many ways, you're competing against yourself.

In that sense (and others), running hurdles is similar to trading...

Strategy, preparation, and discipline are crucial. And as I'll explain, the techniques that drive success in hurdles can also help you become a better investor...

The Three Hurdles Traders Must Clear

One of my first bosses made this comparison between running hurdles and trading years ago. Given my experience with the sport, the idea resonated with me instantly.

Now, trading is a continuous learning experience – it doesn't end at a finish line. Still, it's important to clear the first few "hurdles," as they often present some of the toughest challenges.

We can do this by building a focused trading mindset. That means applying a sound investment strategy... preparing for different market conditions... and remaining disciplined time and time again. (This approach also makes it easier to overcome future hurdles.)

Here are three specific steps to creating a successful mindset...

1. Execute a sound trading strategy.

Your strategy must help you determine when to trade, how much to trade, and when to take profits. This strategy should also dictate when you'll add or cut a position.

2. Understand that losing is part of the process.

No trader gets every single trade right. That's why risk management is so important... It helps to preserve your capital and minimize your losses.

To do that, you must set favorable reward-to-risk ratios and use reasonable position sizing.

Don't underestimate risk management... These principles can make or break your trading career.

3. Keep your emotions in check.

We all have emotional responses to the events in our lives. Successful trading requires you to always control them (rather than ignoring them). Don't let emotions rule your trading decisions... And don't let trading rule your emotions, either.

Effective risk-management principles can help negate emotional responses when things go wrong.

Trading presents many hurdles. But these three strategies are probably the most important for overcoming the obstacles you face. Once you learn to use them, the rest of the "race" becomes easier to complete... and eventually win.

But that takes time...

The Daily Habit That Can Transform Your Trading

You need to spend time studying market moves and learning how you react to them. Sometimes it's frustrating. Other times, it's pure joy.

To put in that time, I recommend writing everything down in a journal.

It's a lot of work, and it may sound silly. But hear me out...

Every day (and I mean every day), write down the trades you executed. If you didn't trade, write down what you're considering trading or what stocks you already own. Decide exactly what you want to do (or not do) with those positions.

Write down whether you followed your investment and risk-management strategies. Also describe what made you happy or angry in that process.

Don't hold anything back.

No one else will read this journal, so write down exactly what you think and feel. Be your own worst critic. And be completely honest with yourself.

This will help clarify your thought process, emotions, and, ultimately, your relationship with investing. Over time, you'll learn how you respond to both good and bad days in the market. And when you look back, you'll see how you've grown.

Give it a shot for six months and see what you discover.

I think you'll find that focusing on honing your trader's mindset makes a big difference. By doing that, we can use behavioral finance (the study of how psychological influences can affect market outcomes) to our advantage.

Few people talk about this aspect of trading, but it's very important.

So, let's continue cultivating a strong mindset to overcome the hurdles we're bound to face. And remember, we can do anything we set our minds to... regardless of the critics.

Good trading,

Greg Diamond, CMT

Editor's note: The midterm results are in. And Greg believes investors could have just 18 days to take advantage of a rare market opportunity. The legendary Wall Street trader recently joined Stansberry Publisher Matt Weinschenk to explain a pattern backed by 124 years of market history – and the potential opportunity to double your money in just over two weeks.