The key difference between successful traders and those who are not is that the successful know how to lose so that they are around to take advantage of the winners. In other words, they lose small and win big.
This sounds great and you’ve probably heard it all before. But how does one actually achieve this level of trading proficiency?
It all starts with the right mindset. Favorable trading strategies and money management techniques are great, but in order to cut your losses short and let your winners run, you have to open up your mind to account for all possible outcomes.
In this article, we’re going to discuss why winning big and losing small requires an open mindset and what you can do to achieve and maintain that kind of mindset throughout your trading career.
But first, let’s dig into what it really means to have an open mindset.
What Does it Mean to Have an Open Mindset?Having an open mindset means always accounting for the unknown. The Forex market has a way of humbling traders when they are most comfortable. As soon as you begin thinking you know for sure which way a market will move, it does the exact opposite.
Sound familiar?
With an open mindset, you aren’t surprised by a move against your bias because you have accounted for all possibilities. So instead of being frustrated or doubting your abilities as a trader, you simply refer to your trade plan and react accordingly.
Michael Carr, one of the famous Turtle Traders, said it best…
Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets.
This requires turning your focus from simply watching what the markets are doing, to watching what the markets are doing and knowing what you will do in response to those movements. But in order to do this, you have to plan for the unknown. More on this later.
More Information is Not the AnswerLet me tell you right now that achieving an open mindset isn’t about searching out more information. In fact I would argue that too much information is part of the problem as it can easily cloud your judgement, making it more difficult to see the various outcomes as real possibilities.
The only way to consistently win big and lose small is with an open mindset. But an open mindset doesn’t just apply to waiting for an ideal setup, it applies to everything you do as a trader. From the time you enter a position to the time you exit it and everything in between.
So how do you achieve this open mindset, you ask?
Two Things You Can Start Doing Right Now
1) Rethink Your ApproachThe very first thing you need to do to achieve and maintain an open mindset is to revise your approach to the markets. Many traders, especially those just starting out, believe that in order to be consistently profitable, you have to know which way a market is going to move. This couldn’t be further from the truth.
You don’t need to know which way a market is going to move to become consistently profitable. Your job as a trader is to stack the odds in your favor, that’s it. This is done through the use of technical patterns, trading strategies and of course proper money management.
By understanding that anything can happen on any given day in the Forex market, you allow your mind to open up to the possibilities. This in turn allows you to evaluate your open positions from a more neutral and open mindset, triggering a more defensive approach to your trading rather than getting blinded by the potential for reward – that’s what being a great trader is all about.
2) Plan Your Trade and Trade Your PlanIf you want to become a consistently profitable trader you must learn how to stack the odds in your favor. Achieving success in the Forex market is a game of probabilities. And just like in any game of probabilities there are multiple outcomes. It’s your job as a trader to not only know what those outcomes are, but to have a plan of action for each one.
In order to create such a plan you have to account for all variables. It isn’t enough to place a stop loss and a profit target and then go about your business. This is why I’m not a huge fan of the “set and forget” style of trading, where you set your trade and walk away.
To illustrate why I’m not a fan of this style of trading, let’s look at a hypothetical example. Let’s say you place an order to buy based on a bullish pin bar at a key support level. Let’s assume the key level is 1.5000 and your buy order gets triggered at 1.5030, or 30 pips above the key level. Your stop loss is 130 pips away at 1.4900.
What are you going to do if the market moves against your position and closes the day at 1.4950? That’s 50 pips below the key level. Are you really going to sit around and wait for your stop loss to be hit and risk losing another 50 pips? That’s what the set and forget crowd would do.
But why do this? If the idea to go long was based off of the market respecting 1.5000 as a key support level, and that level gets taken out, doesn’t that put the validity of the trade setup in jeopardy? I think so.
With an open mindset, rather than getting frustrated about the market closing at 1.4950, you simply close out your trade, take a small loss and move on. There’s no need to wait and watch with anxiety as the market creeps closer and closer to your stop loss. The setup is no longer valid. You know this because you accounted for this outcome before you ever put your trading capital at risk – that’s the power of an open mindset.
In SummaryIt’s far too easy to fall victim to fear and greed as soon as you place capital at risk. But recognizing it is the very first step to opening up your mind, which in turn allows you to trade what the market is doing rather than what you want it to do.
The key to becoming a great trader is to learn to control your emotions so that your mindset is just as balanced when you have capital at risk as when you don’t. To achieve balance you have to maintain an open mindset, which is only possible once you begin accounting for all the possibilities the market can throw at you.
Once you start accounting for these possibilities, nothing will surprise you. If nothing surprises you, there’s no need for emotions to enter the equation. Your decision-making becomes cold, hard and calculated. That’s what separates the successful Forex traders from those who struggle.
