How to Think Like the Top 3% of Traders
What first piqued your interest in day trading? Was it the flashy lifestyles shown on Instagram? Maybe it was the idea of having financial freedom and owning your time. Whatever it was, a top trader pulled you to day trading and made you want to learn.
Let me ask you a question, on a scale of 1–10, 1 being not at all and 10 being extremely, how hard did you think it would be to learn how to trade? I will be the first to admit learning how to trade is much harder than I thought it would be. They make it look so easy, right?
Trade for 1–2 hours each day, make some major money, and go about the rest of your day doing whatever you want…sounds like a good life to me!
And then you started trading. Quickly realizing that this isn’t as easy as they made it look online. You jump in and before you know it, you’ve blown up your account. What trades do you take? How do you know when it’s the right time to get in? What is the reasoning behind getting into this trade? Suddenly it feels like you’ll never get it, your head is spinning with questions, and you start getting overwhelmed.
When you are taking a trade, what is going on in your mind? For me, when I was starting out, my heart would race. I would live and die with every 1-minute candle that passed. I would hold onto losers because I was sure that the trade would go back up.
It had to!
Whenever I saw I had a winner, I would take profit right there. It didn’t matter to me that all the indicators showed this trade was going to continue to run. I knew I had a winner and I wasn’t going to lose it.
I just couldn’t figure out how these people on Instagram were having so much success when my account was struggling so much.
Sound familiar?
It took me a long time to figure out how much more mindset mattered in trading than the technicals did.
The Mindset Differences of a Top Trader
There is a reason why the statistic of 90% of traders failing is true. It has everything to do with mindset and nothing to do with trading. Anyone can learn how to trade. To become a top trader though… is a different story.
To become a top trader you need to think differently than the rest. You need to take action and push yourself. Becoming a great trader starts with understanding who you are. This means you are going to have to have to be brutally honest with yourself, uncover some personal demons, and put together the puzzle pieces of why you are the way that you are when it comes to trading.
Day trading is 20% technical analysis and 80% psychology. You need to learn how to control your emotions to become a successful trader. Why is that so important though? Because your emotions are going to determine if you will continue to make two of the most common trading mistakes:
Letting losers run and cutting winners short.
The top 3% of traders act with confidence and calmness when they take trades. Why is that? They understand that their trading does not define who they are as a person. They don’t take trading personally.
Top traders approach trading like it’s a business. To make a business succeed, what do you need? Money and a plan. How do you expect your business to grow if you are putting your money into random investments with no idea of how or if they will benefit your company? It’s impossible to succeed that way!
If you let your investments in your company stay prominent when they’re losing you money, it’s going to run you out of business. If you don’t expand on your investments making you money, you’ll get by but the company will never grow to its full potential!
The Importance of Mindset
Like anything else in life, the way you approach situations will completely transform the way you experience them. If you approach trading with a lack of confidence and negative self-talk, you will likely have a bad experience in the market. How are you going to be able to trust yourself to make trading a way of life when the words out of your mouth do nothing but destroy who you are?
Top traders do not put themselves down. If they mess up, they evaluate what happened and make a plan to not let it happen again.
They approach the failure from a “how do we fix this for next time” perspective instead of a “you’ll never be good enough” way of thinking.
Truly, what good does speaking poorly to yourself do? Nothing. Why do we do it then? Well, people tear themselves down for a number of reasons…
- Their self worth is based on how well they perform
- If they put themselves down first, it won’t hurt as bad when someone else does it
- They grew up watching their loved ones putting themselves down and they believe that is how you are supposed to treat yourself
- They don’t feel worthy of anything good happening to them
- If they are upset and blaming themselves, it makes them feel validated in their emotions
These reasons all stem from deeper-rooted issues that need to be addressed and processed for you to properly heal.
How to Fix it?
The first step to becoming a better trader is to change the way you talk to yourself. The nicer you are to yourself, especially when you mess up, the more you will build trust and confidence. It isn’t easy to do but any time you notice you are being mean to yourself, you need to stop and ask yourself if you would say these things to your child/spouse/best friend if they made the same mistake? If you wouldn’t say it to them, you shouldn’t be saying it to yourself.
The next thing you need to do to think like a top trader is to determine your reason why. What is something so important to you that no matter what happened, you would do anything for it? Why do you want to become a trader? What is a reason strong enough that will keep you disciplined and wanting to learn through all the ups and downs of trading?
The last thing to do to better your mindset is to have a routine. This routine needs to have activities that boost your self worth. Exercise, trading, and meditation are all part of every successful traders daily routine. Why? Because they know how important a healthy mindset is to having success in life. Filling your day with activities that release feel-good chemicals not only helps you to be kinder to yourself, but it also helps to build confidence. Having a routine also builds trust in yourself.
Bodies, especially ones that have experienced trauma, thrive on routine and stability.
The more your body knows what to expect from you, the more it will trust you.
When you have greater trust in yourself, your confidence begins to soar. Both of these are huge when it comes to a successful trader’s mindset.
Now to address the two biggest mistakes that are keeping you from being A TOP TRADER…
Why Are You Letting Losers Run?
One of the most common mistakes traders make is letting their losers run. It seems like such an easy fix, right? If you’re losing, just get out of the trade. Unfortunately, you and I both know it’s not that simple. There are three factors that play into letting losers run: FOMO (fear of missing out), overconfidence, and greed.
People FOMO into trades all the time. AMC and GME are both perfect examples. These two stocks made people millionaires overnight. They also caused even more people to lose money. That’s how the stock market works. When one person makes money, someone else loses.
One thing I’ve learned when it comes to FOMO is if you are experiencing FOMO, it’s already too late to get into the trade.
Overconfidence and pride are probably the biggest factors when it comes to traders not cutting losses. Don’t feel bad, it happens to all of us. Especially in the beginning. What’s important is that you learn from it.
You get in the trade and don’t want to admit to yourself that you made the wrong choice or took a loss, so you hold on because you’re confident it will go back up. Now you are stuck holding these options or shares that keep losing you money. Being stuck in the win-or-lose mindset is going to end up costing you.
You will never outsmart the market.
In addition, trying to do so will only leave you getting “rekt”, as the cool traders say.
The last factor that plays into letting losers run is greed. This goes hand-in-hand with pride and overconfidence. There is nothing worse than seeing yourself profitable on a trade and watching your gains disappear because you didn’t take profit. Remember, the market can’t go up forever. Take profits when profits are there. Do your technical analysis and watch the trends.
Retail traders are bottom feeders in an ocean full of sharks that have no problem destroying you to get what they want. If you try to play like a shark with a shrimp-sized account, you will lose every time. Always take profits.
How to Fix It
Fixing this mindset is going to force you to work on self-control quite a bit. Learning to cut your losers short is hard. So how do you fix it?
First, you need to understand why the idea of losing money bothers you so much. Obviously losing money isn’t fun, but why isn’t it fun for you? Why are you risking losing more money to recoup money from a trade that went south? If you take a loss, how does it make you feel?
Losing money is obviously triggering something in you to respond negatively. Addressing your emotions and bringing them to light helps you to understand why they’re happening. The more you understand your emotions, the less they become triggered.
There are a few reasons. First, it could be because your self-worth is defined by your accomplishments and failure makes you feel worthless. Maybe you thought you had that trade in the bag and now you’re angry it didn’t go the way you wanted it to. This does not mean you are a bad trader.
Pride plays a major factor in why people lose so much money in the market.
Top traders learn how to not take their losses personally.
You have to understand that losing trades happen as often as winning trades do and you will be wrong as often as you are right. A way to do that is to constantly remind yourself that this is a business. You will make good decisions and bad decisions, it’s part of learning how your company works.
If you want to be a successful trader, why would you purposely hurt your chances of making this work because you don’t want to be wrong?
You are a product of your mistakes. How you respond to them is what will determine how things turn out for you. You can learn and grow from your mistakes or you can keep making them and never grow your skills.
Why Are You Cutting Winners Short?
Cutting winners short is probably the second most frustrating thing to happen in trading, after letting losers run. Nothing would make me madder than taking profits and watching the price skyrocket and I could have made so much more on the trade.
That is to say, “how do I let my winners run?” is one of the most common questions we get. Let’s answer some questions first. Why are you cutting your winner where you are? What emotions are going through your mind as you take profits? How do you feel when the price continues to go up?
You will never know where the best point to sell is. So be proud of yourself for taking profits, that’s great!
But there are a few reasons why you might not be making as much as you could be.
The first is fear of failure. You see you have a winner, so you take it because you don’t want that winner to turn into a loser. Just another way your self-worth is based on your accomplishments.
The next would be you are too impatient. Trading can be boring sometimes. To sit and watch a stock move while you have other things going on can cause you to want to get out early instead of following the trend.
Lastly, people cut winners short because they can’t handle the emotions. When you are taking a trade, do you ever feel your heart start pounding? Maybe you get butterflies in your stomach? You’re getting swept up in your emotions, good or bad.
How to Fix It
Top traders understand that to let winners run…
You need to pay attention to the trends.
Whether you use moving averages, volume bars, or candlesticks alone, you need to be focused on the charts.
If you are someone who deals with the fear of failure, learning how to read charts will be very helpful for you. This way you understand how to watch the way the trend is moving. As soon as the trend breaks, that is a key indicator to sell and get out of the trade.
If you are too impatient, there are two ways to overcome this. The first is to set a trailing stop loss. This way you can walk away and let the trade run.
If you set your trailing stop loss for a certain percentage behind the price of the stock, it will continue to move up with the price. Then sell when the trend breaks and/or it drops down to that stop-loss area.
The second would be to realize you are entering into the trade with the wrong expectations. Trading isn’t supposed to be exciting and major gains in five minutes. Sometimes a quality trade can take hours. That’s okay!
This why you need to set your trailing stop loss and walk away. If you get out of a trade because it is consolidating and isn’t going up as soon as you get into the trade, you will end up losing out on major gains in the long run.
To properly handle your emotions in a trade, you need to detach yourself from them. Understand that is easier said than done.
The best way to learn how to handle your emotions would be through exposure to trading through small position sizes.
Trading will a small amount of money is a great way to learn how to control your emotions in a healthy manner. This is a gradual movement. Start with $100 and don’t trade with anything more until you can let the trade run its course without emotions getting in the way.
Our instructor, Cam, had this suggestion for letting winners run…
“After I finish trimming about 80% of my position, I like to leave the rest of my position to run while the trend stays intact. Once the trend breaks is when I like to sell. The best trend breaks to look for are lower highs and lower lows in an uptrend and vice versa for a downtrend.”
In conclusion…
Training your mind to think like a top trader is no small feat. You will fail and want to quit. You will begin to think you’re not cut out for something like this. That is when it is most important for you to keep going. It means you are close to a turning point.
To trade like the top 3% of traders, you need to focus on:
- Changing your mindset
- Understanding why you are letting losers run
- Figuring out why you are cutting your winners short
Once you have completed these three tasks, now it is time to implement changes in your trading techniques. Take a deep breath and remember to focus on the trend. This will help ease many of your worries. While trading is 80% psychology and 20% technicals, if you know how to understand the technicals, it helps put your psychology at ease.
Why do you feel like you are letting your losers run? What do you think you need to work on most to start thinking like a top trader? Answer these questions to start changing the way you think when it comes to trading.
