Psychological Mistakes Traders Make AND How To Fix Them

in this video I want to talk about mental errors what mental errors be as humans make we as Traders make I want to talk about how to identify them and then I want to talk about how to fix them with that being said let's start with the mental errors so the first mental error we're going to talk about is confirmation bias so confirmation bias is basically whenever you hypothetically let's say go long or short on a trade you only look for pieces of information that support your thesis that supports your direction that supports your idea so we as humans we have this tendency that whenever we want to do anything be it trading or not trading related we will only seek information that once again supports what we are looking for now that is a very very big problem for us Traders because if we keep letting this happen within trades especially if we are going long or we are going short or whatever Direction you're taking the trade in and you're unable to recognize the cons of the trade or the downtime of the trade it's very easy for you to get super optimistic it's very easy for you to put on a lot of eyes and be wrong in the trade and not really be mentally ready for it just because you were overly optimistic and you only looked at the good side if this is happening to you this is what I would personally do every time you take on a trade I would start trying to look at the negatives I would start trying to look at the other side so if you want to go long and your thesis makes sense of this trade should go long start trying to look at the other side of the trade so hey I want to go long well why would this not go up why would this trade not go in my direction start flipping that from a different perspective if this is a problem you're dealing with fomo fear of missing out I'm pretty sure you guys heard about this one and I'm also pretty sure you guys have had your own set of problems your own set of history with fomo right fomo is essentially where you have the fear of missing out on a trade you have the fear of missing out on profits you have a fear of getting left behind in a certain position in a certain trade whatever the case is so we as Traders when we see a certain trade we see your starting position and it's going in the direction that we maybe predicted or thought it was going to go we start feeling this feeling of like oh man I was so right on this trade if I got in here I could have made so much money why didn't I enter why didn't I take this trade and that fomo starts kicking in right and that fomo tends to do what it tends to lead us to taking bad trades putting on bad size and just completely losing control I've had my fair share of times where I'm in front of my stock screen I'm looking at the markets I'm seeing what's going on and as I'm seeing what's going on certain names start just moving names that are maybe not even in my game plan not even something I'm watching but maybe I'm seeing people on Twitter talk about it maybe I'm seeing people that a trade would talk about it I'm like okay I can miss out on this and I immediately take the trade and most of the time those trades just don't work out especially if they are coming from a place of deep-rooted emotions which will ultimately Blindside you next one is Revenge trading now there's countless times in the past where I have Revenge traded I have taken trades because I was angry because I lost money because I missed out on opportunity and I got really really upset so I wanted to make back my losses or I wanted to make up for the profits I missed now Revenge trading is something that can completely destroy your trading account it can blow up your trading account ultimately if you are not aware of your emotions if you are not aware of how you're feeling and you do not combat this in real time so going back in my trading there was a couple of times where not a couple of times a lot of times especially in my early days I have Revenge traded now the reason for me Revenge trading was basically I would go into a position right when I would go into a position I would lose money the moment I would lose I would get angry I would get upset I'm like why did I lose money I shouldn't have lost money the trade was going in my favor I got stopped out too early whatever the case is and immediately I go into the second trade trying to make the loss back guys the moment you feel like you need to make the loss back is the moment you need to get up walk away from your trading screen and just call it a day just just call it a day if you ever feel like you need to make back the money you lost and your emotions are taking over just trust me and call it a day close your screens go out for a walk and come back tomorrow to a new day it just won't end well that's me talking from experience where I've had some of my biggest losing days losing 20 30 000 plus a day because I was Revenge trading because I was trying to make up the money that I lost because I was trying to make up for the profits I could have essentially made because of fomo and things like that so if you start feeling these emotions you have to know how to deal with them which we'll talk about in a bit the next mental error that has cost me a lot of money is being over confident right now confidence is key confidence is essential in our daily life yes but to a certain limit when it comes to trading in trading if you're overly confident it could end up really really bad with you so there are times where item in the open I would have a really really strong open I would make 20 maybe thirty thousand dollars in the first fifteen twenty minutes and immediately when I make that amount of money the first thing that rings in my mind is hey if I put in more money if I had risked more capital I could have made more profits right away then what I typically do or what I did is I would carry that mindset over to the next trade so trade one would go extremely well followed my plan had a solid risk amount everything was perfect to the T now because I got trade one right I carry that confidence into my second trade and it's not just normal confidence it's a high level of confidence where I wish I had put more money so I could have made more and the second trade is where I would typically just lose the profits if not more because I was like well I'm so good at this I'm gonna make more I have to just risk more and that has hurt me countless times there's times where I have been on weekly winning streaks and after after being on weekly winning streaks I got so confident I got so over to a point where I was like well I'm right I'm gonna keep being right anything I touch it you know it just flows and and I keep making money if I'm unable to tame that which I haven't been sometimes I would be followed by a big losing date or a big losing week which would take off half if not all my trading profits so it's very important for you to be aware of these patterns it's very important for you to understand these things about yourself we all have different uh mental errors mental blind spots that we're going to deal with and it's our job to figure that out and understand them for you to identify any sort of problems in your trading the first thing you must be doing is you must be journaling you must be tracking your data and you must be understanding all your holes within your trading if you are not journaling if you are not tracking your trades if you're not looking into these things you won't be able to identify what is working what is not working you won't be able to identify where the weak spot in your trading are so I would recommend and starting tomorrow you guys start journaling now how would you journal or reflect to kind of get these data points so the proper way to journal for these mistakes or for these mental errors is to do the following which is what I did and which is how I discovered my problems before you have your trading day one thing I would recommend you to do is I would recommend to have a written game plan of what your game plan is for the day what are you looking to do what names are you watching what's your outlook on the market and how and what you're going to trade in terms of risk size and so on now once that is set your job as a Trader is to come back to that at the end of your trading session so when you're done go back to your trading session and look within your data look within your trading journal and start seeing now when I go back into my trading journal I start seeing well the first trade was green followed by three red trades okay well why were these three trades red was I wrong or was my confidence from the first frustrated did that carry over to my next trade next trade and next trade or was it where I was right I lost money I should have called it a day but because I lost money I try to make that back and I went into like this deep red rabbit hole right so it's me understanding that so the way to do it as I mentioned is to look at your data visually to have it tracked in one place when you look at your data visually and you track it go back to your pre-market game plan and start seeing well did I follow my plan good okay now when I took trade one what happened when I took trade one what was my reasoning from a technical point and what was my also how was I feeling emotionally and these things have to be jotted down guys like you especially in the early days you have to jot these things down to learn more about yourself learn more about how you process things learn more about how you react to the market and how you react to certain situations which is very very crucial if you want to be developed as a profitable Trader so I go back to some of these trades and I start going through my notes which as I mentioned I start journaling and I start mentioning and I see well okay my first trade made sense I had the proper risk I was risking 2000 I had this Edge on my trade everything looked great my second trade in the moment looked phenomenal but when I go back to journal I'm like whoa whoa whoa whoa whoa this does not make sense this trade makes no sense at all and I'm pretty sure if you guys for the people that have done this if you guys have done this comment down below let me know and and because I've done this a million times right when in the moment you take a trade it's great it looks perfect you lose money or you make money whatever the outcome is when you go back to that trade in a couple of days or a couple hours you're like whoa what the hell did I do right and and that's that's like the cool thing about trading or interesting thing about trading where you start realizing the person you are in front of the screen when you have real money on the line you have real action happening is it completely different person than the person you are when that pressure the money isn't involved all those things are kind of you know to the sideline you start seeing the markets from like a real point of view without the added pressure without the emotions without your mind playing tricks on you and you go wait why'd I take this trade this trade makes no sense at all but in the moment it made it made so much sense to you made a lot of sense to you and you're like well it made sense then it didn't make sense now so where's the Gap how do I bridge the gap how do I make myself from this point come to this point and fill in that gap of understanding of not allowing these certain emotions out of playing a role come into my trading now when you start going through these trades individually like I mentioned you need to be writing down your thought process as well well how'd I feel when I took this trade how do I feel as this trade moved when this trade started going down to my stop loss did I actually want to sell and hit my stop or did I not want to hit my stop did I add more size because I thought the trade was a good idea or did I add more size because I wanted to make more money though those are two different things did I take this trade because I had a real Edge a real probability behind this trade or did I take this trade to recoup my losses or did I take this trade because I was blinded by my confidence or I saw other people taking on a trade and I wanted to follow or I saw a trade just moving up and I had no game plan of it I had no trade idea of it nothing at all and I just wanted to put on a trade so these are questions you should be journaling these are questions you should be asking yourself to go deeper on what are the reasons you start taking some trades and if you want to take this game serious and you want to be in it for a really long period of time you have to know the answers to these questions so if you don't know the answers to these questions in the next six months or maybe the next three months if I was to ask you these questions well what are the biggest mental errors you have as a Trader what are the issues for you personally as a Trader show up in your trading a lot and how do you combat this which is the next thing I want to talk about right so first is understanding what the mental errors are second is identifying them within your trading the third is fixing the problem so this is where we start putting it together and start having a outline so one thing I want to share with you guys and this is after I've been training for 10 years and I've realized the mental errors you have in your trading year one year to year three don't ever go away like they will never ever go away right they will always carry within your trading so when I see people trying to say well I want to remove emotions I want to remove this from my trading I don't want to think like this or I don't want to operate like this I have to change this and I'm like there's certain things you can change but within how you operate within your personal operating system you can't really fully change that but what you can do and what you should do in my opinion is you should create a system that prevents you from making these mental mistakes once you identify what they are so I'm going to give you examples of things that I do and I have done that has helped me tremend endlessly on avoiding making these mistakes again and if I do make them I'm able to catch them very quickly so the way I've come back to some of my mental errors is the first one overconfidence so I realized whenever I have a strong opening trade if I if the Market opens tomorrow at 9 30 or whatever time zone or time you may trade under and when it opens and I have a good trade on the open I do not I am not allowed to increase my size especially after a strong trade at this current stage I don't do that I have told myself if I have a really big trade where I make 40 50 60 000 let's say on the open my second trade cannot be more size I cannot put on more sides because if I put on more size and I get super aggressive that first trade confidence can and will carry you over to the second trade and I will and can be blinded so I have made that a rule for myself I've made that a rule every single day I take on a trade the next rule that I follow is I make sure I cannot have more than three losing trades now if I do have three losing trades a day which is okay which is fine which will happen and has happened I'm not saying I'm trying to control that I'm trying to limit myself to that meaning once I hit three consistent losing trades I am done for the day the reason I've implemented that in my trading I realized two to three trades when I hit two to three losing trades my confidence goes down I get angry I get upset I try to make that money back so from a mental point of view it's like okay well I'm already down six thousand dollars let me lose another 2 000 and I'll be down eight thousand right because obviously when you lose a good amount of money adding another 100 or another thousand or another 10 000 depending on what skill you're at doesn't really at the moment impact you because you're like whatever whatever whatever so I've implemented a rule where if I have three losing trades I'm done for the day I need to walk away the next rule I've implemented is I cannot trade after a certain time period so typically if you guys have been following my journey on Twitter or Instagram where I have the link down below uh I don't like to trade after the first two maybe three hours max I like to trade the open maybe an hour or two hours after the open after that I like to call it call it a day now what I used to do early on in my trading career is I would randomly come back to my trading computer at 1 pm 2 p.m just throughout the day if I have nothing going on I would just come back and I would just start watching the markets right and I'm like I'm not gonna take a trade I'm just gonna watch I'm just gonna watch obviously when we watch we mentally create these opportunities in the market like oh my God this is gonna go up let me take a quick trade let me take a quick trade here let me take a quick trade there as I start taking these quick trades the next thing you know I'm down a couple of grand and it just never really works out so now I have a cut off time that I will be trading from this time to that time after that time I am walking away and calling it a day I have another rule that I've implemented that once I call it a day I am not allowed to come back to trading if I am mentally checked out and I'm like I'm done it's 11 A.M 1pm whatever time and I'm checked out I walk away and the way I counted that is the moment I am done trading the first thing I do is I go Journal I Journal my day I recap my day losing winning whatever the case is I Journal look into my trades look into my thought process and I'm like you know what the day the session is closed I don't care what is going on I'm finished the next rule that I had to help me avoid fomo right because in my early days I've had so much fomo that just had me wanting to take every single opportunity or every single trade that I thought is going to move in some direction I just basically said if it's not in my game plan I am not taking the trade right if it's not in my morning game plan I am not allowed to take the trade register that put that into your head guys I'm going to share something very valuable with you right now okay when you are trading you never want to make money that does not make sense to you what I mean by that is if you make money by accident as a Trader let's say you don't have a stock or a name on your game plan and you randomly trade it and you make money you've allowed a bad habit to enter your trading space the moment you allow one bad habit to enter your trading space it starts compounding into two bad habits three bad habits four bad habits five bad habits and next thing you know you have a massive drawdown and you essentially blew your account so you want to try to avoid these problems you want to try to avoid taking trades that don't fit your game plan you want to try to avoid trades that don't have an edge that don't align with your Playbook or don't align with your strategy or setup or whatever you may want to call it because once you avoid those and you start cultivating in an environment for yourself that makes sense events that is healthy and that forces you to only take trades that align within your game plan you start building good habits which will and do compound over time I wish I knew a lot of these things early on in my trading career I wish I'd you know worked on having plans to combat these I I wish I was more aware of realizing I'm gonna I'm gonna have these problems because I didn't think I would uh that's why I wanted to share this with you guys knowing that you're gonna have tons of trading problems tons of mental blind spots don't get discouraged by it instead say okay I've identified my problem I know what it is I know when it happens now I'm going to make a game plan to fix it then when the problem comes again because it will do the same repeated pattern even on year 9 year seven and so on the like I said the problems are going to keep popping up but your job is to identify and fix identify and fix and the biggest skill set of traders that I've seen that do really well is their natural problem solvers right you have to be good at problem solving and you have to be aware of yourself aware of the problems that come into your trading and then just essentially solve them and the quicker you do that the more efficient and effectively you do that uh the more money you will essentially make as a Trader so with that being said let me know what problems you guys have down below uh you know from a mental Point any sort of blind spots and uh thank you so much for watching guys

Channel: Umar Ashraf

Views: 322,661

Keywords: Umar Ashraf, day trading, trader, forex, stocks, options, options trader, psychology, trading psychology, umar ashraf trades, umar ashraf podcast, umar ashraf interview, umar ashraf trading strategy, how to make money with stocks, how to become a day trader, technical analysis, umar ashraf advice, Psychological trading, fomo, confirmation bias, overconfidence, journaling, position size, bad trading habits, learn to trade, Psychological Mistakes Traders Make AND How To Fix Them

Id: 6cL4HwipnPs

Length: 18min 59sec (1139 seconds)

Published: Sun Jun 04 2023