Five steps to mental strength

A reader sent me a question this week on how to develop mental toughness in discretionary trading, noting that his own toughness seemed to be getting less tough as he went through the learning process. I thought it was a good question, and I spent a whole podcast answering it. If you want the full answer, go check out the podcast, but I think this is an important enough topic that some highlights are in order.

Mental strength or toughness basically means that you are able to do what you need to do, no matter how hard it is. The emotional stresses of trading, and particularly of learning to trade, are extreme. Mental strength doesn’t mean that we are immune to those emotions; it means that we are able to do the right thing no matter how uncomfortable we are.

strong armOne of the answers to developing mental strength you are not going to like: part of the answer is time. The more time you spend trading, the more times you have the experience of putting on risk in the markets–most people experience the emotional charge getting weaker over time, so that’s often part of the answer. But how can we make sure that process happens in the best way, and how can we keep it from going wrong? Here are some ideas for developing mental strength and toughness in trading:

  1. Refine your expectations. This is a theme I’ve beaten to death in many blog posts, in my book, and in a number of podcasts, but one of the biggest reasons traders struggle is that they have unrealistic expectations. You are learning to do something difficult, and it will likely take you several years to learn to do it. Once you’ve learned to do it, it will probably take you a decade to reach true expertise. Past that, we’re always learning. Also, results have a wide range of outcomes because of how probability works. Having realistic expectations can help you weather the emotional stresses of the learning curve.
  2. Embrace uncertainty. You don’t have a choice on this one. Your P&L will go through good times and bad times. Some of that will be due to performance issues, but some of it is just going to be random fluctuation. Work to understand the practical implications of probability and statistics. That’s not as easy as understanding some equations or knowing what a probability distribution looks like. Get comfortable, deep down in your bones, with uncertainty and the range of possible outcomes. You might argue that if we truly understand these topics we will never be comfortable, and I suppose there’s some truth in that. In that case, get comfortable being uncomfortable.
  3. Understand your emotional makeup. There’s not a whole lot I can do about this one in a paragraph, but the process of learning about you and your relationship to risk is a big part of the learning curve. What sets you off? What are your emotional triggers? What can cause your attention to flag? You’ve heard the injunction “know thyself”; if you don’t know yourself, the market is a very expensive teacher.
  4. Make sure you have an edge. Again, you’d think this one is obvious, but it’s not. Too many traders struggle for too long simply doing something that does not work. There is maybe not enough emphasis on finding a true edge in much of the traditional literature. Too many traders thing that “basically, anything works”, but I’d suggest to you maybe the opposite is true. Maybe it’s very, very hard to find an edge. Maybe it’s even harder to apply that edge, and maybe it’s even more difficult to maintain it over a long period of time. If you don’t have an edge (or get one), none of this other stuff is going to work.
  5. Love the markets, the process, and yourself. Yes, I realize this one is a little softer than the others, but I think it’s critical. If you don’t love this, you won’t be very good at it. If markets are not your passion, go find your passion wherever it is. But you also have to be able to detach your sense of self worth from your results (because of #2), and you must have motivation that goes beyond the markets.

These are not quick-fix bullet points, and they are not the final answer. Some of you may have different opinions and experiences. (If so, please share them in the comments.) But I think these points give us a good direction and can point toward the mental strength that is needed for enduring success in the markets.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.