I’ve come to find that whenever I start thinking in certain patterns, my trading performance plummets.

This has been such a regular occurrence that I have an acronym for it: DIED.

It stands for Desperate, Impatient, Egocentric, Daring.

The Desperate Mindset

When I’m desperate, I think:

  • “I’m in too much pain!”
  • “I’m losing so much money!”
  • “If I recover from this trade I’ll never do it again!”

The market loves me when I’m desperate because I’m 200% more likely to behave in ways that put my money into her pocket.

When I’m desperate, I get into denial about my losing trades. I stop thinking rationally. I begin relying on hope rather than logic.

Among all the destructive trader mindsets, desperation is the most subtle and insidious. It’s the easy first step down the slippery road to blowing up my account.

The Impatient Mindset

When I see a strong price move, the impatient mindset in me is triggered. My adrenaline spikes. I feel like I can’t wait any more – I can’t pass up such a good opportunity!

And if I don’t catch this rising feeling of impatience, I’ll abandon my trading plan and chase the market price.

What happens next is predictable – I’ll end up buying near the top, and immediately regret my decision when the market pulls back.

This impatient mindset surfaces when I don’t know what my trading edge is. When I don’t understand where my profits are truly coming from, it’s natural to want to chase any “opportunity” that comes up.

When I’m impatient, I think:

  • “I can’t let this trade go, I see money in front of me!”
  • “What’s the fastest way to get the next winning trade?”

The market loves me when I’m impatient because she can easily lure me into doing something stupid.

All she has to do is move strongly in any direction, and my impatience will convince me to throw caution into the wind and run after her.

The market, of course, welcomes my foolish action with open arms and quickly separates me from my money.

The Egocentric Mindset

The egocentric mindset leads me to take my trading results personally.

If I win on a trade, I believe I’m smart and get into a good mood. I feel confident and begin to trade more loosely.

If I lose on a trade, I slip into a bad mood that ruins my whole day. I feel hurt and begin to trade more conservatively.

Rather than trade in a consistent manner, the egocentric trader in me approaches the market from the perspective of my (ever-changing) internal state.

This is a mindset the market is well prepared to exploit.

She pulls me away from my trading plan by appealing to my fear and greed, then takes my money as I get trapped in an emotional spiral.

The Daring Mindset

As a daring trader, I am supremely confident about my opinions.

I enter the market with a large lot size, and when the market moves against me, I double down on my position.

The daring trader in me thinks:

  • “This is my chance to score big!”
  • “It’s now or never!”
  • “Go big or go home!”

When I’m daring, my only goal is to make big money. I don’t think about risk mitigation at all.

I suddenly believe that market prices can be predicted with a high degree of certainty, and align my expectations (and actions) with this assumption.

Sometimes, this results in spectacular profits, as I put on a big trade that moves significantly in my favor.

Other times, I lose a big chunk of my account when the market moves in the opposite direction.

When I’m in a daring mindset, I don’t realize is that short-term trading results are subject to a high degree of randomness. It doesn’t occur to me that I can lose a lot of money just as easily as I can make a lot of money.

When I’m daring, I behave more like a compulsive gambler than a rational trader.

Mindsets of D-I-E-D Traders

Quite regularly, I remind myself to watch out for these counter-productive mindsets.

I’ve found that the easiest way to do this, is to:

  • Focus only on applying my trading edge, and
  • Be in no rush to make money

As long as I keep my attention on the big picture, stick to my edge and keep my risks small, the odds will keep me profitable over time.

The moment I start obsessing over the outcome of one or two trades, it becomes exceedingly easy to slip into the type of mindset the market loves to punish.