Your Money Blueprint & How It Shapes Your Trading Decisions – Part 1
Jul 14, 2024
I have seen traders who are excellent at what they do yet never turn their trading into a success story and keep struggling financially. And then I have seen other traders, who are one-trick ponies, with minimal trading knowledge and skill, yet they make 6 and 7 figures a year consistently. So, what’s the difference? Their Money Mindset. Money Mindset is a part of Trading Psychology that is most of the time neglected even though money is at the centre of trading no matter if you trade stocks, futures, bitcoin, or forex.
Like with so many things in life, there is an outer game of money and an inner game of money. Trading strategies, market internals, money and risk management, realistic financial goals, etc., are the outer game of money. They are the vehicles to achieve trading success and financial freedom.
But if we have all of these and are unable to sustain any amount of success, it is simply because our actions are not aligned with our goals, and that is the inner game of money, our Money Mindset.
“It is not until you learn to understand your own personal life blueprint that you will understand why everything in the past never worked."
Mandi Pour Rafsendjani
What is a Money Mindset?
A Money Mindset is your money blueprint, a specific way of thinking, your beliefs, your fears, your desires, your financial habits, your confidence, and your ability to maintain emotional self-control. Your Money Mindset is what shapes your relationship with money and determines the quality of your financial decisions and thus your capability to succeed. Your money blueprint is the collection of all your conscious and unconscious beliefs and values around money that were formed during your upbringing and further ingrained through life experiences.
This Money Mindset is like an invisible, psychological construct in your mind that affects how you think, feel, and deal with money. It significantly impacts your trading decisions. For example, your beliefs about money influence your risk tolerance, your emotional reactions to losing and making money, your discipline and patience when it comes to letting profits run and cutting losses short, and so on.
Recognizing and understanding your money blueprint allows you to identify your own financial biases and emotional triggers in your trading behavior. Once you have identified them, you will be able to develop a plan to deal with them, and as a result, you will be able to act more rationally and disciplined sticking with your trading strategy.
How does your Money Mindset influence your Trading Decisions?
Your beliefs and values around money can either support achieving your trading goals or hinder them by turning into automatic self-sabotaging behaviors. The following are some factors to consider when thinking about your beliefs and values around money:
- Risk Tolerance: Risk Tolerance determines whether we lean toward rational financial calculations or highly emotional reactions. For example, if your money blueprint is painted by a strong fear of losing money it might override any prudent rational risk management practices, such as cutting your losses at a 1% limit, or drive you to exit your winning trades early out of fear of giving back profits again. Additionally, believing that taking financial risks is dangerous could cause you to be overly cautious in your trading and miss out on many opportunities. Conversely, a money blueprint that allows for a high tolerance for risk can either drive you to engage in excessively risky trades, such as overleveraging with large positions, or it can be a strength that allows you to hold on to your winners even when the urge of banking profits gets stronger, being able to ‘take a lot of heat,’ as we say in the prop trading world.
- Emotional Reactions: Deep-seated limiting beliefs about money trigger strong emotional reactions to gains and losses, leading to poor decision-making driven by a lack of discipline and patience. This causes our behaviors around money to be out of alignment with our trading goals, which are typically financial. For example, you want to make $500 a day, but driven by limiting beliefs around money, you stay stuck in a losing trade, thus missing the opportunities to make the profits you aim for.
- Self-Worth and Money: Our society is such that people with money are judged. Some vilify the wealthy, while others treat them like royalty. This is very dangerous for trading because equating your self-worth with your financial success can cause self-doubt and second-guessing, resulting in missed opportunities or indecision. You might find it difficult to stay rational and do whatever it takes to succeed as a trader because your trades to prove your worth, leading to emotional and irrational decisions.
- Goal Setting: Your beliefs about money influence, firstly, what kind of financial goals you set, and secondly, the strategies you adopt in trying to achieve them. A healthy money blueprint supports realistic and achievable long-term sustainable goals. Understanding that these things take a long time to develop is essential because an unhealthy one might lead to overtrading and oversizing positions because you entertain unrealistic expectations of ‘getting rich quick’ and thus stay stuck in a never-ending loop of disappointment
But no matter where you start your trading journey, one day you’ll look back and say to yourself… “I’m glad I took the route most people wouldn’t dare to take.”
