In the world of forex trading, mindset is money, and one of the determining factors for continued success when people apply to a prop firm, whether they apply for instant funding or through an evaluation process, is their mindset.
Over the last few decades, the effects of mentality on financial markets have been more broadly understood, and the field of behavioural economics is predicated on the idea that people will make decisions based as much on impulse and heuristics as they will on theoretically perfect economics.
This is why concepts such as mindfulness and psychological resilience are key to becoming a successful trader; there is a lot of noise in the forex market, and every single trader will face a losing proposition at some point.
However, another, potentially larger barrier for many traders is psychological resistance, which despite a somewhat similar spelling, could have a much more damaging effect on trading.
How Does Resistance Differ From Resilience?
From a psychological perspective, resistance is a form of mental self-defence where people are reluctant to accept certain ideas, particularly ones that involve self-examination, taking responsibility or behavioural changes.
It can manifest in a few ways, but the most common and relevant to trading are:
- Inner conflict, which typically manifests as anxiety, choice paralysis or a reluctance to choose.
- Psychological deficiencies, such as passive-aggression or a projection of cynicism onto other people, the market and the world.
- Denial of new ideas or uncomfortable truths that a person finds difficult to accept.
- Hyperfocusing on narrow details and data points to the extent that it distorts any understanding of the bigger picture.
- A preference for familiar entropy over change in one’s best interest, even if this proves self-defeating or self-sabotaging.
In some ways, it is the dark mirror image to resilience; whilst resilience is a determination to not allow setbacks and necessary changes to negatively affect us, resistance is a defiance of change when it is ultimately necessary for us.
Resistance is a fundamental neurobiological phenomenon, and for most people is either relatively innocuous or even beneficial.
Much like flight-or-fight, resistance is intended to keep us safe, and there are times when that instinct will help us to avoid situations where we might end up mentally or physically harmed.
Resistance is usually a reaction to previous negative events, and an attempt to ensure that something bad does not happen twice.
However, it is very much a double-edged sword, and there are a lot of ways in which resistance can affect traders.
How Does Resistance Affect Traders?
Resistance is an unconscious, automatic process, which means that it can affect people in ways that they may not realise or have assumed to be somewhat innate.
In the trading world, it can manifest in the form of an inability to take an analytical, balanced perspective on one’s strengths and weaknesses, which typically means that people cannot accept either criticism or compliments.
Negativity should not be confused with realism, and having an overly cynical view of the market can lead some traders to miss out on potentially lucrative opportunities even in more difficult market moments.
It can also manifest as a preoccupation with being seen as independent, which can itself mean that you lose vital opportunities to network, to discuss potential strategies or where you could improve for fear of losing face.
It may also make losses more psychologically affecting because it compounds with self-depreciation and a belief that one needs to have a perfect record to be considered a good trader, when the only true measure of success in the market is long-term profits.
It can even lead to cognitive dissonance, where we reject information that contradicts our existing beliefs about the market, something that can and indeed has led to many portfolios being wiped out overnight.
How Do You Stop Resistance Hurting Your Portfolio?
As is true in other forms of resistance, the solution to psychological resistance is not to fight it directly but instead to accept it, understand it and mitigate its effects.
In the field of psychotherapy, therapists and counsellors will rarely actively fight against resistance, as this can make any therapeutic interventions less effective.
Understanding where your resistance comes from, its underlying causes and triggers helps to ultimately reduce its effects or potentially even turn some elements of it into the foundations for resilience.
This is what makes a trading journal a vital part of the toolset of any forex trader; whilst it is important for keeping track of transactions, it also works like a mindfulness or therapy journal in recording thought process and potentially identifying barriers to self-improvement.