Article by Philipp Pfitzenmaier from “TradeWithPrecision“
As traders, our performance can be affected by our internal dialogue i.e. internal chatter that underpins the perspectives and beliefs we hold to help us make sense of the markets. We trade the way we think and there’s truth in the often used quote “change your thoughts and you will change your world”. Our perspectives determine how we respond to events in the markets; and in turn, these responses shape the course of our trading. Internal dialogue is basically a framework for analyzing market information and choosing a suitable response – take the trade or do nothing. Changing your internal dialogue to gain clarity, confidence and character can improve your performance as a trader. Here’s why.
When setting out to achieve something, it pays to first get clear on what you want to achieve and how you will get there. Thinking about your trading goals and the relevant trading strategies via internal dialogue can act as a reality check, allowing you to identify areas of inconsistency and potential stumbling blocks ahead of time. Internal dialogue also refines concepts and increases your understanding of the markets. When you have greater clarity, the greater the chances of coming up with trade ideas unique to the specific market you are stalking! Traders who take the time to engage in internal dialogue are often seen as being focused and knowing what they want. They go after their goals without hesitation because they see how each step fits into the bigger picture. They are able to weigh up the costs and benefits of each trade opportunity on the table, and they know why they would take a particular opportunity over the others. On the flip-side, those who lack clarity tend to give up easily or be swayed by stronger opinions around them. Which side would you rather be on?
Internal dialogue provides not only more clarity but also more confidence. One of the ways it does this is by anchoring how you approach the markets in a set of core values and beliefs unique to you. Through repeated analysis and self-evaluation, internal dialogue can help you align yourself with a trading style that best suits your personality. It is much easier to be confident in applying your trading strategy when it does not create anxiety by being inconsistent with who you are. Consistency and coherence are two of a few golden standards every human being hopes to achieve in their lifetime (nobody likes a hypocrite). When your actions are consistent and coherent with who you are, confidence flows naturally from that. We are all familiar with the benefits stemming from increased confidence i.e. better performance and self-esteem, and confident people are also more likely to take on responsibility, be able to solve problems under pressure and lead others. Not only will increased confidence benefit you but it also has flow-on effects for other people around you!
Internal dialogue also acts as a type of circuit breaker to stop you from impulsively taking trades that you will regret later. When you react too quickly, you may miss important technical signals that could potentially change how you evaluate a potential trade. By developing a habit of first “talking it over with yourself”, you may notice new things that uncover the true technical action on each chart, thus allowing you to pick the best opportunity for your forex strategy. Internal dialogue also builds character by testing how you behave under pressure. It is often hard to follow your strategy under pressure because negative emotions like greed and fear can stop you from being objective. Internal dialogue develops character by mitigating the effects of impulsiveness and negative emotions, cultivating a calm, measured approach to the markets. This has carry over effects to your personal life as well and helps you maintain calmness and balance in other areas of your life.
So why don’t you start practicing some internal dialogue today?