Day trading futures can be an exciting career or pastime, but it can also be a stressful, mentally taxing endeavor. Whether you're focused on E-mini futures trading or another type of commodity futures trading, trading psychology is vital to your success, as is critical thinking and decision-making ability. If you wish to pursue a contrarian trading strategy, this is especially the case. Read on to learn more about the role of trading psychology in successful futures trading and how to improve cognitive function to set yourself up for success.
What Is Trading Psychology?
Trading psychology is the term for the mental elements of stock, securities, and futures trading. Some aspects of trading psychology include:
- Quick decision-making
- Separating reason from emotion
- Keeping greed in check
- Overcoming fear
- Being disciplined
Why Is Trading Psychology Important for Futures Trading?
While you may have short-term luck in futures trading without it, true success requires trading psychology. Futures markets are volatile and often unpredictable, so losses are common. If you lack the proper trading psychology, you may be afraid to take the risks necessary to make significant gains. On the flip side, becoming too greedy can lead to mistakes.
Success in futures trading requires a long-term strategy. You need to develop a rational mindset and then stick to it, even when your emotions tell you otherwise. If your strategy isn't giving you the results you desire, you need to analyze it without fear or greed's influence and make logical changes to improve outcomes. All of this requires the proper trading psychology.
What Is Contrarian Trading Strategy?
Many experts recommend adopting a contrarian trading strategy for the futures market. The term refers to doing the opposite of what the majority of the market is doing. It relies on the principle that the market maximizes profits by moving counter to what most people do.
How Does Trading Psychology Impact Contrarian Trading?
Using a contrarian trading strategy requires fearlessness, a willingness to accept risk, a high degree of discipline, and emotional resiliency to recover when losses occur. Humans' natural inclination is to follow the crowd, but contrarian trading requires you to do the opposite. Because of this, it's virtually impossible to succeed with a contrarian approach to day futures trading without trading psychology.
The Importance of Cognitive Function When Taking a Contrarian Approach
One of the most important elements of trading psychology for a contrarian trading strategy is decisiveness. Once you adopt the system, you need to react to market trends to go the other way quickly. If your critical-thinking skills cause you to hesitate, you may lose your opportunity to take the other position and profit from your contrarian approach. This makes cognitive function especially important for contrarian trading. The more you improve cognitive function, the more you will be able to tap into the power of your brain to make fast, insightful moves in the market.
Using Nootropic Cognitive Health Supplements as a Day Trader
Many futures traders rely on nootropic supplements because a cognitive function is so important. Nootropic refers to dietary supplements believed to affect the brain in various ways. Because of their potential benefits, nootropics are sometimes referred to as "brain hacks." Adding a nootropic supplement to your diet may help to support brain health and improve cognitive function. Most nootropic cognitive health supplements are generally safe for most people. However, it would be best to talk to your doctor before using one to ensure the best results.
Supplements for Cognitive Function
Research into the use of cognitive health supplements is ongoing. While more research is needed to validate their effectiveness, early studies indicate that the following supplements may benefit mental health.
Ashwagandha extract is an Ayurvedic herb with a long use as a folk remedy. Modern-day science has shown that the herb may:
- Improve cognitive function: One double-blind study found that people who took ashwagandha performed better at a series of cognitive tests than those who didn't.
- Reduce the effects of stress: Many scientists believe ashwagandha is an adaptogen, a substance that helps to protect the body from the physical effects of stress. The earlier study verified this hypothesis, showing a lesser stress response in the group that took the supplement.
- Alleviate anxiety: Studies show that ashwagandha extract may promote a greater sense of calm and support relaxation.
If your mind becomes fatigued in the middle of a trading day, you're less likely to make sound decisions. Some cognitive health supplements help to increase alertness and may help you think more clearly, including:
- Caffeine is a naturally occurring substance found in coffee, tea, and chocolate. It activates the nervous system by acting as a stimulant.
- Cocoa bean, a substance in cocoa beans called theobromine, may also increase alertness, but not by increasing nervous system activity in the way that caffeine does. Instead, cocoa bean boosts circulation to the brain to support cognitive function.
- Antioxidants, nutrients found in berries and other foods, fight the effects of free radicals found in UV and environmental pollutants. Exposure to free radicals can put the body in a state of oxidative stress resulting in fatigue. Antioxidants may benefit the mind by combating oxidative stress.