One of the questions we commonly get is what sort of mindset or mental parameters are needed to truly be a successful trader. While there are literally volumes of books on the mental side of trading alone, the real challenge for most true traders is living in the past. A loss is a tough thing to get over, and the bigger the loss, the tougher it gets. But getting over a loss is not the only problem. As odd as it may be to read or hear, you often have to forget about your big winners as well.

For those of you who follow our sentiment analysis closely, you know that the two main sentiment factors are fear and greed. These also happen to be the two biggest stumbling blocks for individuals, so let's talk about each of them.

Fear doesn't form in a vacuum. It is a learned response to a particular event or probability. In the case of trading, when you have a trade that goes bad, the regret and frustration can carry over into the NEXT trade. Or worse, the fear of another failure is so consuming, that you don't enter your next trade. Of course, Murphy's Law dictates that the trade you don't enter is the one you should have entered, which only compounds fear and frustration.

So how does one learn to fear? Part of the problem is the expectation that every trade you enter should be profitable. If you truly believe that, then here is an important piece of information for you 0 not every trade will be profitable. Thinking each and every trade will be profitable is a way to guarantee disappointment, which will eventually lead to fear paralysis, or a complete abandonment of your trading activity. By setting reasonable expectations, you can limit the amount of fear you learn.

Greed creates the opposite problem. With a couple of consecutive winning trades, many traders feel they have a cushion to become more aggressive. It's true that you do have a cushion, but that shouldn't be permission to change your proven methodology. Beware of the enlarged ego and feeling invincible - this will ultimately lead you to trades that you normally would not have entered. Finding good trades is hard enough, while finding poor trades seems to get much easier after a couple of winners. Never mistake a little luck for genius.

The most effective traders seem to have a short-term memory, which can keep greed and fear in check. They also use systematic criteria rather than their gut, as they are wise enough to know that fear and greed will ultimately lead them down the wrong path. In other words, the best traders only see the trade they're about to enter, or the one they're currently in. The rest are out of sight and out of mind.

Price Headley is the founder and chief analyst of BigTrends.com.