Read Time: 10 Minutes

“It takes 21 days to form a habit and 90 days to form a lifestyle”. 

Most of us have probably heard of that quote already. It sounds simple, right? Who would have thought that you only needed three weeks to build a habit? 

Imagine how much better our lives could be after a year with plenty of good habits that we want to adopt.  

Whether you want to improve your physical health or performance in the financial markets, adopting good habits is the way to achieve it. 

Unfortunately, we’ve all heard the not-so-successful stories. A New Year’s Resolution falls off after three days, leading to an initially motivated person being the same as he was a year ago. 

There are 52 weeks in a year. If it takes three weeks to build a habit, you should have formed 17 good habits by then. If only it was that easy! 

Why is it important to build habits? 

Your habits are your small, everyday actions and decisions, and the sum of your habits defines your life. 

Good habits form the foundation for a good lifestyle. For example, exercising regularly and getting enough sleep are good habits examples. Conversely, bad habits build up to form a bad lifestyle. Eating junk food every day is an example. 

Who you are and where you are right now is simply the outcome of all your habits. Your overall health is the result of your eating and exercise habits.  

Your trading mindset and your performance in the financial markets are the results of your trading habits. 

You’ll notice that the most successful traders don’t just make good trading decisions; they have good trading habits that form the foundation for their decisions.  
 
But when you’re starting out, we think one simple habit to instill in yourself is one associated with your identity.  

What are identity-based habits? 

Identity-based habits are habits that are based on who we are or who we want to be.  

Imagine a circle with two other circles inside it, like an onion with layers. In this case, we have three layers. 

The outermost circle are outcome-based habits. In this circle, we focus on the what. What do I want to do? What do I want to happen? For example, an outcome-based habit could be, “I want to lose 5kg this month.” 

The middle circle is performance-based habits. Here, we focus on the how. So in the same weight loss example, a performance-based habit could be changing your gym routine, your diet, or how often your workout.  

The inner circle, the most important circle, is where identity-based habits are. Here, we focus on the who. Who am I as a forex trader? Who do I want to be? These are purely intrinsically based.  

A person who wants to lose weight would adopt an identity of, “I am a person who moves more,” or “I am a person with a healthy weight and a healthy lifestyle. This is what a healthy person does, so I will do this, too.” 

Identity-based habits go deeper than outcomes and involve your worldview, beliefs, and perception about yourself. 

All three kinds of habits are connected with one another. Your identity influences how you do things. This, in turn, affects what you achieve. 

The problem is, most of us are too concerned with outcomes. As a result, our habits fall off pretty quickly because we didn’t have the foundation. 

Remember the New Year’s resolution example? Those people don’t usually achieve their resolutions because they focus too much on the results when they should be focusing on their identity first. 

Identity goes far beyond just one’s lifestyle. Even politicians revolve their discussions around people’s identities (identity politics). 

Who you identify as affects not just what you do but what you believe in and how you see the world around you. 

How does having an identity benefit your trading? 

Having an identity forms a solid foundation for your actions and your habits. 

Imagine two forex traders with a fair amount of trading experience. For September, they set a target profit: $5,000. 

The first trader does not have an identity; he just cares about the outcome. He looks at the $5,000 profit goal and focuses only on that. He analyzes each trade carefully, but there is no real consistency to it.  

He gets frustrated every time forex trading results in a loss because it makes it harder to achieve his desired outcome. 

On the other hand, the second trader has an identity. He identifies as a good forex trader. The $5,000 goal profit is not the real goal because he knows that it’s something that good forex traders have. 

Instead, he focuses on being a good forex trader. He asks himself, “I am a good forex trader, and what does a good forex trader practice?” 

From here, he studies not just the financial markets but also the best traders. He adopts a good trading mindset and trading psychology and starts to build trading habits. He does this not because he wants to earn a $5,000 profit but because he wants to identify with what a ‘good’ forex trader does, he thinks more in terms of systems than outcomes.  

Who do you think will be more likely to reach their target? 

Of course, it’s trader #2. He goes beyond focusing on the outcomes. He actually lays the foundation by building good habits and adopting the proper trading mindset. He does all this because he has an identity, something which trader #1 does not have. 

Building identity-based habits for traders 

To build identity-based habits, the first thing you should do is look inward. Don’t worry about outcomes just yet. 

Instead of asking yourself, “What do I want?” You should ask yourself, “Who am I?” or “Who do I want to be?” 

Instead of focusing on a target profit, start with your identity. 

Do you want to be a successful forex trader? What do these people do that you can? 

Successful forex traders usually keep a journal to track their successes and failures. They also keep a balanced lifestyle, are aware of their biases, get enough sleep, and adapt to change. There are plenty of other habits, but these examples are good for a start. 

The best thing you could do if you’re starting out as a forex trader and reading this is to constantly ask yourself “What would a good forex trader do right now”? Would they be learning more about the markets or practicing on a demo or would they be watching Netflix? Simple questions to ask but the power of your life is determined by the power of the questions you ask yourself.  

It would be good to adapt all these too, but remember you’re not adopting these habits because of what you want. You’re adapting these habits because of who you are. 

Identity-based habits last longer and lead to more success because they involve a deeper part of you.  

When you inevitably encounter setbacks and make mistakes, you won’t get too frustrated with yourself and make emotional, impulsive decisions because you know that your habits are in the right place.