Traders spend a lot of time back testing trading strategies, systems, and researching news events that are related to the market.
The outside work such as that is important but many don’t spend nearly enough time working on themselves.
More importantly, working on ensuring they believe in themselves.
If you don’t think belief in yourself has much to with success, maybe the words of Michael Jordan can change your mind:
“I’ve failed over and over and over again in my life and that is why I succeed.”
While most people quit after a few failures, Jordan had a strong belief in himself and helped him to reach the level he did.
Self Belief Is Crucial For Traders
Self-belief is quite a defining thing and it stems from the strength of your core beliefs.
Beliefs about something can affect what you perceive, the way in which you perceive it and the actions you choose to take because of it.
A belief can be founded in emotional experience or logical experience – our beliefs can be formed due to what we feel or what we’ve studied and researched.
It’s important to recognize that unfounded self-belief really has the potential to damage your development as a trader or at the very least severely set it back, just as self-belief which comes from a strong grasp of trading and a sound trade plan has the potential to enhance the level of your trading performance.
What is unfounded self-belief?
It is when your belief about yourself, your self-esteem and self confidence is artificially boosted beyond your true level without a basis for it. It inhibits your ability to question yourself, causes you to be inflexible, and can lead to a huge letdown when you are faced with the truth.
Self-esteem and self-confidence are often used to mean the same thing but that is not accurate.
Self-esteem: how much we value ourselves
Self-confidence: how we feel about our abilities
Self-belief can play a crucial role in how quickly and even whether or not you succeed at all.
- Having no self-belief can lead to self-sabotage, mistrust in system, trading without a system at all and putting off the trading homework which you should be doing right now.
- It can lead to losing confidence in a system without any real evidence.
- It can lead to hopeless despair in your own capabilities as a trader.
How can you expect to be effective as a trader when you’re coming in with this kind of mindset?
Yet a strong sense of self-belief can help you grow into being that successful trader you wish to be, as experiences and performances back up this belief strengthen your identity. The belief in yourself is grounded in reality.
Committed self-belief means you will live by what you understand from your beliefs and not just realize that certain elements are important to your success. Understanding something and making it become a part of you, are not the same things.
Do You Understand You?
So to have a strong and beneficial self-belief you must ensure that you have a good understanding about your own nature and the nature of trading. To do this it may be necessary to reconstruct your beliefs.
It is going to be essential to construct your belief in yourself and your trading system based on evidence you gather. There are likely to be three major challenges for most people in doing this.
Complex Does Not Equal Results
The first challenge is to realize that the level of complexity of a trading system does not necessarily correlate to its efficacy. In attempting to find the “holy grail” of trading, you are either missing or hiding from the reality that there is no such thing. Every system will lose to some degree.
But finding a ‘better’ system based on more ‘accurate’ indicators probably won’t be where your success stems from.
No Trade Plan. No Hope
Following this first step is the task of constructing and testing a clear trade plan. This does sound easy enough, many people really struggle with this one.
- They don’t know how to create a trade plan which could be profitable
- They don’t know how to make their rules clear enough to test (and trade).
Once you find your trading strategy, have a rule set you follow that will include:
- How you will take profits
- What you are using for stop loss positions
- Risk exposure for each trade and overall portfolio risk
You can read our article, 4 Keys to Following Your Trade Plan, to learn everything about putting a trading plan together.
Be Comfortable Not Knowing
The final challenge is to accept that you’re playing a probabilities game and it is impossible to know in advance the outcome of specific trades.
By seeing the results of a well thought out, clear and properly tested trade plan, it becomes much easier to accept that what you’re aiming for is the performance over a set and not just a handful of trades.
Once you do accept this, taking a loss the way your plan says you should do becomes much easier.
Psychologically you’ll stop ‘losing’ and by sticking to your plan, you’ll probably lose less on average per losing trade than if you’re averse to taking a loss at all (unless your plan is really not a good one).
If you’re a good student and you’re able to accept losses as part of the cost of not only the business of trading but also as part of the ongoing process of observing what works and what doesn’t, you will put yourself in the strongest possible position in order to enjoy success over the long run.
There are aspects which are fundamentally part of markets and always will be. However, there are also aspects which change over time.
These changes will always happen and will potentially affect the efficacy of any particular strategy. Part of having a strong self-belief is being open to change and knowing that you are able to adapt appropriately.
Don’t Ignore This If You Care About Trading
Self-belief and its foundations can play a huge role in the success or failure of a trader.
It impacts what you perceive in the market, your interpretation of market movement and your decision making processes on how to act based on this information.
Allowing your beliefs to form without any attention can naturally create emotional issues not helpful to your continuing development as a trader. Take the time to craft and cultivate your beliefs and don’t leave it to chance.
Then you will have a platform for a strong self-belief which may well help you reach the next level. By understanding these principles and integrating them into your trading, over time they will become second nature.
If you want to see how Netpicks uses a trading system complete with a trading plan, come see our webinar featuring the High Velocity Wave Trader. You can form the foundation to build your self-belief that you can make it in trading if you find a system that you can profit with. Click here to see how the HVWT works!