Last updated on May 12th, 2020
The success rate in terms of successful traders, by all accounts, is pretty poor. This has the potential to rip the confidence of anybody thinking of making trading an income producing activity.
Trading is a performance sport and just like any performance endeavor, without confidence with what you are doing, you can be assured of never reaching your potential.
Trading without confidence usually ends up with drained trading accounts which in turn leads to the feelings of being a failure. New traders are often particularly prone to issues relating to confidence.
Comparing Success To What?
A new trader comes along and has little to no frame of reference for what competent trading really looks like and is susceptible to emotion-based assessments of their own trading abilities. It’s this inability to objectively identify skill that leads down one of two paths in the early days of a trader’s career.
Relatively easy and baggage-free type of trading
This sort of trading is uncomplicated by past experiences and often leads to a trader simply executing what they see. They take trades when they see them – they execute both their winners and losers without prejudice. Over a short period, this freedom of execution can and often does, see a decent winning streak.
The issue can be that a trader in this situation becomes over-confident.
The inability to recognize the reasons behind their winning streak and the lack of core knowledge combined with an unfounded cockiness can be a dangerous mix. When their trading starts to falter, they can plunge into a bigger losing streak.
An untrained and inexperienced trader, once they hit a string of losing trades, can have their confidence zapped which can be difficult to regain.
A new trader may recognize the fact that their knowledge is lacking and that is a sure-fire way to make them risk-averse. An issue for this type of trader is that they may become obsessed with learning as much as they can and by not trading much, they fail to learn execution lessons that can make a difference to trading performance.
There’s another thing to consider – if you don’t believe you can win and be successful, are you going to be motivated and focused on actually taking trades?
If you have no frame of reference for what actual trading success looks like, have no track record of placing trades, how will that affect your confidence level when it’s time to put risk on in the market?
Trading Confidence Plus Accepting Reality
Everything in life is about finding a balance. The over-confident and cocky trader whose self-belief has been artificially boosted by a good run of results, should take the time to objectively analyze reality before the market hands them an unpleasant and costly lesson.
We see this a lot when the markets are heading in one direction. When Bitcoin and other cryptos started trading, overnight “trading gurus” appeared selling the secret to crypto success.
A good run in the stock market gave birth to more signal services and trading insights courtesy of those who were looking to reap the rewards of a one direction market. The rewards were not through trading it but through selling subscriptions.
Good results in one type of market condition is not a success story.
But a healthy swagger and self-belief combined with a willingness to accept defeat, can bring out some of the qualities that can help a trader to succeed.
The ability to fully focus on trading certainly is easier when you feel that you can win.
- Competitiveness can help you to drive forward
- Self-value makes you believe that you are worth the effort
- Unshakable self-confidence and determination to continue in the face of setbacks helps you to ride out losing streaks
A trader who does not truly believe they can succeed, will find it increasingly difficult to continue. Just like in life, whether you think you can or think you can’t, you’re right.
Track Performance To Increase Trading Confidence
In order to find that balance in your trading confidence, it’s essential to base your beliefs about your ability on something more concrete than how you feel about your trading. This is partly why taking regular stock of your performance and actual results is a critical step in facilitating performance.
If you are not tracking your trading performance, you can never know how good you are doing or if you need to tweak a part of your trading plan.
It’s also important to assess your overall emotional state relative to performance over time to maintain awareness of the risks that you currently face. Everything from how you talk to yourself when things go wrong to how much weight you put into being “right”, can affect your emotional state and therefore, your confidence level.
Finding that balance of trading confidence is not always easy but if you want to get there by design, you must first know where you currently sit in terms of confidence and ability.
Even something as simple as using a trading journal to comment on your feelings when you trade can have a positive impact.