What is confidence?
A confident trader is one who has:
- found what works (through experimentation)
- confirmed that it works (through back testing)
- trusts oneself (through knowing they have done the work)
So where does this confidence come from?
Confidence comes from trust. If you don’t trust the strategies, then don’t use them and if you don’t trust yourself to apply them, then speak to our performance coach to help you develop that self-trust. As a general rule, we always tell our clients to trade at 1c until they have learnt to trust the strategies – this way if you don’t apply them correctly and you end up losing money then at least in a worst-case scenario you would have only lost a couple of cents.
Maintain this position size for as long as it takes you to start trading the strategies correctly. Once you see some money coming in and the strategy working you will begin to build that trust and confidence that you need to trade at a bigger size.
On the other hand, overconfidence is foolish and dangerous – it is not conducive to developing consistency. Consistency is key to becoming a successful trader.
Ask yourself, what happens when you hit TP?
Your confidence generally goes up right? However, you need to be careful that it does not it lead you to take a trade that isn’t there, or a trade where the risk to reward ratio is too high.
In psychology, a lack of confidence or a heightened sense of caution is there because if we were not humble about our vulnerabilities, we would not be able to protect ourselves from the errors of human nature.
However, once we become overconfident in ourselves and flippant in our judgement we tend to ignore our vulnerability and give into bias and error. One way to ensure you do not fall into this trap of overconfidence is finding that balance where rationality meets reality. This is based on truth and good sense and can be built on beliefs that can be justified by evidence and honest self-examination.
– Ryan Mowatt, The Performance Coach.