5 Whilst sitting and waiting (and waiting…) for a connecting flight in hell (aka. Phoenix), I was left with plenty of time to expand upon a few thoughts I have had over the past three days while not actively being involved with the market.
In good markets and bad, we, as traders are always battling to maintain (and improve upon) our level of self-confidence.
In other fields, self-confidence can be developed through a promotion, closing a sale, learning new skills, finding a new job using previous education and experience, etc. One common theme amongst all of these scenarios is a state of control. We are in control how hard we work, or how we interact with colleagues, etc.
Interestingly, psychological research suggests that self-confidence is primarily a byproduct of self-efficacy. Self-efficacy, in layman’s terms, is the feeling that we have control over our actions and the outcomes they produce.
Unfortunately for traders this presents a slew of potential pitfalls, as we have no control whatsoever over whether or not we make money (which, incidentally, is why I believe we all got involved with this business in the first place). Once a trade is on, the only element that we are in control of is how much we are willing to lose on a position.
A common misconception is that self-confidence is reflected in our ability to dominate when times are going well. Quite the contrary is true.
Ironically, self-confidence is forged from the depths of despair. How we handle the toughest of times will go a long way in confirming just how much confidence we have in ourselves and our trading strategy.
This is where self-confidence is developed.
I have been reading a lot on iBC about traders struggling in this current market. A very understandable predicament, one in which I find myself a part of as well. Recently I commented on Rhino’s post and suggested that a potential source of stress was focusing on making money. Of course, this is a universal stress that all legitimate traders must contend with throughout their careers.
A key to building self-confidence is to shift our focus from making money to trading well. The reasoning is simple: we will never be able to control whether or not we make money. By focusing on P/L, we are expending energy on something we have no control over and drifting further from a state of self-efficacy all the while toying with our vacillating self-confidence.
What elements of this profession are we capable of controlling?
We can control how we approach our strategy. We can control how we approach a trade when it hits a stop-loss point. We can control our position sizing. We can control our state of mind when faced with a drawdown or losing streak. These are only a few of the methods we can use to employ a sense of control over our efforts as traders aside from focusing on P/L.
We need to develop the confidence that we are capable of staring down a grave scenario and, no matter what, will follow our strategy and come out in one piece. Even if we continue to put on losing trades, as long as we follow the rules set forth in our strategy, we can feel like we are achieving some sense of control over our actions.
Being able to survive drawdowns within the constraints of our strategy will build self-confidence. We know that losses are part of the game. Even some of our best conceived ideas will not result in winning trades, and that is ok. Those experiences can be some of the most frustrating, but we also have to realize that confidence is built through control over our strategy and recognizing that even great ideas don’t always pan out.
Self-confidence doesn’t spring forth through being right all the time; rather, it comes from surviving the many many many times we will we wrong in our careers.
One final note. I believe that starting a blog and actively sharing your trading ideas is a very important step to build self-confidence. The iBC team has generously given us a fantastic opportunity to share our thoughts with a (relatively) objective and outspoken community of very intelligent people.
When we share our trade ideas we are forced to be accountable for our actions. It’s much easier to ignore a stop-loss and ‘hope’ a trade will come back to us when we are sitting there all alone in front of the screen. In that scenario, where is the accountability?
As I have mentioned many times, we are our own worst enemy. I can tell you from personal experience that I am much more liable to break rules and deviate from goals when I keep myself insulated from the opinions of others.
I make stupid mistakes all the time, but I’m much more likely to irrationally justify those mistakes if I keep them to myself.
Through sharing trades and ideas, there is a much greater sense of accountability to our strategy and ourselves. We all need a plan for losing, if we (directly or indirectly) share our plan, we are much more likely to hold true to that plan and develop a sense of control over our business.
That is the general theme I am trying to nail home here: through control comes self-efficacy, which, in turn, is directly related to our ability to develop self-confidence.
Figure out how you can exert control over your trading and self-confidence will likely follow.
My best to you all.
-EM
5 Responses to “Building Confidence From the Gutter”
Fly
Another
Fly
Another great post
elizamae
Thanks for the venue.
redman59
Preaching to the choir here:
“I make stupid mistakes all the time, but I’m much more likely to irrationally justify those mistakes if I keep them to myself.”
Nice thoughts here EM. Especially liked “we are our worst enemy” on down.
zenhunter
Great piece! Without doubt, my trading improves after I started posting my thought.