We all have confidence tucked away in us somewhere; we may use it for our day job, weekend sports or odd jobs around the house. So how can we develop confidence in trading?
I hear traders say to me all the time “ I’ll get confidence when I start making some profits” and every time I hear this I kindly let the trader know, you need confidence before you start making profits.
Can we start off by asking ourselves “are we naturally a confident person”? If not that’s OK, we can then ask ourselves what are we confident at doing in our day to day life, and how did we get to the stage of being confident in that aspect of our lives.
The oxford dictionary states confidence as “the feeling or belief that one can have faith in or rely on someone or something”
So we can break that down into trader language quite simply, “ do you trust your trading plan/system”
So let’s take a look at some key steps in gaining some confidence in your trading.
- Have you backtested your trades you are taking? We backtest our trades to gain some knowledge in the setup, and look for patterns we can use to our advantage in the future, this will also give us insight to why our trades fail. Backtesting your trades is by far the most boring part of trading and is overlooked by so many for this reason. No one wants to number crunch, but by doing this you will gain confidence in the trades you take. (pending the success rate of your trade of course)
Say you backtest your trade setup over the last two years, you winning strike rate is sitting at 70% (7 out of 10 times you have a winner) next time the trade setups, you know your trade winning strike rate over the last 2 years all you have to do is push the button. You will have confidence in doing this. Or you can sign up to a service that has proven FTSE signals. Make sure their results are published and verified.
- If you’re naturally a confident person, you need to know how to handle a loss.
Most confident people I know hate losing, and unfortunately, in trading, we will lose.
Losing can wreak havoc on our confidence, we need be able to handle a loss, simply putting it behind us and moving onto the next trade.
How will you handle a string of 4 -5 losses in a row, will you have the confidence in pushing the buy or sell button the next time your trade comes up? Your confidence will come from your backtesting as mentioned above, knowing that over the last 2 years of backtesting you found on 5 separate occasions your system experience a string of 5 losses in a row.
My mindset before entering a trade is that there is a possibility that this trade will fail, I guess I’m trying to condition my mind for the potential loss, that way when it happens I don’t feel so bad. Another good way of handling a loss is to leave the computer straight away, go for a walk, throw the ball to the dog, take your mind off it before it turns into multiple losses.
“The Market is always right”
- Working on you. Setting trading goals and completing them will give you some confidence in your approach to trading. Little goals like, I will only trade setups that I have backtested.
Stopping trading for the week after you have made 3%, following your trading plan, not breaking any trading rules. If you can complete goals similar to these, and you have backtested your strategy, there is no reason why you cannot gain confidence in your trading.
One last point, develop these steps into your trading and keep a journal of every time you place a trade, every time you exit a trade early (before you were supposed to) and every time you take a loss, write down how your feeling, are you tired, did you get woken up by your platform alarm, were the kids crying in the backroom. This will also help you in your quest of “why weren’t you confident”. And will also give you guides of what you need to improve on.