Becoming a Confident Trader: It’s Not What You Think

John LockeGuest Blog, John Locke, Options Education, SMB Options, Trading Ideas, Trading Lesson, Trading Psychology, Trading TheoryLeave a Comment

As a trading psychology coach, one of the more common questions that come up is “How can I be a more confident trader?” This is an extremely important subject because having the correct confidence level is essential to being a good trader.

Lack of confidence creates stress and poor trading decisions which lead to unneeded losses. Let’s take a look at some factors that make up confidence.

Goals and planning – Planning properly and correctly setting well defined, realistic goals and is essential to being confident. I would say that probably 80% of confidence problems I see are simply because people don’t have a well-defined set of realistic expectations.

How can you possibly have faith that you’re making the right decision if you don’t know exactly what you are trying to accomplish? Here’s an example. Let’s say you are in this trade and you have a profit target of $5000. The trade is currently profitable by $2500. You start getting stressed and feeling a lack of confidence because you’re up some money and now you don’t know what to do. So you ask me, “What do I do?” I would ask you, “What are your goals and plans for this situation? Is this really a surprise that came out of nowhere? I mean if you had a profit target of $5000 then you had to “plan” to be up $2500 at some point right? Review your plan and follow it.”

The problem in this case is has nothing to do with a “confidence problem”. It’s a goals and planning problem. You either didn’t plan for this eventuality that was obviously going to happen or you did plan for it and forgot. If you forgot, well that’s why reviewing your written set of goals and plans daily is so important. If you didn’t plan for it, then create plans for the next time and confidently follow them.

Perception and making decisions based on unpredictable events – Keeping the proper perspective is a must if you wish to be confident.

Market movement is unpredictable and completely out of your control. Sure you can have biases and there are times when the market is more likely to do one thing over another, but ultimately, it’s going to go where it’s going to go and there’s nothing you can do about it. Therefore if you’re trying to make a decision based on knowing which way the market’s going to move, and you’re not feeling confident about it, that’s not a lack of confidence, that’s called being smart.

Being confident that the market is going to move in a certain direction, a completely random and unpredictable event is called stupidity and will lead to the trader to making poor decisions and often taking on more risk than his trading plan allows resulting in excessive losses.

Instead of making decisions based on an unpredictable event, change your perception and go back to your plan and follow it. The plan should tell you if you’re taking on too much risk. If it doesn’t, then you have a planning problem, not a confidence problem.

Decisiveness, taking action and experience – A common misconception is that decisiveness and taking action is a result of confidence. The reality is the opposite; confidence is a result of decisiveness and taking action.

One thing about the way our minds work is that once we behave a certain way, it becomes easier, more comfortable and more “automatic” to do it again. It becomes a habit.

If we create the habit of delaying or not making decisions that will lead to not taking action and we will not gain the experience needed to be confident. Because we are not confident, we will avoid the next decision, avoid taking action and become less confident. And the cycle will continue as we bring ourselves deeper and deeper into a state of learn helplessness.

In contrast if we decide to make decisions decisively and take action, we have started the habit of rapid, decisive decision making and we have gained experience. Whether we made the right decision or not, it doesn’t matter. You have created a beneficial habit, learned something so you can make a better decision next time and you’ve gained experience. And most importantly, you’ve started the cycle of unstoppable confidence.

Live with passion!

John Locke

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