Traders Ask: How Do You Detect Overconfidence?

BellaMike Bellafiore's (Bella's) Blogs, Traders Ask6 Comments

Hi guys

After a rotten 12 months I’ve had a cracker of a month not just with the recent bull run but with the preceding drop also. This has occurred after stepping back, refining a trading entry methodology based around volume (exit and money management are already in place) and focusing on this play. Obviously I’m proud of myself, but pride comes before a fall as they say.

Past success runs have often been burnt with a bad run straight after. Can you tell me what techniques you offer your traders to identify signs of overconfidence and over-trading and to keep it (especially overconfidence) in check?


Great job asking the right questions.  Terrific work recognizing a pattern in your past that needs work.

Volatile swings in your P&L can be a danger signal of trading overconfidence.  Going from down much more than normal to flat is a very dangerous signal.  A big rip is likely coming.

Starting your pre-game preparation later than normal is something to watch. I am doing well I do not need to get in early.   There is a fine line between doing very well and underperforming.  A slight change in your start time can start a downtrend.

What are some warning signs for you that indicate overconfidence?

Mike Bellafiore

Author, One Good Trade


6 Comments on “Traders Ask: How Do You Detect Overconfidence?”

  1. I know my overconfidence kicks in when I start to think, “wow, I wonder how so many traders manage to blow up their account.” That’s when it gets me, but easy to spot.

    At least overconfidence means your doing something right, right? Thanks for sharing.

  2. This is so true. I just had 6 days of consistent positive trading followed by two extreme volatile days where I managed to end positive. The next day was a ripper! I should have seen the warning signs that something in my performance was different.

    Thanks for the reminder to never get too comfortable and overconfident with my performance where I begin to neglect my daily preparation.

  3. “Volatile swings in your P&L can be a danger signal of trading overconfidence. Going from down much more than normal to flat is a very dangerous signal. A big rip is likely coming.” —-This as always been key for me. Good Call.

  4. When I start thinking of my p&l and in terms of money it’s a sign that a terrible period is coming. For example: “what a nice month, I have to eliminate my losses and size up so I can have a daily average similar to my best day this month” – and guess when always, but ALWAYS this ‘size up – to make more’ occurs: in a volatility contraction!
    The right approach it will be: let’s make one good trade, and then one good trade… as the best trading book, written by the best trading coach based on his experience on the best trading desk near his best friend and best trading partners teach us! :))

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