{"id":44997,"date":"2017-02-12T13:37:07","date_gmt":"2017-02-12T18:37:07","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=44997"},"modified":"2017-02-12T13:37:07","modified_gmt":"2017-02-12T18:37:07","slug":"the-danger-of-the-overconfident-trader","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/the-danger-of-the-overconfident-trader","title":{"rendered":"The danger of the overconfident trader"},"content":{"rendered":"

<\/p>\n

Yesterday I wrote about a trader struggling<\/a> with added size and risk. \u00a0In seeking a solution for this trader one possible area of focus was overconfidence. \u00a0How does it happen? \u00a0Why is it dangerous? \u00a0What can we do to combat overconfidence?<\/p>\n

You trade well. \u00a0You are seeing screens well and the market is trading in a way that allows your strengths to produce outsized PnL. \u00a0Your firm gives you a bump in size and risk. \u00a0Everyone around you sees you slaying the market and comes over with the fist bumps and giggles. \u00a0On a prop desk, you get followed around more by traders engaging you in your trading. \u00a0You are the BMOD (Big Man on the Desk). \u00a0 You may start to believe you have “figured” this whole trading game out.<\/p>\n

We all have systems that we run. \u00a0I call it our PlayBook. \u00a0You might call it something else. \u00a0The truth is some markets just set up very well for us. \u00a0And it is very possible that our hot streak as trader is because of market conditions. \u00a0This can often be the case even for the best of traders. \u00a0And market conditions change.<\/p>\n

Take for instance the past few months, where there has been great opportunity in the Low Float space. \u00a0That opportunity can come and go. \u00a0Yet a good run by a Low Float trader, then given a size and risk bump, with a turning of good market conditions for Low Float trading and a trader overconfident can be dangerous. \u00a0 That trader can start to underperform and drawdown.<\/p>\n

Most recently, the past week was optimal for Market Play traders. \u00a0Futures traders in particular had a market to crush and outperform. \u00a0Some of these traders are spending the weekend feeling like the BMOD. \u00a0Give them added size and risk, add overconfidence because of most recent past results in optimal market conditions, then change those market conditions and danger can visit. \u00a0Danger in the form of drawdowns and for the lesser experienced traders blow ups.<\/p>\n

When we are trading well and our PnL hits levels higher than expected it is time to be cautious. \u00a0You will want to take your temperature more often on potential overconfidence and double down on efforts to let your trades come to you. \u00a0Do not sabotage those optimal market conditions and good runs, just check in more often and check to see if you are letting setups come to you that offer good risk\/reward in the present environment,<\/p>\n

Further, I love the 90\/10 rule for traders. \u00a090 percent of your effort is spent each day focusing on your existing trades with edge. \u00a010 percent is spent on experimenting with new setups, with small risk. \u00a0Record your results on these new setups and size up those working for you. \u00a0A consistent effort to expand your trading PlayBook allows you to trade with edge in more market environments. \u00a0This minimizes forcing trades when market conditions change. \u00a0For example, if you have Market Play edge, you might have been less likely to force Low Float trades this past week, thus minimizes a negative effect of overconfidence.<\/p>\n

As the old saying goes, we are not as good as we think when crushing markets and we are not as bad as we think in periods of drawdown. \u00a0The key is to be actively on the lookout of present market conditions and our trader mental state, so we keep more of our gains during the good runs and give back less when market conditions change.<\/p>\n

Related posts<\/b><\/p>\n

Win rate is overrated says this Futures trader<\/a><\/p>\n

Nothing wrong with skipping a trade says this Options trader<\/a><\/p>\n

*no relevant positions<\/p>\n

Mike Bellafiore is the author of One Good Trade<\/i> and The PlayBook<\/i>. \u00a0Bella is the Co-founder of SMB Capital and SMB Training. \u00a0He welcomes feedback and your trading questions at mbellafiore@smbcap.com.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Yesterday I wrote about a trader struggling with added size and risk. \u00a0In seeking a solution for this trader one possible area of focus was overconfidence. \u00a0How does it happen? \u00a0Why is it dangerous? \u00a0What can we do to combat overconfidence? You trade well. \u00a0You are seeing screens well and the market is trading in a way that allows your … Read More<\/a><\/p>\n","protected":false},"author":144,"featured_media":44820,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[18,653,1996,1354,1989,3781,1349,5318],"class_list":["post-44997","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general-comments-2","tag-smb-capital","tag-trader-training","tag-trading-class","tag-trading-coach","tag-trading-course","tag-trading-edge","tag-trading-mentor","tag-trading-niche"],"yoast_head":"\nThe danger of the overconfident trader | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/the-danger-of-the-overconfident-trader\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The danger of the overconfident trader | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Yesterday I wrote about a trader struggling with added size and risk. \u00a0In seeking a solution for this trader one possible area of focus was overconfidence. \u00a0How does it happen? \u00a0Why is it dangerous? \u00a0What can we do to combat overconfidence? 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