Friday, November 17, 2017

Self-Confidence Strategy [#1] | Trading Psychology

Today’s Trading Psychology question of the day…

“Before I found you on YouTube, I joined one of those chat rooms a few months ago to learn how to trade, and I lost all the money in my account in only a few weeks.  I’ve learned that people who know how to trade won’t give away their knowledge for $99/month, haha, but needless to say, this experience has killed my self-confidence and I need to find a way to get it back.  Do you have any suggestions for getting back my confidence?”

Great question… and something that every trader deals with on their journey to becoming consistently profitable.

Most traders assume that self-confidence comes from positive thinking, but in my own personal experience, self-confidence is knowing that you can handle the worst situations and come back stronger than before.

In other words, self-confidence doesn’t come from being right all the time, it comes from surviving the times when you’re wrong, or at your worst.

A great way to build self-confidence is to focus on how you trade after you’ve lost money. 

We know that confidence is build by overcoming challenges, and the biggest challenge we have to overcome as traders is digging out of a hole from a previous loss.

There are five (5) aspects of building confidence after a loss:
1.      Following Your Rules When Entering a Trade
2.      Keeping Losses Small
3.      Avoiding Revenge Trading (Staying Patient)
4.      Entering the Next Trade Correctly
5.      Managing the Next Trade Correctly

Follow Your Rules:

First, you need to make sure you’re following your rules, entering the correct trades, at the correct time, with the correct entry technique.

Your trading strategy should have specific entry rules, and you need to follow those rules to ensure you’re not trading outside of your plan. 

If you find yourself trading outside of your plan, you don’t need confidence, you need patience, and that’s another topic altogether.

Keep Losses Small:

Second, you need to manage the trade correctly.  Once you take a trade, you need to manage that trade correctly, so that (if you do take a loss) the loss isn’t too large. 

If you take BIG losses, it’s going to be almost impossible for you to dig yourself out of that hole, so one of the most important aspects of building confidence is keeping your losses as small as possible, giving yourself a chance to earn the money back!

Avoid Revenge Trading:

Third, after you take a loss, now is the time to buckle-down and follow those rules, but this is MUCH easier said then done. 

Nobody likes losing money, and when I was a new trader and na├»ve about how the markets worked, I would take losses personally, which made me angry, and then I went off the rails and started taking revenge trades… don’t do that.

After you a take loss, avoid the emotional meltdown that can easily follow by taking a few deep breaths, read your trading plan again, break the cycle with a short walk outside the office if you need to release some frustration, whatever you do, do not allow your emotions to get the best of you at this point.

After you take a loss, your instincts are going to tell you to find another trade as quickly as possible to earn back the money you lost, but you need to resist that urge to jump back into the market until you find the next reliable trading opportunity.

Enter the Next Trade Correctly:

Now that you’ve kept your cool… the most important thing you can do is wait patiently for the next trade.

When I was learning to trade, I never wanted to finish the day in the red, and every second that ticked by would inch me closer to forcing another trade, which would undoubtedly be a loss, making the situation even worse.

You have to be ok with ending the session with a loss, and one of the easiest ways to get over that fear of finishing with a loss is to start thinking in WEEKLY terms, rather than daily terms.

In other words, I judge my success at the end of the WEEK, not at the end of the day.  I have clients that take this one step further and they don’t worry about their results until the end of the MONTH. 

Pick one that works for you, because it will take the pressure off of you to force that next trade, which will put you in even a deeper hole.

Now that you have the pressure off… wait for that next trade that fits your rules, and take it with confidence.

Manage the Trade Correctly:

Once you re-enter the next trade, your instinct will be to use a much larger profit target because you will want to try and make back your previous loss.

Remember…if you managed the first losing trade correctly, the loss should have been small, and most importantly, it should have been small enough so that your next trade doesn’t need to be a “home run” for you to make it all back.

One of the hardest parts of trading is staying conservative after a loss, and this is your chance to prove to yourself that you can use your rules and manage the trade correctly.

Understand the Law of Large Numbers:

At this point, you’re doing everything within your power to be successful.

You’re following the rules of a proven trading strategy, you’re keeping your losses small, keeping your emotions from clouding your judgement, and you’re entering new trades using the same technique that you know has worked in the past.

What if you take another loss?

For me personally, back to back losses is always a 20-minute “time out”.  Furthermore, if I take another loss in the same session, I’m done for the day, because at that point it’s either ME or the MARKET, and either way, it’s not working, I’m losing valuable capital, and I need to live to trade another day.

You know… some days the markets just feel “cranky”… they don’t want to move well, for whatever reason.

And…some days WE aren’t at our best… personal distraction, illness, it happens to the best of us.

This is where using a WEEKLY goal, rather than a DAILY goal comes in handy.

I’m constantly reminding my new traders that when I say a trading strategy has a 75% winning ratio, that means 75 out of 100, not 7.5 out of 10.  That means it’s completely ok for you have a losing streak and still be OK by the end of the week/month.

It’s important that you remember, trading is a game of pattern-recognition that uses the law of large numbers.  Give yourself the flexibility to allow those large numbers to work for you.

If you find yourself in a position where your strategy didn’t work well today, don’t let it get to you, come back and trade it again tomorrow, and measure your results at the end of the week.

If, by the end of the week, you’re still not making a profit, you need to take a closer look at YOU or your STRATEGY.  Remember, its never the market’s fault, we have to take responsibility for our results, and the sooner you understand and accept that, the more successful you’ll be.

Let’s Recap…

We’ve covered a lot in this video so far, let’s do a quick recap.
What’s the best way to build self-confidence?

·        Building self-confidence comes from overcoming adversity
·        The biggest adversity we face as traders is digging ourselves out of a hole
·        There are a handful of steps to overcoming this challenge:
o   Follow your rules getting into your trades
o   Keep losses small enough to overcome them easily
o   After a loss, avoid revenge trading, stay patient, break the cycle of the emotional meltdown
o   Follow your rules to enter the next trade
o   Manage the next trade correctly
o   Remember the law of large numbers, be flexible with your results.
o   Have a plan in place to avoid excessive losses
o   Use Weekly, rather than Daily profit goals.
o   The market is never at fault, it’s YOU or your STRATEGY, take responsibility

If you want to build self-confidence, you need to prove to yourself that you can overcome adversity, and know you have the tools to do that.

Also…building self-confidence is one of the most important aspects of trading psychology, so look for more strategies to build confidence in coming videos.

Guys… I hope you found value in today’s trading psychology lesson…

…and I would love to hear from you about additional topics that you’re struggling with as traders.

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my trading psychology video…

…make sure to give me a thumbs-up if you found value, and share it with a friend who can benefit from this information as well.

It doesn’t matter what market we trade, or the strategy we use, even the best traders battle with their emotions when there’s money on the line.

And don’t forget, you can find me every morning @ 8:00am EST in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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