Creating And Sustaining Trading Confidence

Confidence can mean different things to different people, but generally for traders, being confident means that you are reading the markets well, executing your trading strategy to plan and have a belief that you’ll make money with any given trade. Confidence is linked to your overall Profit and Loss (P&L). Generally the more confident you are, the more profitable you are.

So how is your confidence as a trader? If 10 is highly confident and 1 is very low, where would you be? When are you confident? When are you not confident? What factors affect your confidence?

Confidence is often seen as being some mystical substance and to a degree that may be true, but what is not really considered by most traders is that confidence is the outcome of a number of processes that can be developed and practised. Confidence can be learned, trained, created and sustained.

Here I’m going to share some practical ways in which you can develop a real ‘core’ of trading confidence that will hopefully make a difference to your trading performance.

Keys To Developing And Sustaining Greater Trading Confidence

1. Competence Confidence is based significantly upon competence i.e. having the skills, abilities, knowledge and understanding to achieve the task being attempted. Competence precedes confidence! If you were asked to perform a backward somersault from the 10 metre board at the swimming pool how confident would you be? Those of you who are skilled high board divers would probably feel a lot more confident than those of us who have only managed an undignified belly flop from the pool side! Why? Competence. The same is true for trading. The more competent you become the more core confidence you will develop.
2. Controllables It is the linking of confidence to P&L that causes such emotional ups and downs for traders. It is important to recognise that P&L is the by-product (outcome) of how well you trade, whilst being confident is the controllable that leads to the outcome. It is possible to trade badly, take excessive risk, punt, and make good money - should that give you great confidence? No! Confidence should ideally be linked to how well you are trading. This means focussing on the factors that are under your control (e.g. entry and exit timing, stop loss levels, stake size, following the strategy etc). When a person feels more in control in a situation they will naturally have a greater level of confidence. Think about the aspects of your trading that you have control of and focus your time and energy on these aspects. You could make a simply super trade and it still loses money because of some fluke incident. That shouldn’t affect your trading confidence in the future. Random incidents should even out over time. Ask yourself ‘How well did I trade?’ not ‘How much did I make?’
3. Preparation Going into any trade being fully prepared can help to provide additional feelings of confidence. Taking time to plan and prepare for the trading session, looking at the ‘what if’ scenarios and how you might react will all help.
4. Discipline Trusting in yourself to be able to follow your trading strategy and manage your money is a core underlying component of confidence. When you doubt your discipline and ability to act in ways that are positive and useful, it can cause hesitation and unwillingness to enter certain situations.One very important factor of this trading discipline is keeping your risk appropriate to your trading capital, and to your skills and experience. Taking excessive risk will create greater feelings of anxiety and fear which will lower your levels of confidence.
5. Self-Belief At the deepest level of trader confidence is that feeling of self-belief in your abilities to be successful. Being able to overcome those niggling doubts that all traders have, to take responsibility for your trading outcomes, and see new trading goals as possible is important.

It may be useful to consider each of the above areas and rate yourself from 1-10. Then add the scores together and double them to give your confidence quotient e.g.

Competence - 7
Controllables - 5
Preparation - 6
Discipline - 6
Self-Belief - 7

Total - 31
Confidence Quotient - 62%

When You’ve Lost Some Confidence
Sometimes traders, for a number of reasons, get the feeling that they have lost confidence. As I’ve have mentioned already confidence is not really a mystical feeling but is ultimately derived from our mental and physical processes, and from practical applications such as being prepared, attaining competence and having a trading strategy that has an edge in the markets.

One of the challenges a trader faces when they feel that they have lost their confidence is that they are already focusing on having low confidence - and we get what we focus on! Seeing your low confidence as being a feature of the past, and moving towards ‘my confidence is improving more and more’ is a significant first step. Ironically when traders are low in confidence they tend to become more focused on their results, what they can’t control and their weaknesses, which are the absolute opposites of what you should be focusing on - controllables and strengths!

Ways To Boost Your Trading Confidence

There are several practical approaches to take to regain confidence to optimise you’re trading.

1. Greatest Highlights Recall times in the past when you have traded well. When you are not trading as well as you would like to, you are reinforcing the neural circuits in the brain for these behaviours. When you get down on yourself and spend time thinking about how you are doing, you also reinforce the brain circuitry for this level of performance. What is required is to re-engage the success circuitry in the brain - and where this may be a challenge to do in reality, you can precede it with plenty of mental rehearsal of past success and future successful trading. You need to keep the success circuits fired up!
2. Check Your Self Talk Are you thinking negative or positive thoughts? Change negative talk to positive, from critic to coach. Imagine how you would be talking to a good friend in a similar situation. Identify positive things about your ability right now. Identify positive things that you will do next time you are trading.
3. Check Your Physiology Wear your confident physiology - posture, expression, heart rate, breathing, movement, gestures, muscle tension. When our state changes so does our physiology. A quick way to change state is to simply change your physiology.
4. What Can You Control? What have you been worrying about that outside of your control? Identify things that you CAN control right now.
5. What Would A Great Trader Do? What would a great trader do in this situation? Pretend to be the ideal trader - play the role, ‘act as if’.

See confidence not as something mystical or dependent on your P&L, but as a skill to be developed and a process to be implemented. Commit to strengthening your trading confidence by working on the points provided in this piece. The results will then take care of themselves.

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