The Confident Trader

Confidence is everything in trading. Nothing can help a trader who has lost confidence. Second guessing your entry, feeling guilty about yesterday’s performance, and the revenge trade all center around fear. Fear is the result of a lack of consistency and following a trading plan day in and day out. When you are inconsistent and have a low percentage of winners, your trading account dwindles. With less ammunition to trade with, your fears accentuate and your trading decisions based on lack are severely hampered.

If you find yourself changing your trading approach halfway through a trade, you know you don’t have a plan. When you run your trading as a business, you will, by default, have a trading plan. All business owners who stay in business have a solid plan. That plan will include what type of markets you will trade, entry and exit rules, and goals and objectives, to name just a few. Having a framework to trade by sets some boundaries to keep you on target. But even with all this, there is one thing that helps a trader’s confidence more than anything. Consistent wins.

It’s not you against the markets, it’s you against you.

Stephen Herto

Consistent wins, even if small, build your confidence. I’m not a fan of taking small profits on good trades, but taking some of your trade off the table and letting the rest run will add to your confidence. I see many traders swing for the fences when a single will do. I cringe when I see Johnny-come-lately advertising huge wins with minimal risk to lure google-eyed traders into their web. Slick marketers know what Charlie Munger once said, “It’s not greed that drives the world, but envy.” Seeing gigantic fast returns can entice envy in the best of us. But trying to hit a home run with every trade, will lead to a lot of strikeouts and a low batting average. Pete Rose was baseball’s all-time hit leader collecting 4,256 hits over his career. He was consistent with singles and doubles, and occasionally a triple. Home runs were the rare exception with just 160, or 4%, of all his hits. Yes, it’s nice to have an option trade that brings in over 1000% or an equity trade ten bagger. But over the long haul, I’d rather have a 75-90% win rate bringing in 10-50% per trade. Rather than hitting a home run 4% of the time, I’ll take the base hit every time. You see: the next trade will move the base runner along until he eventually deposits some cash at the home plate bank account.

Watching your accounts net value curve gradually rise over time is a real confidence boost. Intend to avoid the emotional rollercoaster of a gambler who is swinging for the fences to get his next trading rush.

So how exactly does one become more consistent with winning? Over time and with good self analysis, you will see where you trade poorly and where you are winning. Journaling and reviewing your trades over time will reveal some great insight into what will work for you and tell you where you are failing. What works for you is a reflection of self analysis and insight into how you trade. It’s not you against the markets, it’s you against you. Why not take 10-15% wins for a month and see how that feels, instead of waiting for the home run? Here’s to your next base hit!

Enuf said.