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Do you ever wonder what separates an average trader from a great trader? There are two very important things that differentiate these two types of traders: Discipline and Confidence. Today, I would like to focus on the latter. Being a confident trader is paramount to succeeding. Quite frankly, without it, it will be very difficult to attain a high level of success. There is a fine line between confidence and doubt, especially in trading. After several winning trades, most people typically have a positive approach to their next trade. However, after a few unsuccessful trades, many traders lose that "swagger" and the shrouds of doubt begin to creep into their mind. These demons can appear in several aspects of trading. Sometimes it's as simple as being afraid to pull the trigger on your next trade. Other times it's that strong desire to make your money back at any cost and then taking every trade you see, despite the patterns being of lower quality. Confidence will even affect trade management. For example, selling the winners too soon, and allowing the losers to run right into your stop loss, and on the extremely undisciplined side, letting losers run past your stop loss. These are just a few of the things that can happen when a trader loses confidence and let's doubt cloud their vision. This is why confidence can literally make or break a trader! I'm sure many of us have watched a basketball game in which a great player scores 50 points. After the game the interviewer commonly asks, "You were on fire! So what was it like out there?" The player often responds with something to the effect of, "I hit a few early on, built some confidence and after that I was in the zone! The basket looked twice as big as usual! I was really feeling it tonight." Trading is not much different. After 4 or 5 winning trades in a row, we believe we can do nothing wrong. Why? Confidence. On the flip side, if a basketball player misses 10 shots in a row, they might be more hesitant to take the next shot. However, the best players still want the ball. Despite missing 10 shots in a row, they still want to take the game winning shot. In this situation most average players would shy away from that kind of pressure, especially after such a terrible game. But the best always want the ball, regardless of the situation. It's simply a matter of confidence. Down to their core, they still believe they have what it takes to win the game, regardless of what happened previously. Do you have that level of confidence? How can we keep a confident, consistent approach to trading despite the inevitability of losses? The first thing any good trader will do is OBJECTIVELY evaluate the situation. Take a step back and look at the trades you've taken and ask yourself if they are within your trading plan, and what was the root cause of the problem? Were the patterns lacking in quality? Were you distracted by an outside influence or some other event in your life? Was the market not conducive to trading (i.e. a no-follow-through market)? Or was it just a matter of simple odds? Yes, sometimes it's just a matter of odds. Although it doesn't happen often, on occasion even good trades don't work. Unfortunately, after most traders have lost a few in a row, they get very "gun-shy" and start thinking about all the negative things that could happen if they took another trade. In this way, we start to question whether a certain pattern is "good enough" or whether we ourselves are good enough to make it in this business. By this point, our positive mental approach has been shattered, filled with fear and riddled with doubt. So the next time a great pattern appears; we will often pass on the opportunity, due to our increased sense of loss. One of the huge differences between a novice trader and a successful experienced trader is the ability to recognize what is happening, without letting our emotions make the decisions for us. A professional trader is a disciplined, objective individual who is extremely confident in their approach. Not only does this relate to taking trades, but it also relates to managing trades. Many novice traders will sell too soon in fear that the trade will go against them, yet they are all too happy to let a trade stop them out. The novice will take full advantage of the losers, yet cut the winners short. The root of this problem is confidence, or lack thereof. For a professional trader, his/her hope for gain far exceeds their fear of loss, whereas with a novice trader; their fear of loss far exceeds their hope for gain. The experienced trader knows that in the long run, over the course of a week, a month or a year, the odds will work in their favor. So, maybe they lose 3 in row, or perhaps they have a trade that gets within 3 or 4 cents of their target only to watch it pull back and stop them out. Despite these circumstances, they are not tempted to deviate from their trading plan when the same situation arises again, because they are supremely confident that the odds will work in their favor in the longer term. How many people have "almost" gotten to their target, only to watch the trade pull back and stop them out? What happens the next time this situation occurs? Many novices will take the money and run, in fear that the same situation might happen again. Once bitten twice shy. Yet, to their dismay, this time, the trade continues on and not only hits their 1st target, but eventually goes on to hit their final target. Frustrating isn't it!? This is why it is so important to stay disciplined and confident at all times and to not adjust your plan until you have back tested the results over a period of several weeks or several months. Professional traders come in everyday with the same positive attitude, expecting to make money. Even if, for some reason, they lose money on Monday, this absolutely will not change their approach on Tuesday or Wednesday. They wake up with the same belief every day, and that belief is the product of confidence. They are confident that what they are doing is right, and it will produce results. Even the best traders have losing trades, and on occasion, losing days. Losing is part of this business, it is completely unavoidable. It's just a matter of time before you have a losing trade. This doesn't mean you are a failure, or that you don't know what you're doing, it just means that for 1 trade out of 100's or even 1000's something went wrong. It's our job to figure out what went wrong, and to fix it. Remaining confident and positive allows the astute trader to quickly evaluate the situation and move on with even more confidence than before, because they've now eliminated one more way to lose. Remember, confidence breeds success, and success breeds confidence!! So, the next time you find yourself in a rut, perhaps having lost several trades in a row, do not let fear and doubt creep into your psyche. Just remain focused on the task at hand, which is to find quality patterns that produce results. We've all had losing trades; it's how we handle them that will define our success. Remember, those "few" losing trades will be very insignificant compared to a lifetime of trades. Don't let your fear of loss overpower your hope for gain, because the disciplined, confident trader is a successful trader! Always stay positive and objective! Jared Wesley The Confident Trader Day Trader School
One basic need human beings have is certainty. We're always looking to provide a measure of certainty to our lives. It provides for us a 'warm fuzzy' to know that we can live day to day and make sure that our necessities for survival are met. However, in the markets, there is never 100% certainty with any trade that is taken. This is one reason why trading the markets is so hard for most people. When trading the markets, this general search of certainty takes hold of many investors and novice market participants, giving them the illusion that they must buy when they're 'certain' that the stock has good upside potential (usually after that stock has doubled in price and has been "upgraded"), and sell when they're certain that the end of the world is happening tomorrow (usually a day prior to the establishment of some sort of climactic bottom). This need to be certain is also the driving force behind the eternal search for the "sure thing". That there is a perfect indicator out there that can provide them with a feeling of certainty, amid an environment that is completely uncertain. Indicators galore are created with the sole purpose of injecting a level of predictability (certainty) to decision-making. These indicators, used as "price predictors", are nothing more than a way to create certainty, in a place where certainty flat out does not exist. In the markets, you shouldn't look for certainty, only for opportunity. This opportunity in many cases won't appear in an obvious fashion. But this is fine, since opportunity isn't created for the uneducated, or he who looks for certainty. Part of the reason why the professionals can be wildly successful at trading is because of this Law of Uncertainty coupled with the pursuit of certainty by novice and unsuccessful traders. Opportunity is created for the educated individual who is willing to take calculated risks in order to achieve his rewards. When you're buying a Pristine Buy Setup (PBS), the entry point isn't the most certain place to be, right? That PBS looks a lot more "certain" after that stock has moved up 3 bars in a row, right? Hindsight is always 20/20. Notice that the place where opportunity dwells is just that place that makes most novices tremble with fear. By the time they gain a measure of certainty, it's often too late. So strive to look for reliable events that present good opportunities based on a methodical approach and then trade those events, with the understanding that you're trying to take advantage of the opportunities that the market presents. Realize that you will have losing trades because of uncertainty. You could have 'the perfect setup' based on your training and experience, and even those trades are never 100% certain. So - 2 key points must be absorbed here. One, that losses are simply a byproduct of this business. Don't get overly dismayed and lose control emotionally when you get stopped out of a trade. Two, remain objective rather than subjective (emotional) and forget about certainty, because the only certain thing in the markets is that there are no certainties. Jared Wesley Contributing Editor Interactive Trading Room Moderator Gap, Intra-Day and Swing Trading Specialist Instructor and Traders Coach