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Simple Ways To Develop Confidence In Trading We all have confidence tucked away in us somewhere; we may use it for our day job,
weekend sports or odd jobs around the house. So how can we develop confidence in
trading?
I hear traders say to me all the time “ I’ll get confidence when I start making some
profits” and every time I hear this I kindly let the trader know, you need confidence
before you start making profits.
Can we start off by asking ourselves “are we naturally a confident person”? If not that’s
OK, we can then ask ourselves what are we confident at doing in our day to day life, and
how did we get to the stage of being confident in that aspect of our lives.
The oxford dictionary states confidence as “the feeling or belief that one can have faith in
or rely on someone or something”
So we can break that down into trader language quite simply, “ do you trust your trading
plan/system”
So let’s take a look at some key steps in gaining some confidence in your trading.
1. Have you backtested your trades you are taking? We backtest our trades to gain some
knowledge in the setup, and look for patterns we can use to our advantage in the
future, this will also give us insight to why our trades fail. Backtesting your trades is
by far the most boring part of trading and is overlooked by so many for this reason. No
one wants to number crunch, but by doing this you will gain confidence in the trades
you take. (pending the success rate of your trade of course)
Say you backtest your trade setup over the last two years, you winning strike rate is
sitting at 70% (7 out of 10 times you have a winner) next time the trade setups, you
know your trade winning strike rate over the last 2 years all you have to do is push the
button. You will have confidence in doing this. Or you can sign up to a service that has
proven FTSE signals. Make sure their results are published and verified.
2. If you’re naturally a confident person, you need to know how to handle a loss.
Most confident people I know hate losing, and unfortunately, in trading, we will lose.
Losing can wreak havoc on our confidence, we need be able to handle a loss, simply
putting it behind us and moving onto the next trade.
How will you handle a string of 4 -5 losses in a row, will you have the confidence in
pushing the buy or sell button the next time your trade comes up? Your confidence will
come from your backtesting as mentioned above, knowing that over the last 2 years of
backtesting you found on 5 separate occasions your system experience a string of 5
losses in a row.
My mindset before entering a trade is that there is a possibility that this trade will fail,
I guess I’m trying to condition my mind for the potential loss, that way when it
happens I don’t feel so bad. Another good way of handling a loss is to leave the
computer straight away, go for a walk, throw the ball to the dog, take your mind off it
before it turns into multiple losses.
“The Market is always right”
3. Working on you. Setting trading goals and completing them will give you some
confidence in your approach to trading. Little goals like, I will only trade setups that I
have backtested.
Stopping trading for the week after you have made 3%, following your trading plan, not
breaking any trading rules. If you can complete goals similar to these, and you have
backtested your strategy, there is no reason why you cannot gain confidence in your
trading.
One last point, develop these steps into your trading and keep a journal of
every time you place a trade, every time you exit a trade early (before you were supposed
to) and every time you take a loss, write down how your feeling, are you tired, did you get
woken up by your platform alarm, were the kids crying in the backroom. This will also
help you in your quest of “why weren’t you confident”. And will also give you guides of
what you need to improve on.