Tools and Techniques to Develop the Mental Edge

10 Ways To Gain Confidence In Your Trading

Lack of confidence is one of the most common problems people have when starting out.
Why is this the case?
It’s because none of us enjoy losing, and we hate the feeling of realizing one’s made a “mistake”.  Avoiding mistakes and loss has been drilled into our minds since our childhoods, especially in school.
From as early in my childhood as I can remember, I always felt the need to get 100% on all my exams.  I wasn’t always successful in achieving that goal, but it remained my goal nonetheless.  I pushed myself to make zero mistakes in order to achieve that goal, so mistakes were a huge “no no”.  The lesser number of mistakes you made in exams allowed you to reach the top of the class and grade.
As we grow up, our parents also tend to drill this into us.  
Therefore, we carry this mentality into adulthood in many different ways, and feel we must do everything right and never make mistakes, which we know is actually an impossibility.
Some people might even think of themselves as “perfectionists”, which I find difficult to believe as perfection can never really be achieved.  I believe there is always room for improvement.
Even after trading and investing for two decades, I continue to learn in order to get better, as there is always a better way.
So, it is little wonder that we find it difficult to “pull the trigger” when investing and trading.
What is the easiest solution to this problem?  This list is a start.
1.    Accept the fact that losses are part of the game of trading and investing.
The most likely long-term winner is the person who is the best loser.  This idea was put forward by ‘Phantom of the Pits’, a trading legend.

2.    Accept the fact that making mistakes is a part of the investing and trading game.
Just like when you learn how to do anything else, you will make mistakes.  This is especially the case when you are first starting out, and learning a skill set that is completely new to you.

3.    Accept the fact that even the best traders and investors on earth make losses and mistakes, and you are no different than they are.

Even Warren Buffett has openly admitted to making mistakes at many different points in his career, and he is seen as the “Oracle”.

Recently, I asked a very well-respected fund manager about his analyst team’s success rate.  The answer was 55%.  So even the pros that carry out the analysis of companies every day on a full-time basis are only marginally better than even odds.  So why do we tend to feel we need to get 100%?

4.    Plan your trades, and trade the plan

Have you ever heard the saying, “if you fail to plan, you plan to fail”?  This definitely applies to trading.

5.    Ensure that no one trade will either make or break you, through positioning sizing wisely.
This is probably the most important advice of all.  Many people become obsessed with the idea of the “big win”, and end up betting the farm.  They only see the upside, and never the downside.  
Additionally, leverage is a contributing factor, as it permits any individual with a modest account size to trade as if they are a pro.  These people do not realize that most pros abhor leverage, and use it only sparingly.
    If one can place small trades in a way that is relative to their account size (eg. less than 0.5%     risk on average, of their entire account size), making a commitment to a trade will be rendered a     much easier process.  This is because the risk of a large loss is no longer an issue, and     therefore will not paralyse your process of decision making.
6.    If you want to succeed on a long-term basis, accept the fact that investing and trading is a get rich slow game, and there is no need to rush.

Our world is one obsessed with fast and immediate gratification.  We all seem to want everything “now”.  Investing and trading is not like that.  Sometimes you may get lucky and achieve a few large wins immediately, but those stories are few and far between and often should not even be believed.  Unfortunately, people’s egos make them love sharing only good news stories.  They do not reveal the losses they also endured in order to get a big win, or they do not reveal their bet’s small size.  They want to make you think they are geniuses for getting it right so quickly!

7.    Get a “positive edge” by creating trading systems that give you one.  A positive edge means that you know over a large number of investment and trade decisions whether you are more right than wrong and if your profits are larger than your losses.

This is another very important concept.  Most people view trades simply as individual trades.  However, your results will improve dramatically if you see the one trade as only that, simply one trade in a series of hundreds or thousands you will put through during your lifetime.  When you do this, the one single trade seems much less significant.

Your thinking must be transformed from an individual trade approach to a portfolio approach.

8.    Be aware of your numbers over a large trading sample size.  Stay aware and you will never be afraid to take action when the time is right.
    This extends and expands upon the last point.  If you have put in a large number of trades (more     than 100 trades), you now should have an approximately accurate idea of how well you will be     able to do as you move forward .  If you are happy with your results in this regard, placing trades     is nothing more than a process you go through to attain your long-term numbers.
9.    Accept that as a human being, you will make mistakes, but you are capable of minimizing their number and impact, and learn from them.

I have made many mistakes that I would rather not have to remember.  However, I make sure that I try not to repeat these mistakes, and that I learn from them.  If you learn from your mistakes, the mistakes become valuable sources of lessons to take your trading to a higher level.

10.    Practice, practice, practice.  Paper fake trading and putting real money on the line are never the same thing.  You should start on a small scale until you feel comfortable, and then you can gradually scale up.  Make sure to give yourself time.  Rome was not built in a day, neither is trading success.

There are many courses out there teaching paper trading, and setting out “model” portfolios, which have been tweaked to look good on a theoretical level.  However, real life trading does not work in this way.

Just imagine yourself placing on a paper fake trade of perhaps the size of your salary for the whole month.

Now, attempt to do this in real time in the real market.  To do this with real risk, with the knowledge that there is a strong chance that you will lose your whole month’s salary.  How do you feel at this point?

It is very likely that all sorts of emotions have arisen, and that you feel totally different than you did regarding the paper trade.  The emotional issues that come up probably include:

I worked very hard to get that money.
I put in a large number of hours to earn that money.
How will I pay my rent or mortgage if I lose the money?
How do I tell my partner I just lost my whole month’s salary?

Do you see what I mean now?

So, it is best to start small, very small indeed.  If you believe you can risk $500, bring it down to $250, or perhaps even $125.  If that is still too much, halve it yet again until you feel comfortable.  This makes “pulling the trigger” a lot easier in the short term, and over a large number of decision-making actions.  

I really hope that these simple but effective tips assists you in your dream of becoming the investor and trader you wish to be.  I feel blessed to be able to share my experience and accumulated knowledge with you.  I hope it makes a real difference in your life.

If you want to see how I use a simple but very effective 10 step checklist approach to select investments and trades, simple go to; for your free download.