3 Easy Steps to Build Confidence in Your Trading
One of the main things people are looking to achieve with their trading is the ability to trade with confidence.
So what does that say about the state that most people are trading under? That would imply that most people are trading with a lack of confidence, doubt and uncertainty.
These are definitely not desirable conditions to be trading under.
When we have doubts about anything our natural human tendency is to think about the worst that can happen.
In trading the worst thing most people think about is a loss.
So the natural progression from a doubt is fear of a loss and once they are in that state they can be consumed by that fear and it is all that they can think about.
Through knowing how the mind works and that what we focus on is what we receive then we typically get that loss as a result.
So how do we develop confidence with our trading? In my coaching I use a three step process to developing confidence in your trading.
It is a process which if followed can only lead to more confident trading.
Step 1 - Create an image of what you want.
This relates to both what you want to achieve as well as the qualities you want.
Regarding confidence it is imagining what a confident trader looks like and how they act.
Through a process called modelling you can study how successful traders behave and then act as if you have those qualities.
Spending time daily imagining yourself with the qualities of a confident trader and seeing yourself doing your trading activities with confidence will start to re-program the sub-conscious and create a new self image.
Affirmations will also support this process of re-programming.
Step 2 - Build evidence to support you.
A lot of doubt in trading is due to not really understanding your trading system.
A lot of traders buy a system off a trading guru and just assume they are going to make mega bucks straight away.
So after their first loss their confidence is a little dented but after a couple some real doubt starts to creep in and as we said before the follow on from doubt is fear.
Now if they had a better understanding of their trading system they would know that it was just part of the law of probabilities running their course.
This of course is based on the assumption that the system they have bought is actually a profitable trading system.
To get to understand your trading system and to determine if it is profitable you need to do some historical back testing.
Now back testing is a bit of an art and science and a lot of the analysis is based on statistics.
Back testing is analysing historical data and determining where you would buy and where you would sell.
From that information you can then work out what return you can expect to get for every dollar that you risk.
If it is positive you are on the right track, if it is negative you've possibly been sold a dud.
From this analysis you will also be able to understand the number of losses you can get in a row.
You will get an idea of what sort of draw down you are likely to expect and what sort of annual return your system might generate.
If your numbers stack up this will create a high level of confidence in your ability to generate some reliable profits from your trading system and allow you to progress to the next step.
Step 3 - Experience.
You now have some strong foundations in place and the last step is to actually apply your trading system to live trading.
If you wanted to take the more cautious approach you may actually choose to paper trade the first few trades just to make sure that the market dynamics haven't changed from when you did your back testing.
If you have done a thorough job with your back testing and have some good robust analysis this shouldn't be necessary.
By going through this process it should be just a matter of time that you start racking up some successful trades to further enhance the confidence you have been building along the way.
So what does that say about the state that most people are trading under? That would imply that most people are trading with a lack of confidence, doubt and uncertainty.
These are definitely not desirable conditions to be trading under.
When we have doubts about anything our natural human tendency is to think about the worst that can happen.
In trading the worst thing most people think about is a loss.
So the natural progression from a doubt is fear of a loss and once they are in that state they can be consumed by that fear and it is all that they can think about.
Through knowing how the mind works and that what we focus on is what we receive then we typically get that loss as a result.
So how do we develop confidence with our trading? In my coaching I use a three step process to developing confidence in your trading.
It is a process which if followed can only lead to more confident trading.
Step 1 - Create an image of what you want.
This relates to both what you want to achieve as well as the qualities you want.
Regarding confidence it is imagining what a confident trader looks like and how they act.
Through a process called modelling you can study how successful traders behave and then act as if you have those qualities.
Spending time daily imagining yourself with the qualities of a confident trader and seeing yourself doing your trading activities with confidence will start to re-program the sub-conscious and create a new self image.
Affirmations will also support this process of re-programming.
Step 2 - Build evidence to support you.
A lot of doubt in trading is due to not really understanding your trading system.
A lot of traders buy a system off a trading guru and just assume they are going to make mega bucks straight away.
So after their first loss their confidence is a little dented but after a couple some real doubt starts to creep in and as we said before the follow on from doubt is fear.
Now if they had a better understanding of their trading system they would know that it was just part of the law of probabilities running their course.
This of course is based on the assumption that the system they have bought is actually a profitable trading system.
To get to understand your trading system and to determine if it is profitable you need to do some historical back testing.
Now back testing is a bit of an art and science and a lot of the analysis is based on statistics.
Back testing is analysing historical data and determining where you would buy and where you would sell.
From that information you can then work out what return you can expect to get for every dollar that you risk.
If it is positive you are on the right track, if it is negative you've possibly been sold a dud.
From this analysis you will also be able to understand the number of losses you can get in a row.
You will get an idea of what sort of draw down you are likely to expect and what sort of annual return your system might generate.
If your numbers stack up this will create a high level of confidence in your ability to generate some reliable profits from your trading system and allow you to progress to the next step.
Step 3 - Experience.
You now have some strong foundations in place and the last step is to actually apply your trading system to live trading.
If you wanted to take the more cautious approach you may actually choose to paper trade the first few trades just to make sure that the market dynamics haven't changed from when you did your back testing.
If you have done a thorough job with your back testing and have some good robust analysis this shouldn't be necessary.
By going through this process it should be just a matter of time that you start racking up some successful trades to further enhance the confidence you have been building along the way.
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