Conning Stock Traders Out Of Self-confidence

How I do love the smell of a winning trade in the morning! The market did precisely as I expected.

With the captured smile of the Cheshire cat firmly in my mind, heart, and on my face, I reached out to a student.

“Are you in this trade today?” I asked, fingers typing nimbly in a chat room.


“Oh, not active today?” I know everyone doesn’t sit a their machines all day long as I do.

“No. Just no confidence,” he responded.

Even online you can often sense a mood with very few words. I “heard” that he was disappointed he wasn’t in the trade and perhaps, frankly, did not like my chirping.

I continued exercising my keyboard, going into some technical detail why he should have had the confidence to take the trade. It didn’t matter, there was no response.

My Cheshire cat smile vaporized.

How does a beginning trader, or for that matter an experienced master-of-the-universe trader, get into a no confidence mode?

A very experienced trader will tend to reach that point after a humbling loss. A humbling loss is one where he/she probably knew they should not have taken the trade in the first place. At best it was a guess, a 50/50 proposition. They did it anyway and learned that other trading rule. The rule in chapter 10 of their favorite trading book, the one they never finished, to wit: opinions are often wrong, the market is never wrong.

The beginning trader’s reasons for loss of self-confidence is a little more complicated than just ego busting, though that is present as well. Perhaps the beginner literally has never had a big rewarding home run winning trade. A home run is the type of trade that reassures that one can make big money in this game. I should point out that a steady number of singles and doubles will work just as well, even more so.

Maybe, for both the beginner and the experienced trader, they’ve had a string of small losses. That will work itself into the psyche of a trader regardless of experience.

Among many of the moving parts associated with traders sabotaging themselves is something as simple as human nature itself. We are all wired to be the optimistic type or pessimistic. Neither side has an advantage but pessimism will feed negativity and optimism will fuel hope.

The most damaging, over time (whether just minutes before a trade, or days before), is that negative repetitive self-talk: “This isn’t going to work. I’m just throwing good money after bad. Why am I even trying this? I see the chart but I’ve changed my mind five times already. Similar looking thing last week and it didn’t work. I can’t win for losing here. Even the gurus don’t know what’s going on, how should I?. I’ve already lost on this stock. If the world wants this stock to go down, they should pay me to get into it,” etc. etc.

The hits just keep coming ultimately scaring the bejeezus out of the most smug of Cheshire cats.

The trader might be looking at the most promising technical setup ever seen on a chart in the last fifty years. Everyone sees it, recommends it, the Pope has given his blessing. Everything is aligned perfectly under perfect market conditions in a strong trend, and, in spite of seeing that glass as half full, the trader will recall something about a “black swan” event and that with his/her luck it will strike two nano seconds after he/she hits the enter key.

Such is self-doubt as it works aggressively against self-confidence. The original death by 1000 cuts.

Here are the get-over-it solutions to the issue of losing self-confidence:

  • You  can’t have a serious desire to trade the market without accepting the fact that this is a risk game for everyone, traders and investors… both are speculators. You can’t speculate without risk.
  • The fact is that there is always something that can turn a winning trade into a losing trade. It doesn’t have to be a black swan event, those things that come out of left field and no one on earth could have seen coming. It could be one of any number of headlines from Wall Street, Washington, D.C, some geopolitical event… you name it. If you accepted the risk pointed out just above, you accepted all of this as well.
  • Trading is a numbers game, odds and probabilities… nothing more, nothing less. The best looking setups will generally break as expected UNLESS something (mentioned above) does interfere. Price action tends to follow the path of least resistance. You don’t know the future any more than Ben Bernanke, Barack Obama or your neighborhood Tarot card reader. Get over it, you’re not more advanced than any other human on earth, and if you are, call me.
  • Most important, as Mark Douglas mentions in “Trading in the Zone,” by accepting the risk, by being aware of all those things you should be aware of, the fact remains that every minute of every day is a new market. That applies to the broad market or just the one stock you’re watching.
  • Your willingness to win in a trade MUST be greater than your fear of losing. With negative self-talk you’re just conning yourself out of self-confidence. This does not mean that you can hope your trade to go your way since hope is not a strategy. There are things you can do to mitigate losses.
  • Traders MUST come to a trade neutral, evaluating both sides and making a decision.
  • Did you know your loss parameters in the first place? Was it acceptable or not?
  • Did you have a trade plan but never even considered using it? Gee, you think that could hurt sometimes?
  • Is there something you know you should know but just won’t take the time to study up on?
  • Finally, consider odds and probabilities… the previous outcomes of the past five or ten trades have absolutely no bearing whatsoever on the trade under consideration. NONE. How can it? This current minute is a new market. Hit the enter key!

I think the lost of self-confidence is singularly the biggest reason some people will stop trying. They just can’t motivate themselves back into self-credibility. If you can’t convince yourself, it’s not going to work.

You play this game with money you can indeed put at risk otherwise the concern about losing overwhelms all other thinking… no matter how hard you fight it. The fear of losing becomes the goal rather than the desire win because THAT is your focus.

Powerful stuff these mind games we play. Don’t play. Learn what your doing, settle for small success with small risks and move on towards mastering your trading universe.

About wallstreetpirate

Thirty-five years in financial services from insurance to registered investment adviser, and trader (now retired). Currently helping wanna-be traders and experienced alike as a trading coach and mentor. I've been in and around, on top of, in the middle of, and on the bottom of the stock market for a long, long time. Here's all I've learned: Trading is about behavior, psychology, and appreciating what the charts are saying technically. You can't fake it. Either you know what you're doing or you don't. And as much as this isn't rocket science, it takes knowledge and a skill set to survive.
This entry was posted in day trading, options, position trading, psychology, speculation, Stock Market, stock market trading, swing trading, trader psychology, Trading Stock Market and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s