Protecting my trading confidence

My last post was about how discipline is the most important aspect of trading. That much is true. In fact, I can’t think of any one thing that is more important to your success as a trader than a really healthy dose of self-discipline.

The runner up though, is trading confidence. Without confidence you cannot and will not prosper as a trader. And I’m not talking about the confidence it takes to go speak to a cute girl at a bar, or the kind you need to strut around on the beach with your dad-bod. I’m talking about a deep seeded self-belief in your own abilities.

This is a thin and precarious line to walk because overconfidence is fatal, but a lack of confidence is equally fatal. So you need to find a balance between being confident, but being humble enough to admit when you are wrong. Not as easy at it seems. I think that it will take me many years to be able to consistently walk this line without veering off it on one side or another from time to time. None the less, I am committed to getting it right.

Why is this important? Well, the market has been difficult and has tested me in ways that I have never been tested before. I managed to stick to my rules during tough times and took a decent trade that I mentioned in my last blog, thanks to the fact that I was disciplined enough to trade the setup. But even so, the stress got to me. I felt like I was about to crack. I decided, after the trailing stop on a Peregrine trade took me out, that it was time to get into cash and literally do nothing for a week or so. So I took two days to close all my trades. Some for a profit, some for a loss, none the less I closed them all.

I had been sitting with exposure to the market consistently for approximately a year and a half and have had no chance to take my eye off the ball. I had no idea how exhausted I was until after an entire trading day had passed and I had not looked at the market even once.

Again, why is this important? Well I think that my confidence was starting to wane. I had been through this rough patch and knew that it was the way I was thinking that was affecting my results, although it was not the only reason. I started doubting myself too much, not trusting the setups. Granted that many failed, but my decreasing self-confidence started affecting my self-discipline to stick to stops and to take entries.

The late great Jesse Livermore once said:

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”.

So, taking a page out of Jesse’s book, I am staying out while I cannot read the market, because to keep trying to trade while I cannot read this market will cost me my confidence. I am protecting it by staying out, for now.

This break that I am taking is giving my brain a chance to reset itself and see the market with clear eyes without having to have some sort of bias because I am in some way involved in it. I am now an observer and only have to take the very best trades that present themselves to me. The high grade setups. Just like my rules dictate I should.

Happy Trading!
Trader Petri