Have you ever wondered what makes trading one of the toughest professions in the world? This may not be a question with a single answer, but in today’s article we’re going to focus on one of those possible answers: lack of control over outcomes.
What implications can lack of control have on the results of our work?
The most immediate implication that we will observe is the loss of confidence in ourselves. Lack of efficiency leads to loss of self-confidence and this leads to low self-esteem. All of this will directly affect our operations and most likely other aspects of our daily lives. As you may have noticed, this is not a trivial issue at all. In addition, we face a “snowball” effect, as less self-confidence will cause us to act with indecision and insecurity, thus paving the way for more mistakes and nervousness, which will result in less self-confidence. That’s why we need to identify and solve the problem as soon as possible.
What is self-confidence?
Self-confidence can be defined as the confidence you have in yourself. The feeling of usefulness that we attribute to ourselves in relation to the world around us will depend on it. The degree of self-confidence marks the way we perceive ourselves, which, in turn, will directly affect our activities and our performance during their development. The , which we talked about in a previous article, plays a fundamental role. Many factors can influence our level of self-confidence, but the good news is that self-confidence is not something fixed, but is moldable, that is, it can be trained and improved.
A big problem
Among the few (very few) sure things in trading, one is loss. Yes, unfortunately, this is one of the few things that we have or will have with absolute certainty: losses.
What happens when we chain a series of negative results? Our self-confidence will decline faster than our account balance. You begin to mistrust the system, the execution, the business itself. It’s a big deal, but we have no control over the results and when they go wrong, they can undermine our self-confidence to the point of destroying it.
A solution (not the only one)
To avoid arriving at such a situation, we must change the fact on which we focus. The first thing we need to do is to accept and embrace uncertainty about the outcome of an exchange as something inherent in trading. In this way, we have to shift the focus, from making or losing money, to performance, to the execution of our operations, because that is the only thing we can have some control over and not the result of the next operation. Let me explain it with a practical example, which is the best way to understand things.
We assume that we have a tested and validated trading plan and system. Suppose you are trading the Mini future with a contract, as it is a small account. You have been on a losing streak for some reason (eg increased volatility). Remember that you do not and will not control the results, but how you operate. Being in a contract, you cannot reduce your positions, but you can choose to include in your trading plan the possibility of trading the MICRO S&P 500. Now that you have reduced your position and therefore your risk, you have a greater great maneuverability. You can now consider in your trading plan the possibility of having a looser stop that adapts to new market conditions. Now, when you take a position and it makes a normal correction, two things can happen:
1.- The correction stops. He exits with a small (tolerable) loss since he is now trading MICROS.
2.- The correction is part of what is foreseeable in the current circumstances. You can hold, which you couldn’t before because of the tick value in the Mini S&P 500. If after the correction the position continues in the expected direction, you can add to your position.
Note that the bottom line will always be out of control, but we have control over the size of our positions. We have focused on the negotiation process and not on the result. This will produce a sense of self-efficacy that will lead us to regain self-confidence.
Other ways to build self-confidence
As you will see from the example given, the importance of the trading plan, in short of having rules to operate, is absolutely vital. A trader should focus on following their own rules, trading to the best of their abilities, not making or losing money. Whenever we conform to our standards, we succeed in the discipline that following a method entails and this leads to self-confidence.
Another habit to be incorporated by the trader to increase his confidence could be the preparation beforehand for the session. I’m not just talking about marking support and resistance areas, but also about establishing possible scenarios and action plans in the face of these scenarios. Visualizing and anticipating action scenarios will make us act with more confidence if these scenarios occur.
Another way to gain confidence is to learn from losing trades. Confidence is acquired more by facing adversity, by entering hostile terrain. This is why, in a trade, it is even more important to know where to leave than where to enter. You have to bear the price long enough, but without the loss becoming unbearable or even traumatic. We must have planned this moment of departure and our stop must be immutable. Remember that the plan should not focus only on winning trades, as there will also be losers. Being prepared and controlling how much and how you lose will give you confidence.