Table of Contents
In over 15 years of performance coaching, confidence is the one trait that every single high-performer that I have worked with has wanted to improve. When you are operating at the highest levels in an industry where split-second decisions can make or break your career (or in some industries like the military – even your life), it really doesn’t pay to be second-guessing your own judgement. So if you were someone who was not born with a natural swagger and James Bond level self-assuredness, how can you trade with more confidence and self-belief?
The first step is to understand exactly what self-confidence in trading actually looks like. There are two aspects to trading confidence; the first is your general level of self-worth and how highly you regard yourself at a core level; the second is the level of belief you have in your ability to effectively carry out the task of trading.
Both components are crucial for a successful and profitable trading career. In this article, we’ll look specifically at your belief in your ability as a trader and your capacity to execute your trading plan and reach your goals – a more task-focused type of confidence.
ROLE OF CONFIDENCE IN TRADING
It’s easy to understand why confidence is such a prized trait in trading. Higher levels of self-belief assist in the successful execution of your plan; helping you decisively enter trades when your setup appears, trust in your technical strategy and to exit when you hit your stop or your rules tell you to get out.
Confidence also plays a role in your trading long-game too. Research shows that people with higher levels of confidence in their ability to execute a specific task will persist longer in the face of adversity, recover better after setbacks and can sustain motivation while pursuing their goals.
Let’s face it, trading is a career where losses and setbacks are inevitable. So any mental trait that can help someone accept a loss and effortlessly re-set to neutral is probably more valuable than a portfolio full of AAPL shares.
Confidence is not something people were necessarily born with. It’s possible to strengthen your confidence in the same way that you would train your muscles in the gym. The flip side of that is, if you are not taking proactive steps to grow your confidence, then you risk letting it atrophy. It is natural that confidence will experience fluctuations over time, just as the market goes through periods of fluctuation.
“The key thing to realise about confidence is that it’s entirely within your control. You can use mental training to enhance your confidence and experience benefits, regardless of whether it is currently high or practically non-existent”.
To grow your trading confidence, you can tackle the issue from different angles. One route is to make some significant shifts in mindset that will result in a new perspective and increases in confidence. The other route is to directly train your mind using techniques grounded in the science of performance psychology. We’ll discuss both here.
THREE KEY TIPS FOR TRADING WITH MORE CONFIDENCE AND SELF-BELIEF
#1 CREATE OPPORTUNITIES TO EXPERIENCE SUCCESS
To state the obvious, good performances breed higher confidence. No earth-shattering revelations in that advice. Where most traders slip up however, is that they only define success in terms of the P&L or R values. The problem with this approach is that, even if you had the best trading day ever where you 100% stuck to your plan, you can’t guarantee that you will make money. The market will decide what setups it is offering on any given day.
The P&L is actually to some degree out of your control. So when you define success solely in these terms, you risk negatively skewing your perception of your performance. In turn, this knocks confidence and can trigger destructive trading habits like over-trading, revenge trading and going on tilt.
Another issue with defining “good performance” solely in terms of the P&L, is that often people are impatient to meet their medium-term and long-term financial goals. If this is where your focus lies, then you will be constantly highlighting the gap between your current financial standing and where you want to be 6 months, 1 year or even 5 years down the line.
This breeds a scarcity mindset and future-focus that can leave you feeling demotivated, overwhelmed and…of course…less than confident every time you experience a losing trade.
“The secret to increasing confidence in this context is to change your definition of “good performance” and to proactively create opportunities to experience success.”
Instead of setting P&L-based goals, set performance goals that hold you accountable to the execution of your plan. These could be goals like “respect my stop loss on 100% of trades” or “90% or higher of all trades taken met my A+ setup criteria”. Because these goals are completely within your control and bite-sized, you are setting yourself up for success.
The more you see yourself meet these goals, the more your confidence will increase and you will reap the associated psychological benefits. Of course, if you meet all your performance goals then it is almost inevitable that over time you will be growing your trading account and increasing profit.
It’s exactly like someone on a diet who wants to lose 20 lbs and every time they stand on the scale all they see is the remaining 19.6lbs they need to lose to reach their target. If they focus on the “weight to lose”, then they will always feel like they are failing no matter what efforts they are making. If they change their definition of success to process and performance goals like; going to the gym 3 times per week, not eating sugar on 5 days of the week, drinking 2 litres of water a day – they are much more likely to see themselves being successful.
The goals are easier to achieve, more focused in the present moment and fully within the person’s control. If they keep meeting their process and performance goals each day, then weight-loss is an inevitable outcome.
Tracking and reviewing these goals regularly is an important part of the confidence-building process. When you can look back over weeks of data where you have tracked your impeccable discipline in sticking to your targets and meeting your performance goals, the review exercise in itself becomes a source of self-confidence.
#2 SEEK INSPIRATION FROM OTHER TRADERS
If you are someone who constantly compares yourself to other traders and always come up short – this technique can help you in two ways. It can help you to stop a behaviour that is actively eroding your confidence and it can also help you to proactively grow your belief in your ability to accomplish your trading goals.
We tend to think of comparison with others as a negative habit but that’s not always the case. Bandura was a psychologist who conducted extensive research around how to increase confidence. Bandura uncovered “vicarious experience” as one of four key sources of confidence.
This basically means that seeing someone else succeed, who is similar to you across a range of characteristics, can help you to increase your belief that the same success is also possible for you. If someone just like you can do it, then why can’t you?
Roger Bannister and “the 4-minute mile” is an excellent example of this principle in action. For many years no athlete was ever able to run a mile in less than 4-minutes. It had never been done until Roger Bannister finally broke the record in 1954 and ran a mile in just 3 minutes and 59.4 seconds.
The remarkable thing was that it only took 46 days for someone else to break his record. As soon as people saw that it was humanly possible to run a mile in less than 4-minutes, they began to believe it was possible for them. Not only that, people actually began achieving it too.
As a trader then, you can leverage this effect and seek out highly successful traders that are similar to you in terms of characteristics like age, gender, the instruments you trade, the amount of time you have been trading, the size of your trading account…
Rather than feeling threatened by their success or perceiving it as evidence of your failure, shift your perspective to one of inspiration. Take their achievements as proof that you too can accomplish these same feats. Let comparison be a source of confidence for you rather than a stumbling block.
#3 TRAIN YOUR MIND TO INCREASE YOUR CONFIDENCE
Give your mind a workout and increase your confidence by using the mental training techniques of professional athletes. There are plenty of examples of high-calibre athletes like Muhammad Ali, Michael Phelps and Serena Williams using techniques such as visualization and self-talk to improve their performance. These are not just quirky tools that sportspeople invest in to get a mental edge over the competition, they are backed by decades of scientific research.
Both visualization (or mental imagery) and self-talk have been proven to increase confidence, skill acquisition, motivation and performance outcomes for athletes. They are just as applicable in trading, another high-performance, high-pressure arena.
Practice visualization by mentally picturing yourself having the perfect trading day. Vividly imagine yourself going through a flawless pre-market routine and then trading in your zone. Imagine yourself feeling cool and composed under pressure and taking every trade exactly as your trading plan dictates. Imagine how easy and effortless it is for you to re-set to neutral after a losing trade and how confidently you enter every A+ setup and manage the trade to its conclusion. The more vivid you can make the mental imagery, the more effective it will be in terms of building your confidence. Repeat this mental training session 3-4 times per week to maximize the impact on your self-confidence.
If you are more of a verbal-person, you may prefer to use self-talk or affirmations to boost your self-belief. Self-talk is as simple as saying short positive statements to yourself out loud while in the midst of your trading. You can talk to yourself out loud and “coach” yourself through challenging emotions or trades.
For example if you are someone that struggles with holding a winning trade until it hits your profit target, you might like to use a verbal cue like “I am feeling calm and committed to seeing this trade through. I can do it”. This is a simple statement but it will allow you to stay grounded in your conscious mind and in control of your actions, rather than letting yourself be hijacked by your fearful emotions or subconscious programs.
If you want to work on building confidence at the deepest, subconscious level, then you might like to try listening to this Trader Affirmation Script that I have made freely available on YouTube.
Confidence may not come naturally to every single trader but with a growth mindset and focused effort, it can become a cornerstone of your trading mental edge.
If you liked these tips and are looking for more in-depth trading psychology insights to improve your trading, check out my FREE on-demand Masterclass: