Advice into cash Part 7 - Too much Ego vs Low Confidence

So here we are the final part of our advice into cash series! I want to talk about an area of trading that is rarely commented on but I feel is a huge part of mentality training and that is our confidence levels.

Confidence in relation to trading is simply a scale of belief in what we are doing and the faith we have that it will or will not have the desired results that we want.

As with anything that can be measured on a scale the two ends are polar opposites but in this case can be equally destructive. On the one hand people with extremely high confidence can become ego maniacs and make terrible decisions based on their blind faith in their own ability. On the other hand people with severely low confidence can become ‘shy’ in their trading and talk themselves out of putting on trades that they thought looked good opportunities.

Over-confidence:

When does it occur?

It tends to happen after a good run of results, a trader then assumes that will continue forever. When we win we tend not to analyse as much as when we lose, ‘Were we fortunate or was it skill? Who knows? Who cares?! We made money!’ is a typical thought process that is a result of winning. This is proven by the fact we can usually remember our big losses better than our big wins, sure we may remember some of the good wins but most people focus on the losses as the pain still hurts!

Why is it a problem?

Overconfidence is a problem because we feel invincible, we may raise stakes, start talking like know-it-alls and forget that we still have learning to do. Trading has a habit of bringing out the worst in some people and their egos grow huge as they get some nice wins under their belts. It is important to rein this in as we have seen a few of these characters on the forum and invariably they don’t last long before they bust out, or even worst have a near mental break downs the moment their ‘skills’ come into question.

I can’t think of anyone with a massive ego who has been a pro-trader for any length of time, look at people like Ryan Carruthers and Richard Futter who are refreshingly courteous to other traders and do not laud their successes. I think it is one of the things that attracts people to Betfair Trading Community, we encourage a humbleness amongst traders and have created a positive learning environment as a result!

How do I stop it?

Remember that every winning trade or run should still be analysed as much as a losing one. Be thankful you made money but do not assume that you are some kind of demi-god as a result. People with massive egos tend to have deep lying insecurity issues, it is worth exploring those if this is something you struggle with.

Under-confidence:

When does it occur?

Often after a bad run. Traders can lose faith in their ability and this can be really hard to get back again.

Why is it a problem?

This is something I definitely struggled with in my early career of trading. I would end up not betting rather than taking a chance on a trade I thought looked good value. As a result I would not make any money despite often picking a good trade out.

The other key problem is that you can often find yourself taking losses too early as you are so scared you picked a losing trade.

How do I stop it?

You have to back yourself and be confident in your ability as a trader to bet with real money. If you are not then paper trade until you are. When you make money paper trading your confidence will grow and remember when you switch to real money there is no logical reason this should not continue. There is a massive myth that once people and systems go ‘live’ with real money then they start to lose, this is nonsense and if that has held you back then you are suffering a lack of confidence. Often we are under-confident because our trading has no solid foundation of evidence that it works, if you test for three months and make a profit you will know in all likelihood it is profitable due to the over-whelming evidence.

So where are you on the scale?

Have a think about where you are at with confidence, which side are you on and what do you need to do to work on any confidence issues?

Let’s look at a couple of real life examples of the two traders I spoke about earlier who I know very well personally and so have seen their successes first hand.

Ryan Carruthers – Very confident and self-assured as a trader. Ryan knows that his trades are likely to come good and therefore never shows any sense of panic. This comes from years of profit and proof in his ability and yet he has no ego to show for it, just a lot of money!

Richard Futter – Again great confidence in his ability but not a delusional over-confidence. If I ever feel under-confident in a trade (especially in cricket) I will ask his opinion as he has a great ability to see beyond the market panic when trades seem to be going in the wrong direction. As far as I can remember he has never been wrong with the advice he has given me in those instances.

So two of my closest friends and trading allies are both on the high end of the confidence scale without reaching the dangerous over-confident tipping point. This is where we should all aim! If you put the work into self-development there is no reason not to get there if you aren’t already.

That’s it! The series is over! If it has helped you then let me know, it always helps to have encouragement when I am hunched over my keyboard at 2am in the morning writing these blog posts. It will help my confidence!

Finally, the next series is going to be an absolute cracker and we have a few community members sharing how they prepare to trade their specialist sport. Should be a real eye opener for those hoping to go Pro!