A friend of mine is a professional racing driver. This year he’s changed from racing radicals to LMP2 division all of which means little to me! However he was in pre-season testing last week and said he’d lost confidence whilst trying to familiarise himself with the different driving dynamics of this new car. He’s used to being in the top three when driving radicals and is in his comfort zone there. But now he’s moved on, he’s not where he wants to be as a result of this dip in confidence. I’m sure he’ll work on it and then be where he wants to be but having confidence in what you’re doing is everything….
Take trading. I’ve seen countless traders become pretty proficient at trading who were very successful when trading at £1 or £2 per point. However, as soon as they made the step up to trading with larger size, something seems to go wrong and they lose their ability to be profitable.
So what’s changed? They’ve lost confidence. All of a sudden they’re aware of the larger position size and the consequences if the trade loses. They were comfortable trading before when they may only lose £100 on a trade, but now they are trading with larger position size, the thought of potentially losing £300 or £400 on a trade makes them over-think what they are doing. As a consequence, they start getting too picky on finding the perfect setup and whereas previously they would run their profitable trades, they start grabbing profits too early.
The only short term solution is to move back into their comfort zone and trade smaller size again. Obviously this is not what they ultimately want so they will have to work on this issue of which there are techniques to help.
This is just one example of confidence in trading. Many traders, especially newer traders lack confidence about their ability and again this will impact on their trading results until they find a way to overcome it.
Generally speaking, you need to have a bit of arrogance when it comes to trading. Self belief is so important as it breeds on itself and makes you a better trader. I’ve traded with people who technically only have pretty basic trading skills, but as a result of their confidence, they have better records than other traders who are too fearful of what might go wrong and therefore miss too many good opportunities.
Like my racing driver friend, in order to excel, confidence is everything.
Turning to the currencies, Cable has caught my attention as it’s been testing its daily 50ma (black line on the chart) of late. Should it manage to close back above the green horizontal line indicated on the chart, that could indicate buyers are feeling more confident after this week’s sell off. If that should happen, I would look for continued strength to come into this pair. If however, we close below last week’s low, odds increase of a test of the late February lows.
Have a great week
Charlie Burton, Ezeetrader
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