I’ve been getting a lot of questions about confidence lately. There are many ways to look at confidence for a trader. Is it a belief?  A feeling? A combination? Is it tied to probabilities or stats of market studies? Something else?

 

Researchers of various types have debated what confidence is.  I’m not a theoretician, my background is heavier on formal clinical training – applying things in the real world. And in my own trading and my work as a coach I focus on the practical, what is actionable.  Here’s something I think may really help you.

 

In my experience both as a trader and performance coach, I see three types of confidence among traders, and a certain type of confidence is critical when it comes to discipline.

 

The three types of confidence:

 

First, is what I call ‘false confidence’ That’s the person who talks big and poses like a big shot. This type of person often has a strong need to stand-out as a success; and often takes big risks in an effort to either impress others or to assuage their own discomfort, often stemming from a (conscious and/or subconscious) fear of not being good enough; and the results are often erratic and often end terribly.

 

Next, there is temporary confidence, which is conditional on recent performance. This is when self-esteem is tied to their account equity or P&L.  When on a good run, they feel confident and take larger risks (often the prelude to giving it all back). And when performance is lousy they start grasping at anything, maybe exiting winners prematurely or taking on excessive risk to get their money back.

 

Finally, we have true confidence. This is confidence that does not depend on recent results. It is based on a deep sense of inner trust. This is the person who has a history of doing the right thing, regardless of the outcome. Doing the right thing in the sense that they act in their own best interest and trust and understand that doing so over time has a positive impact on results.  The trust runs deep enough to provide resilience in the face of disappointment and even when experiencing pain or extreme discomfort.  This is true self-confidence, the kind you want in trading and in life.

 

In my many years of experience, even before I entered the trading world, I’ve discovered this to be a major part of the foundation for discipline. I first learned this as a threat assessment consultant for the military and other federal agencies and finally at a major bank in the ’90s – which is how I found my way into financial markets

 

Why is self-trust and resilience in the face of disappointment the  foundation for discipline? Disappointment and discomfort in trading, in it’s myriad of  manifestations – missing out, leaving big money on the table,  taking a loss, etc – is inevitable for even the best traders. It’s an elemental fact that traders who  understand this, internalize it, and make it a part of their trading strategy are the most successful.

 

Almost everyone says that discipline is a requirement to succeed in trading. But most people never talk about  what really underlies  discipline. And now you know.

 

Are you surprised it’s not will-power? Will-power is not sustainable, it also results in fatigue by significantly reducing glucose (blood sugar levels). 

 

In fact, empirical research shows that extended use of will-power results in cognitive fatigue and lower glucose levels. And cognitive or mental fatigue is dangerous for a trader, it makes us susceptible to making the kind of mistakes we regret later.

 

Now that you know that will-power is not enough, do you want to develop the necessary ingredients for discipline?

 

If you’re interested in developing true self-confidence and personal resilience in your trading – the real and sustainable basis for disciplined trading, read all my blog posts and – sign-up for my free email newsletter that contains pro trading psychology tips.