There isn’t one right way to trade the markets. It’s tempting to emulate your favourite “Market Wizard,” but in the end, it’s essential to match your trading style to your personality. Some traders, for example, carefully backtest a strategy before using it. They scrupulously estimate the probability of success for a trading strategy in an attempt to forecast how it will do under current market conditions. They are methodical and somewhat compulsive in their approach. But based on their personal psychology, they know that they are most comfortable when they have considered all possibilities and taken reasonable precautions to ensure success. Other traders are more easygoing.
They take risk and uncertainty in stride and aren’t afraid to formulate their trading plans as they go along: “Backtesting is of little value. History only repeats itself occasionally. You’ve got to go out and find opportunities as they happen.” Which approach is best? Again, the approach you use to trade the markets depends on your unique personality.
That said, the single most important factor for trading successfully is self-confidence. You can have a foolproof method, but if you don’t have confidence, you can’t use the method effectively. Developing a sense of confidence takes hard work. You must accumulate a real-life experience. You must live through various market conditions, and see how you react. Once you have rock-solid confidence based on a wealth of experience, though, the way you approach trading is a matter of preference.
Some people are naturally optimistic. They tend to look at the world through rose-coloured glasses, believing that all turns out well in the end. If you have proven skills as a trader, an optimistic attitude can keep you at the top of your game. By pushing yourself to the limits, you will consistently perform at your best. (On the other hand, optimism can hurt you if you don’t have well-honed trading skills. Many novice traders over-trade, abandon risk limits, and lose big when they are overly confident).
But not all successful traders are extremely optimistic. Indeed, many successful traders are sceptical, cynical, and think, “If I’m not careful, I could lose capital.” They are confident in their ability to trade profitably, but they know themselves. They believe in preparing carefully for trade and prefer to over-prepare. Before they execute a trade, they must be fully satisfied that they’ve covered all their bases. They think and re-think their strategy. They even worry a little about whether it will work. But in the end, they trust their approach, and they are confident that all their preparation and worry will pay off.
Research studies have shown that you must be yourself in order to achieve a high level of performance. Trying to be someone you aren’t just because you think it’s the “right” way to trade often does more harm than good. For example, if you take optimistic people and make them question their skills unnecessarily, their performance suffers. Similarly, if methodical, pessimistic people try to avoid going through the motions of checking and re-checking for possible flaws, their performance suffers. It is vital to remember that there is no one right way to trade. In the end, you must find what works best for you. Through trial and error, you must discover what you need to do to make profits in the markets. The only standards that matter are your own. In the final analysis, it’s just you, the markets, and no one else.