Module 12   Innerworth — Mind over marketsChapter 457

Realistic Levels of Commitment

When you execute a trade, you can’t let your confidence waver. It’s just like when a professional athlete tries to make a winning play. He or she can’t suddenly lose faith and back out. It is vital to have a clearly defined game plan and after you decide to execute it, you have to follow through. That said, you should take as many precautions as possible to make sure that you aren’t putting blind faith in trading plans that are not likely to produce profits in the long run.


Enduring trading success eludes most traders. You can’t be consumed with self-doubt. It’s essential to have the proper amount of confidence. If you are under-confident, you’ll never be able to overcome the seemingly endless setbacks novice traders face. But if you are overconfident, you may overextend your trading knowledge and assume that you have skills that you don’t actually have.  Building genuine, rock-solid confidence in one’s trading abilities takes time.

It’s necessary to experience a variety of market conditions and learn which trading strategies work best under which specific conditions. It’s not something that happens in just a few months, and some trading experts say it takes several years of trading before one moves from the status of a newbie to that of a seasoned trader. In the meantime, novice traders vacillate between under- and overconfidence: sometimes they feel they don’t have enough confidence while at other times they may have too much.

This wavering confidence makes a commitment to a trading plan difficult. It’s natural for a novice trader to ask, “Should I really have a strong commitment to my plan, or is this a time when I should be cautious and stand aside.” It’s much like a freshman quarterback throwing Hail Mary passes with a false sense of confidence that it will reach the intended receiver. A strong commitment is only a virtue when a trader has the skills to back up the plan. If a trader trades beyond his or her skills, however, it is likely to fail.

Caution is often a virtue, but if one is too cautious, he or she will never develop the necessary skills to trade effortlessly and profitably. If a freshman quarterback avoids making passes for fear of an interception or incomplete pass, he will never experience real-life pressures to succeed. Similarly, if novice traders fail to execute trades, they will never hone their trading skills.

So what can novice traders do? They can take precautions to minimize potential negative effects. For example, it is essential to manage risk carefully, so a series of losing trades will not deplete your trading capital as rapidly. Just as with learning any new skill, it’s also useful to start out slowly. One may want to stick with a few solid, basic trading strategies and execute them under ideal market conditions. For example, conventional wisdom says, avoid the open.

A novice trader might do that at first and as an added precaution, only trade in bull markets, and take small profits, just to get a feel for the markets. It may not be a very innovative strategy, but it will help build confidence. Over time, novice traders will build up confidence based on real-world experiences. Eventually, they will know when to have strong, yet realistic, confidence in their trading plans.

Making a strong commitment to a trading plan may be necessary, but unrealistically telling yourself that you are powerful and infallible can spell disaster. One may trade low probability setups without a clearly defined plan or adequate risk controls. Misguided commitment will wipe out your trading account. Put off making such commitments until you gain extensive market experience and have honed your trading skills.

Until you gain adequate trading skills, take precautions. By taking such precautions, you will minimize potential harm and be able to master new domains. The piece of mind you gain through a well-defined trading plan and adequate risk controls will allow you to tackle new challenges with enthusiasm and vigour. Over time you’ll master new strategies and gain a strong, intuitive sense of new market conditions.

With increased practice, you’ll achieve long-term profitability. So don’t unrealistically believe that you can do the impossible. Making a strong commitment to a trading plan is only reasonable if you have enough skills to back up your commitment. For now, be a little sceptical. It may be useful to be committed when you are about to execute a trade, but don’t commit too soon or without taking precautions. If you make sure your commitments are realistic, you’ll survive the learning curve and master the markets.


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