Sam tells his best friend, “I want to be an expert trader. I want to be able to handle anything the markets throw at me.” This is a nice sentiment, wanting to be a trading virtuoso who can trade under a variety of market conditions with many different methods. It’s also an ambitious goal, however. It takes time to gain the vast experience required to trade in a variety of market conditions, and the advanced skill set required takes a great deal of practice. Many novice traders would find the task daunting, and should they encounter setback upon setback, they may become extremely discouraged. A more useful approach for a novice trader is to pick a few key trading strategies, identify the market conditions where they perform optimally and trade under these ideal conditions to build up trading skills and confidence.


There’s merit in taking it slow when it comes to learning how to trade. It’s essential that a novice trader build up a sense of confidence with a few key strategies. Psychologists refer to this process as building up self-efficacy beliefs. Self-efficacy is different from self-esteem. A person can have low self-esteem yet believe that he or she can perform a specific task under a specific set of circumstances with a feeling of self-efficacy. Similarly, a novice trader may believe that he or she is an average trader but has specific abilities when trading a particular trading strategy under specific market conditions.

For example, suppose you know you can trade in a bull market using just a few key signals. It may be useful to trade this strategy at the start of the trading day. There’s a good chance that you’ll achieve success and feel good about your initial abilities. In other words, you’ll feel a sense of self-efficacy. Now, you may also know that should market conditions change, you won’t be all that competent. But at least the initial start will put you in the proper mindset. You’ll feel an initial sense of confidence and that can go a long way in terms of trying out new trading strategies under novel market conditions, or it can help you cope with the daily stresses and strains of the chaotic market action.

Research on self-efficacy has shown that when people believe they have self-efficacy regarding a specific set of skills, they set challenging goals, show unfailing persistence, experience pleasant moods, and can easily handle stress. These characteristics are conducive to profitable trading. Anything you can do to increase self-efficacy will help you master the markets and achieve long term profitability.

The two most obvious ways to increase self-efficacy are to start off trading with methods you have mastered so that you meet with initial success and increase your feelings of efficacy, and to practice and gain experience as a trader. The more success you achieve, the greater your self-efficacy, and the more likely you’ll be able to trade in a greater variety of market conditions and persist until you achieve consistent profitability.

So don’t be overly ambitious. Set realistic goals, achieve initial success, and build up your sense of self-efficacy. The greater your self-efficacy, the more success you’ll achieve, and the more profitable you’ll be in the long run.

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