How to build confidence

Originally posted by feng456

Guys what is a good way (maybe tried and tested personal experience?) of raising one's confidence?

Unfortunately the only thing I've ever found to raise confidence is success. And how do you get success if you aren't currently succeeding... It can be a vicious circle.

This all gets into my own philosophy and method to train people, and is far too long for in here. I'll sum it up very briefly (yeah, right, Jim, you are too funny, how many pages will this be?). I disagree with people who think simulation trading is mostly worthless, or surely worthless after a short while. I find the only approach that I have seen succeed is for a person to get high quality training (I'm not saying this is readily available, but you have to admit if say BruceM, kool, PT, and some of the others took someone under their wing, in person, and trained them with a view of really showing them everything they know, and working with them step-by-step and adjusting what they do until they have it, even if it took years, that would be 'high quality' training, so it is theoretically possible in here to fathom such training), start in simulation, then once that shows steady profits, move to very small money (I think one ES contract is way too big to start for most people, I'd think more like 100 shares SPY or one mini lot in FX), then once that proves successful, move up to the next level of size, and keep up that process until the desired level is reached.

In my opinion there are few things worse on a new trader than to read they should be trading real money in six months or give up and move on (if there has ever been a statement I disagree with 1,000%, that's it), and so they start with live ES and draw down their entire account in a blink. They were not only not ready to trade live, they were way overleveraged and way too big in size for the account they had. Many are so psychologically damaged they never recover.

To me it's like saying you should start your boxing career by getting in the ring with Mike Tyson in his prime, within six months. The minis are the top of the top, in my opinion, the pinnacle, the crowning achievement of one's career. They are not the place for a new, undercapitalized trader to start (ouch, sorry forum crew). I believe in baby steps all the way, in a logical, progressive fashion. That includes a fully comprehensive 'Trading Plan' and self-assessment of your progress each step of the way.

Understand here, I am telling what I think is a good approach to this process. I am not looking for students and writing this up to 'hawk for business'. My waiting list right now is in 2011, and I only do a tiny handful per year. I have no need for students right now. I'm just saying I have a fair amount of experience training people one-on-one over a long period of time, and I'm willing to discuss some of the concepts I've learned to try to answer the question here.

When I work with someone we spend the first 1/2 to 2/3 of the mentor time with me just showing them the methodology, from start to finish, with endless chart examples. All aspects from setup (what I call the potential trade area, or 'PTA'), to entry, to management, to price action reading, to 'context' filtering, and on and on, are covered over and over and over. I let the student 'drive' here and there while I watch, but mostly I show them the comprehensive methodology.

Forget my methodology, though, and focus on the overview of what I am saying. The person starts out with a methodology they feel has the potential to be net positive outcome with proper work and training. If your methodology doesn't have that potential, how will you be confident in it? If you are insisting on figuring out a methodology from scratch on your own, confidence doesn't come into play, since no one in their right mind would trade a plan with real money before they've even finished developing it. Now, why would anyone trade a plan with real money before they've testing it in simulation? (Please read my article on Simulation Trading so you understand where I stand on that, and how clearly I grasp the limitations of that, especially for 'scalpers'.)

Now, once the students have the basics presented to them, I move to the next stage, where they bring to each session a 'work product' which amounts to journals in Word format, complete with charts, workups of past potential trades they found on the charts. They choose winners, losers, everything, and do full step-by-step workups with notes explaining the setup, entry, management, price action reading, 'context', and so on, with charts for every comment to show what is happening. It can be a shock to see the gap between what I showed them over weeks and weeks, even months of work, and what they do. I then go over this in detail, and explain where they need to change their approach to line up with the methodology. The goal for me is not to teach them 'my style', 'my methodology', but to give them a base skill set, and then have them find 'their plan'. First, though, they need basic skills.

I then turn them loose, and we do another session, with new workups. I find the errors and incorrect applications of techniques, and the process is repeated. We do this until I feel they have reached a base level of skill. This is all done on past charts where they can see what happened ahead of time. As I said, though, they do not choose all winners, they choose an assortment. Once they have the base skill set I then suggest they start doing the same process in simulation mode, live. Bring the skill set to the same level in real time. Do the same work product with embedded charts of each step with notes, one Word document for each trade sequence. And no, this isn't a 'scalping' methodology, but a trending methodology, from intraday ES trends on 3-minute charts to monthly charts, on any liquid issue. Hence, doing this workup in live simulation mode for 3-minute traded timeframe trades is very doable.

Now, once they achieve success at this level, if they choose to, they can move on to live money, with all the realities of real trading, from bad fills to additional psychological aspects, and so on. I suggest the smallest possible size, so as to not add the potential for great psychological damage during this very rough transition period. And for those of you out there saying if the person is so mentally weak they need to worry about that they should just give up now, well, to that I say 1) you obviously aren't a teacher trying to help someone succeed, and 2) I'm really happy for you that you are so immune to all the normal human frailties, now leave us mere mortals to try to succeed in what was so easy for you. I'm not saying I would tell someone I thought was simply mentally unfit for any challenging activity they should try anyway, but I am saying that those that want to try and succeed should be given credit for willingness to work hard, acknowledging of their difficulities, and desire to try to overcome them in order to succeed.

Now, once success and confidence is achieved with very small money size, like 100 shares of SPY or one mini lot in FX (assuming, of course, that the amount of money for that would be purely risk capital for them and of no consequence to their lifestyle if they lost it), then they can look to move up slightly in size if and when they feel ready. And so on until they reach the level of trading that they have as their goal. Each small step forward happens when confidence is achieved in the prior step, and each setback shouldn't be too far back, as a base set of skills have been established, hopefully, before taking the next step. This is the approach I take in my teaching, and I have come to it after many years of experience in teaching.

I think one of the big issues, and one of the travesties in this 'business', and as much as I love great forums (with this one being the best I have ever encountered) they are overly guilty in this issue, is oversimplifying the process to become a serious, full-time professional stay at home trader. Some of this is vendorspeak, but some of it is not, as the worst of it comes from apparently successful private traders. I have a theory as to what is going on (doesn't Jim always have a theory?). It's a simple concept, and it's called 'survivorship bias'. You see, the few traders that have 'made it' and are doing well, people look to them like they have the answers. They learned and were solidly profitable in six months, a year, eighteen months. They think sim trading sucks and don't use it, or think it is okay for a few weeks 'but then you better get trading real money or quit, you aren't cut out to be a trader, just look at my case', and so on. But these are survivors from a big pool.

You see, you start out with say a million people trying something. One by one they fall by the wayside. Some have a natural ability, and some by chance find things that work for them. In the end, a handful shake out. Was some luck involved? Positively. That will really upset some good traders, who need to feel the only reason they are successful is their hard work and their personal greatness. You don't think being born, for example, in the United States was any factor in your success? You don't think that was luck? If you were in the bush in Somalia, I doubt you'd be the successful trader that you are now. And luck plays a role in what we discover, and what we absorb. Skill, hard work, natural ability, capitalization are all factors, along with luck, and other things. The point is, to look at any given trader and assume that following what they did will lead to a successful trading plan for you is fraught with flawed logic. They are survivors, the handful from millions that tried, whose circumstances allowed them to succeed. Many came before, followed the same plan, and failed out, probably in a 100 to 1 ratio, or maybe even a 10,000 to 1 ratio.

The point? What these people did is misleading, as far as an approach that will bring potential success to someone who is in the millions and is trying to make it. I want to know how to succeed, and for that I'd look to a plan that increases that chance for success. Doing what you read in forums isn't going to get it done for most. Sorry I disagree (very strongly) but the advice that 'All you'll ever need to learn to be a full-time, under any conditions, stay at home trader is free on the Internet' is about as bad of advice as you can give, and is a travesty to those starting from scratch trying to become professionals. I would suggest following a plan more like what I outlined, and expect years and years of hard work, not months. Find someone who isn't a vendor who will take you on and work with you step-by-step and help correct your deviations from the plan, from the skill set.

Find someone like BruceM, PT, kool (please, no one contact them and say Jim said to ask you to mentor me), and beg them to take you on. Offer to move to their town, mow their grass, clean their garage, wash their car, do their shopping, and so on, in exchange for training which includes bringing work products to them and having them go over everything step-by-step, over the course of a year or two. I know this approach can be done because I do it with every student I work with (not the mowing the grass part…). That's why I take on only a few per year. I spend so much time with each one, in a personalized manner, I couldn't do anymore than a few. They then build confidence up in a step-by-step manner, based on solid basic skills shown incrementally, and practiced over time, with corrections, just like a basketball coach watching you shoot free-throws or working the court, and assisting you each step of the way. If someone wants my opinion, that's how one builds confidence. Just my two cents, 'The world according to Jim'. I hope it was helpful to everyone.

It's tough following on the heels of a Jim Kane missive full of extraordinary depth and solid insight. So, I'll take a bit of a different tack.

Here's an idea: Go sky diving. If you live, you've just experienced something that'll change how you view life, and trading, a tad bit. That might help (hope your chute opens dude).

Also, you might get something out of the attached document to the first post on this topic/thread here in mypivots: http://www.mypivots.com/Board/Topic/4302/1/psychology-and-discipline-of-trading

Now I've gotta go back and re-read Jim's post again. Who was it that said that anything worth reading is something that must be read many times over? Either way, I'm in agreement with that sentiment.

Feng, I've been giving you thumbs up every time you posted that you've "followed your plan" since you first began putting it out there. I hope you find something useful in that chapter link on the Psychology and Discipline of Trading.

You've got folks here in this environment that are totally behind you bud - seriously!

Have a good weekend!

MM

Unfortunately the only thing I've ever found to raise confidence is success. And how do you get success if you aren't currently succeeding... It can be a vicious circle.

I had the same thought when I read feng's original post.

I'll sum it up very briefly

......

I think confidence is over-hyped in online circles, which I attribute to the locker room mentality, testosterone induced prowess if you will. I also think confidence is over-rated as something needed to be a successful trader.

My view of confidence in trading is a manifestation of the math behind the trading plan and method. What I mean here is your should have confidence in the mathematically proven basis of your trading plan and method. Does your plan have a proven positive expectancy, does it have a proven mathematical edge, (or as Jim mentions a subset of small edges.) Every trading plan and method ever conceived has an expectancy underlying it. So correctly placed "confidence" should be in the demonstrated mathematical foundation underlying your plan and method.

Here is my reality in live, real world, day in and day out trading. I would estimate 70-80% of the trades I take, I have very low confidence in when I enter them. In fact, I expect the trade to blow up in my face. More often than not, soon after initiating a new position, the market will move against the trade confirming my worst fears. This raises a paradox, why take a trade I have no confidence in ? Likewise, why hold open a position that the market has clearly moved against ? Why not scratch the losing trade as soon as it comes back to break-even ? My answer to this paradox is simply: I trust my method, more specifically I trust the mathematical foundation upon which the method stands. I trust my edges. I trust the market will find a way, as impossible as it often seems in real-time, the market will find a way to make the trade work. This seemingly "blind faith" in my method and in the power of the market, I strongly believe, is possibly my greatest edge. Why, because I act in spite of what my logical mind is telling me at the time, in spite of my fears or lack of confidence in the setup being presented. So yeah I think confidence is over rated, over hyped for sure, and I will choose a legitimate proven edge over confidence any day.

I worked briefly with a trader a few years ago, who was very new to trading. This novice trader had an exceptionally high level of confidence in live trading, he was truly fearless when trading size. His confidence really impressed me and I thought to myself at the time, this guy has tremendous potential to be a great trader. Just one small problem, he had no mathematical edge against the market. The best he could manage at the end of the week was to break-even. He would go up thousands, then give it all back and then some in many cases. Even though he had all the confidence in the world, he simply couldn't get the math working in his favor. I quickly diagnosed the underlying problem as being his lack of screen time. Due to his inexperience he had no feel for the market, he was unable to make the subtle distinctions (nuances) in market setups his method required. Inexperience naturally lead him into mechanical trading systems, which he would try his best to make work, then discard as they failed to produce the expected income. As it turns out, even the most simple "mechanical systems" often require a lot more discretion (experience) than people are lead to expect initially. I believe experience, screen time, is one of those little intangible edges Jim mentions.

Another thing Jim mentioned is trading tends to be streaky, an observation I wholeheartedly agree with. I think it helps to know what market conditions, (I assume volatility in this case), your method out-performs in and conversely under-performs in. I think this will help you "keep the faith" in your method when market conditions become unfavorable. A perfect example of this phenomenon is happening right now in the markets. A lot of traders who had a lock on this market as volatility quietly ebbed over the last year, are being forced to re-evaluate a few things in the past couple of weeks. In contrast, old methods that had been starved by the lack of volatility are suddenly springing back to the forefront in the new highly volatile environment.

Thanks guys for all the posts and links. It's been really helpful.

Hi Jim,

Good post.
(I haven't read the others replies yet.)
I do not feel I am in a position to contribute advice - but I hope your audience appreciates the thought and effort you put into your reply.

I totally agree with one contract is over-leverage. You can easily be "right" on a trade and stopped out. If you only have 5 pts stop then you have to get time and price correct to a very fine detail and the floor traders know where you are, how you think, where your stops are and just how to manipulate the price to move your money to their pockets - and they have been manipulating peoples emotions for 100 years - day in, days out. And they had mentors too - best. And they have deep bankrolls. The odds are 100% for them unless you can think differently and work harder and study and master the markets. That is, as you said
HUGE DISCIPLINE.

Most people totally under-estimate how easy it is and over estimate their ability, training (zero), intelligence and natural skill.

How many even have their trading plan typed up clearly so that if they shared it with someone else that person could follow it?

Having some respect for the opposition is an important first step.

I often wonder why do all the so-called "successful" traders on Twitter, just as an example, constantly beat their chests about their great trades (often posting -- rightly so -- their entries and exits in realtime) -- why do the ones that are charging a monthly fee for example even do that? If they're so successful -- many of them with size -- why do they need to have followers? They should be making a great living as traders; right? I find it extremely difficult to trade AND post the trades in realtime. It's hard enough to just concentrate on what I'M doing.

H

That was a tremendous piece of writing jimkane. I think that as anew trader this actually gave me a lot of inspiration to not give up. Market opens soon, again. Thanks!

Originally posted by Foster Trade

That was a tremendous piece of writing jimkane. I think that as anew trader this actually gave me a lot of inspiration to not give up. Market opens soon, again. Thanks!

Wow, you're welcome. Make sure you check out the free articles on my website (click on my signature below) for more information of this kind, as well as the free commentary archive. I'm not trying to 'promote' my website here, just let people know where I have more information, all for free.