Lack of confidence is one of the most common problems people have when starting out in trading.
You are not alone, as I get asked this all the time and I too suffered from this lack of confidence when I first began.
Why is this the case?
It’s because none of us enjoy losing, and we all hate the feeling of realizing one’s made a “mistake”. Avoiding mistakes and loss has been drilled into our minds since our childhoods, especially in school.
The lesser number of mistakes you made in exams allowed you to reach the top of the class and grade.
As we grow up, our parents also tend to drill this into us.
Therefore, we carry this mentality into adulthood in many different ways, and feel we must do everything right and never make mistakes, which we know is actually an impossibility.
Even after trading and investing for two decades, I continue to learn in order to get better, as there is always a better way.
So, it is little wonder that we find it difficult to “pull the trigger” when investing and trading.
What is the easiest solution to this problem? The following list will help you;
- Accept the fact that losses are part of the game of investing and trading.
The most likely long-term winner is the person who is the best loser. This idea was put forward by ‘Phantom of the Pits’, a trading legend.
- Accept that making mistakes is part of your investing and trading journey.
Just like when you learn how to do anything else, you will make mistakes. This is especially the case when you are first starting out, and learning a skill set that is completely new to you.
- Accept the fact that even the best traders and investors on earth make losses and mistakes, and you are no different than they are.
Even Warren Buffett has openly admitted to making mistakes at many different points in his career, and he is seen as the “Oracle”.
- Plan your trades, and trade the plan
Have you ever heard the saying, “if you fail to plan, you plan to fail”? This definitely applies to investing and trading.
- Ensure that no one investment or trade will either make you or break you, through position sizing wisely.
This is probably the most important tip I can give you. Many people become obsessed with the idea of the “big win”, and end up betting the farm. They only see the upside, and never the downside.
Additionally, leverage is a contributing factor, as it permits any individual with a modest account size to trade as if they are a pro. These people do not realize that most pros abhor leverage, and use it only sparingly.
If you can place small trades relative to your account size, the risk of a large loss is no longer an issue, and therefore will not paralyse your process of decision making.
- If you want to succeed on a long-term basis, accept the fact that investing and trading is a get rich safely game, and there is no need for rush.
Our world is one obsessed with fast and immediate gratification. We all seem to want everything “now”. Investing and trading is not like that.
- Get a “positive edge” by creating trading systems that gives you one. A positive edge means that you know over a large number of investment and trade decisions whether you are more right than wrong and if your profits are larger than your losses on average.
Your thinking must be transformed from an individual trade approach to a portfolio approach.
- Be aware of your numbers and probability over a large trading sample size. Stay aware and you will never be afraid to take action when the time is right.
- Accept that as a human being, you will make mistakes, but you are capable of minimizing the number and impact, and learn from them.
I have made many mistakes that I would rather not have to remember. However, I make sure that I try not to repeat these mistakes, and that I learn from them. If you learn from your mistakes, the mistakes become valuable lessons to take your trading to a higher level.
- Practice, practice, practice. Paper fake trading and putting real money on the line are never the same thing. You should start on a small scale until you feel comfortable, and then you can gradually scale up. Make sure to give yourself time. Rome was not built in a day. Neither is investment and trading success.
So, it is best to start small. If you believe you can risk $500, bring it down to $250, or perhaps even $125. If that is still too much, halve it yet again until you feel comfortable. This makes “pulling the trigger” a lot easier in the short term, and over a large number of decision-making actions.
Implement these 10 actions, and it will help you become the investor and trader you wish to be and make a big difference to your account and your life.