How To Build Trader Confidence

Every trader, from novice to seasoned veteran, has experienced feelings of insecurity while trading. However, this should not be taken lightly, as insecurity can be a significant roadblock to success in trading.

Insecurity can make you miss out on opportunities to make a profit. You might be afraid to take risks even when opportunities arise right in front of you. If this continues, you might be able to avoid significant losses, but on the other hand, you won't be able to make any profit either.

Such a situation should not occur in a business. Business is a place for someone to make a profit even though on the other hand they have to take risks. If you consider forex trading a business, you must get out of that situation. Therefore, if you feel insecure, you must immediately overcome it, don't let it drag on and make things more difficult.

Causes of Trader Insecurity

Many factors can make traders lose their confidence, such as consecutive losses, large losses, little trading experience, and not understanding the market situation well. These factors can be broadly categorized into two main causes: lack of knowledge and lack of experience.

Knowledge can cover many things, such as knowledge about potential trading strategies, the level of risk that can be tolerated, and knowledge about the right momentum to start trading or stop trading. The lack of any of this knowledge can make traders insecure.

For example, in a situation where traders do not understand the potential of their trading strategy well, they will usually become very cautious and afraid to take the opportunities that arise in front of them. They can also intervene in open trades for fear of losing money or not being sure of making a profit.

Besides knowledge, experience also plays a big role in determining trader confidence. In general, traders who are not confident are mostly beginners. That's understandable because they are not yet used to trading.

Keys to Increasing Trader Confidence



If you have figured out the cause, you should also understand how to overcome it. Well, in general, it is by increasing knowledge and gaining more experience. But, more specifically, it is by doing the following:

#1 Knowing the Potential of Trading Strategies

To know the potential of the strategy you are using means you have to do a backtest. This is the only least risky way to do it. Another way is to run a forward test, but that means you have to bear the risk of loss if the strategy you use actually has poor performance.

Knowing the potential of your trading strategy is of course not just about whether the strategy is profitable or not. You also need to know how many consecutive losses and wins are generated through the strategy, what is the maximum loss when consecutive losses occur, or what is the maximum profit when consecutive wins occur, and how many times these situations recur.

If you know that the strategy you are using is good enough and has a great chance of helping you make a profit in the market, then it is difficult for you to be insecure.

#2 Understanding the Tolerable Risk Limit

Traders generally start to become insecure when they experience large losses many times. They are traumatized by the experience and worried about experiencing the same thing.

Understanding the risk limit that you can tolerate will help you manage the right risk. Of course, this will not eliminate the feeling of discomfort when you experience a loss. However, this can greatly reduce your worry about the potential losses you may experience and make it easier for you to make decisions to start trading.

Over time, your fear of taking risks will decrease. That means your confidence has slowly grown back.

#3 Understanding Suitable Market Conditions

Besides understanding the potential of the trading strategy you are using, it is also important to know how the strategy works. This will provide information about what kind of market conditions are suitable for your strategy and what kind of market conditions you should avoid.

A simple example is if your trading strategy is to take advantage of corrective movements to start trading and use the potential for trend continuation to generate profits such as chart pattern continuation or the like, it means your trading strategy is suitable for trending market conditions. And usually, this trading strategy will not work well when the market is in a sideways condition.

Knowing the right market conditions will significantly increase your confidence. You might be worried that this will turn into overconfidence. However, if you already know the potential of your trading strategy, the risk limit that you can tolerate, and the right market conditions to start trading, then there is nothing excessive. There is nothing to worry about because you have strong reasons to be confident.

#4 Trading with Discipline

The previous 3 ways are about how you increase knowledge. So this last one is about increasing experience.

The only way to become an experienced trader is to keep trading. Experience is not gathered instantly, you have to be patient and willing to experience various changes in market situations, you also have to be ready to feel the dynamics of emotions when losing and winning which will continue to repeat, because all of that is part of trading.

But besides that, you also need to be careful about the experience you gather. If you trade the wrong way, you will gather the wrong experience and become used to trading the wrong way. You will even believe the mistake as a truth. Therefore, you must trade well and with discipline. Follow trading rules and manage risk according to the limits you set. So you will gather good experiences and form good trading habits.

Enough experience will help you build a strong mentality. A strong mentality makes you tend to think positively about yourself and the situations you face, helps eliminate unnecessary worries, and makes you have high confidence.

Being insecure makes trading difficult to do, thus affecting your performance in generating profits. So, try to increase your confidence by doing the methods above. But, don't expect unrealistic results. Increasing confidence takes time and consistency. Don't expect to succeed if you only do it once or twice.

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