Updated from its original posting on 2011-05-03
Because of the nature of forex trading and its effects on the psyche, it is important to be strong and have a lot of self-confidence.
In the most basic sense, I believe self-confidence is the ability to ACTIVELY focus on better performance and stay away from negative thought patterns such anxiety and fear. But with the market constantly changing and the likelihood of seeing forex losses here and there, how can you remain self-confident?
1. Focus on the process.
Almost every forex trader I know chose trading as a profession in order to make some serious dough. But as I’ve said in my one of my previous blog posts, being too focused on the returns of your investment can be very detrimental.
Remember that the market is unpredictable. There’s really no guaranteed way for you to know exactly whether or not your trade is going to win or lose. Instead of focusing on your profit/loss statement, why don’t you pour all that energy into making sure that you stick to your forex trading plan instead?
So give yourself a pat on the back every time you exercise self-discipline in waiting for a candle to close before pulling the trigger or closing your trade before the weekend. You may not see the results now but, in the long-run, your discipline will translate in to consistently avoiding mistakes, which in turn translates into confidence and consistently profitable trading.
2. Practice, practice, and more practice!
Do you know the reason why the world-renowned boxing champion Manny Pacquiao spends weeks and weeks training for a fight that can last 36 minutes at most? It’s because through preparation, he develops a sense of confidence through mastery.
Manny doesn’t know exactly his opponent’s game plan is to knock him out. However, through deliberate practice, he has mastered fundamental boxing skills, how his body moves, and his own game plan to be prepared for whatever punches may come his way.
As a trader, you can never fully predict what will affect sentiment and how the forex market will react. This means that the key to confidence and success is to prepare yourself each day until you know you can handle any scenario the market can throw at you.
3. Look at the brighter side of things.
Ask yourself this question, “Out of all the confident people you have ever met in your life, how many of them had a consistently negative outlook or attitude?” I’ll bet the answer is a very small percentage or maybe even none. Successful and confident people tend to have a positive or optimistic attitude because when you focus on the positive, you tend to have positive results.
So, instead of feeling bad, sulking in the corner, and eating all the ice cream in the fridge when you’re in the middle of a massive drawdown, be positive and think of how you were able to follow your trade plan properly. Also remind yourself that, if you have a well-tested trade plan and risk management strategy, the law of averages will eventually work in your favor and you will come out on top.
One way to practice this is by actively focusing on the things you’ve done right with every trade, especially if the trade is going against you.
• “Reviewed recent and upcoming economic data?” Check!
• “Analyzed the charts?” Check!
• “Limited my risk?” Check!
By making sure you’ve prepared all you can and focus on that, you are internalizing that losing forex trades will come no matter how much you prepare. This reduces your fear of losses, giving you more confidence to take valid trade setups and act on good decisions.
Like developing your forex skills, trading with confidence is easier said than done and it won’t come without hard work. However, I believe that in order to become a successful trader, one has to have a bit of swagger on the charts. After all, you wouldn’t want to be a soldier marching on to battle cowering under your shield, right?