Here is two very interesting stats, did you know that 90% of people believe they are great drivers? Did you know that 90% of all traders go Broke?
Let’s analyze this for a moment. So if 90% of drivers are great drivers, where are all the bad drivers? Now I am not sure about your driving experiences, but when I am on the road, it feels like 90% are Terrible drivers.( I am certain in the 10% of good drivers, the car accidents where the other drivers fault)
90% of Traders blow themselves up? Why they get over confident too quick, they get a couple of winning trades and all of sudden they are Lewis Hamilton of the trading world. It takes time, patience and lots of practice.
So, how can so many think they are Lewis Hamilton?
The answer is that almost everyone that gets behind the wheel, as car drivers and traders they can suffer from overconfidence. And, in the stock market
, just like when you are driving overconfidence can be very dangerous, and in some cases fatal.
One Winning Trade- Don’t Need That Plan- Don’t Need That Advice
As soon as traders lose on of the most vital tools and get a dose of overconfidence is that you might consider that you no longer need to follow your trading plan.
This can often happen when you start having a run of successful trades – you suddenly feel like Superman!
One of the first signs of this syndrome is the TIME to up the Size- Bigger positions, thinking I can make all of this money. Major Mistake.
After a run of successful trades, you might feel the burning desire to increase the trade size, bigger trades, Big wins. However, position sizing and capital management, risk management is only useful if it is consistently used. One breakdown is enough to severely affect your long-term performance. Almost like overheating the car once, it tends to have long term affects on the future performance of the vehicle.
And overconfidence is possibly the most common reason for investors’ discipline to breakdown, and they will then start to chase the money back. This is the turning point from trader to Gambler.
This is why if you have a good BROKER they can also help you monitor the position size, talk them about your trading plan so they can help you implement this successfully. If you are looking for a great broker, then the CFD FX REPORT has recently researched all the Forex Brokers and CFD Providers so if you are looking for one, look on their website or email support@cfdfxreport.com
THE STOCK MARKET THROUGH YOUR OVER CONFIDENT EYES?
When you become overconfident it simply changes the way you look at the stock market, almost like when you drink and drive, you think your fine but things really aren’t the same.
The more stable trader will look at a potential trade and focus on the possible downside. “How much could I lose?” Now before each trade they will think: “How much will I lose if this trade goes wrong?” “Can I afford to lose this money?”
Overconfidence is the Knowledge to Know Everything. Once it hits, your mindset changes
They no longer look at trades as something that produces risk. They will view trades through this way, how much money I am going to make. Before each trade they will think: “How much can I make on this one?” Yeah should be able to make X amount from this trade.
Smart traders will always view any trade through one way: “How much can I lose, what is the potential downside, what is the risk vs reward?”
Any other way of looking at the market signals overconfidence, and is likely to cost you a lot of money, and potentially blow you up as trader.
Always make sure you have your rules and plan close by, make sure before each trade that you check your rules and plans.
Happy Trading!
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