How to Repair Shaken Confidence

01/28/2012 10:00 am EST

Focus: TRADING

Rande Howell

Founder and Owner, Trader's State of Mind

Losing trades breed uncertainty and fear, says Rande Howell, and while taking a break is one solution, those with sound strategy must have faith that probability is still on their side.

We’ve all had instances as traders where after losing three or four times in a row, taking that fifth trade as confidently as we took the first is tough to do, but it’s necessary if you believe in your system. How do you do that though? 

Our guest today is Rande Howell to talk about that. So Rande, if I had a couple losing trades in a row and I’m really nervous about taking that next trade, yet the market hasn’t changed, how do I have that confidence?

Well, you develop it. The difference between uncertainty and probability is what has to be changed in a trader’s mind. If you’re looking for certainty in the market, then you don’t have the kind of mind that you need to be bringing into trading.

If you develop a probability-based mind, you’re recognizing that you’re always working in probability. Are you going to fall out of probability mindset? Yeah, you’re human, but when you see it happening, you pull yourself back into probability thinking.

So probability would say that I could have six, or seven, or even ten losing trades in a row. That would be really hard on the psyche.

So after four in a row maybe in one day, should I stop; should I set a limit and say if I’m losing four in a row, I’m just going to stop for today and wait for tomorrow?

It depends on the trader. Most guys I know who lose four in a row, they’re stopping out; they’re gone. They know that they’re in a pattern and that they can’t reorganize the self back to a highly disciplined mind to go back in. They’re going to have to take a break. For others, it’s just like water off their back.

Is there a method that got them to that point, or is it just their personality and they’re able to do that?

There are people who are born right off the shelf with a great mind for trading. They’re rare, but I have certainly run into them. 

Most people have to develop it. It’s something that takes practice, and work that I would encourage would be the breathing, self-soothing, and then mindfulness.

See related: “Mindfulness” and Trading  

With mindfulness, you’re looking for a particular kind of mind that you can build that allows you to interact with probability and randomness. 

Ambiguity is the name of the game, and you have to develop the mind to be able to engage ambiguity and uncertainty, because it’s going to want to flip to fear at the moment of uncertainty, at the moment of ambiguity and confusion. That’s what the brain is built to do.

You have to train yourself for it not to go that way, and it can be done. I see it every day, so I know it can be done.

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