The Only Talking That Matters

I’ve often stated my strong belief that while technical analysis is critical to
provide traders with a necessary probability edge, such an edge can be — and is
often more than — neutralized by psychological factors, including lack of
confidence. I’ve also stated that I believe becoming a successful trader is no
different than becoming a successful professional athlete. Parallels include the
amount of time, pain, perseverance, capital, and personal development required
to attain a state which few will ever be able to do.

I was reminded of this belief again on Sunday when I was watching the St. Louis
Rams — and their star quarterback Kurt Warner — struggle mightily against the
Philadelphia Eagles. Flashing back to 2001, many of you will recall that Warner
and the Rams were an exceptional combination which, prior to January’s Super
Bowl defeat to New England, looked as powerful as any team in any sport had in
years. And we’re talking steamroller powerful, as the Rams averaged 34 points a
game in a year-ending eight-game winning streak leading to the Super Bowl.

So how can a team with much of the same talent in place turn 180 degrees within
a blink of the eye?  A few of the reasons offered up my sports “experts” include
lack of team adaptability and injuries.  And indeed, injuries have likely played
a supporting role. Yet whatever the true reason, one need look no farther than
Kurt Warner’s eyes on Sunday to see one huge contributing factor — fear. While
I’m no Curt Gowdy, it’s hard to ever recall seeing an athlete playing with such
little confidence, whether it be in his own ability, or that of his teammates
and/or coaches. Simply put, the guy looks scared to death every time he drops
back.

Now no, this isn’t a sports column and my apologies to my close Rams fan friends
for using their local NFL entrant as an example (keep in mind I’ve lived through
the Curse of the Bambino, Buckner, Armbrister, and Dent). Yet the parallels to
trading are real and significant. All traders, regardless of talent, experience,
or method(s) employed, go through periods where lack of confidence is a
significant contributor to slump emergence and duration, just as is the case
with every athlete on this planet. Frankly, if someone held a gun to my
head and asked me to choose either a pile of trading capital or trading
confidence, I’d easily choose the latter. Why? Because all the trading capital
in the world or past successes mean nothing unless confidence exists to generate
a future income stream.

I said in the first video that I believe confidence is one’s greatest asset in
this difficult business, and as such must be protected above all else. That
belief only continues to grow based on my experience that the degree of one’s
confidence (NOT ego or cockiness … don’t get me going on that again), once and
if the skill has been effectively acquired, is directly linked to one’s ability
to trade on the proper side of the razor-thin line that separates profitable
wholesale trades from unprofitable retail trades. Simply put, lack of trade
confidence breeds execution hesitation much like the lack of quarterback
confidence breeds passes which are inches away from being completions.

Taking time off, going back to basics, doing everything possible to avoid large
losses, and working diligently to cut losing streaks as quickly as possible —
even if the next trade, day, week or whatever timeframe you use to manage your
trading business is profitable by $1.00 — can help. 

In closing, I’d like to address those experienced traders who — like the Rams
— have proven past skill yet are currently experiencing prolonged
trading funks comprising timeframes beyond those which one would think would
occur based on talent or effort.  (Yes, such events happen more than many
realize in this overly-glamorized business where egos and hidden agendas too
often hide realities.)  You can still break the cycle.