Confidence vs Ego - A Psychological Essay for The Retail Trader

I often talk about the psychological aspects of trading. In my chat room I tell members that trading is 90% psychology and only 10% stock picking. Time and again I see traders who put all their energy into finding the right stock to buy. Moreover they get cocky about it.  cat lion

There is a fine line between Confidence and Ego. Confidence is supremely necessary when it comes to trading profitably but too much Ego can be destructive. A trader must have enough confidence to take trades and let his strategy play out. There are many trading strategies out there and most of them work as the long as the trader is disciplined and sticks to a set of rules that keeps him adhering to that strategy without fail. The reason is that no one trader is any more likely to be a better stock picker than another but if you have confidence in your strategy, you will stay the course and likely be profitable over time. Ego on the other hand, can keep a trader in play long after a particular stock pick proves to be incorrect. This does not keep the odds in the trader's favor.

Trading is an odds game. My entire premise comes down to the idea of keeping the odds in my favor. Whether you are a support /resistance trader or a trend trader or a fundamentals trader, you still need to keep the odds in your favor. The data tells us that even the best traders on Wall St. only get their stock picks right about half the time, yet somehow they manage to be profitable. Even if your skill allows you to get your stock picks right more than half the time, say closer to 60% as I tend to do with candlesticks, it is best to expect half of those picks not to work. This allows the trader to drop losers early and without question or ego telling him it will work eventually. Likewise, it takes confidence to let a winning trade run and not cut it too early for fear of losing that gain. 

Some years ago I decided to stave off trader chat rooms because I kept running into know-it-all traders who spent a lot of time pumping up their own egos by preying on the confidence of other traders. I wrote a piece several years back that I entitled, "Confessions of a Chat Room Slut." It was based on one such bad experience in a chat room. The culprit was the moderator himself. A self proclaimed stock trading guru and mentor who loved to knock down my confidence.  


I had spent some time looking for that right mentor and all those folks out there bragging about how good they were got my attention. I, like many others of my kind, felt intimidated by their supreme trading skills as I saw them and assumed they knew better than I. I note that they are all men. This ego pumping phenomena is not as commonly seen in women traders. 

In order to protect the folks in my world, I nicknamed this guru "Bill" in my writing...not his real name of course, but it allowed me to eschew his actions and vent my emotions. I soon realized that "Bill" was actually just selling a used car. He and others like him spend much time bragging and writing blog posts that insult their readers for not being as good they are. They do this, I assume, in order to keep their own confidence up pumping their egos to a nasty level. These same trading gurus never post their actual trade performance results in public. They are not actually selling their all supreme ability to trade after all. They are selling themselves in a vulgar manner that gets you to pay them money while they brag and prey on your confidence. Sometimes they even prey on your trades. You have likely run into a few of these. They talk about making tens of thousands of dollars each day but never mention position sizes and only talk about their winning trades. They abound on the Twitter-verse. 

Not long after leaving "Bill" I met someone who really gave me a new perspective. His name is Dr. Doug Hirshhorn and he is a trading coach to elite traders and portfolio managers in the top firms on Wall St. I had come across his work by way of a piece he did pointing out why women make better traders than men. Okay, I admit this drew me in, but his reasoning was sound and touched on the idea of confidence vs ego. He talked about how women tend to be better managers of risk and see the bigger picture while men often let their egos get in the way and only see the now....while being more aggressive risk takers.

I soon found myself reading his book 8 Ways To Great which I purchased online. Dr. Doug became involved with coaching traders while pursuing a PhD in Sports Psychology. He became interested in applying those ideas to trading. One day while at the gym, I saw Doug Hirshhorn working out (harder than anyone else of course) and I walked up and introduced myself.  We exchanged email addresses and phone numbers and I feel all the more wise to have had the chance to converse with him both by email and by phone on several occasions.

It was Doug who told me that I am just as likely to pick a winning stock as any of those "gurus" on the Twitter-sphere. I have since studied his work and am proud to say that it supremely changed the way I view trading and other traders. His most recent book, Trading Psychology Playbook, (I have a signed copy) enlightened me further. Although written for elite traders and portfolio managers, I have taken much of what he has imparted and translated it into what I share with the retail trading members of my chat room.

  boobs  Yes, I have a chat room. But my goal has never been to sell a fish or my supreme trading strategy. And it certainly has not been to pump up my ego or puff out my chest. Believe me, my chest is big enough already. My goal has always been to teach others what I have learned, to fish, keeping in mind that the psychological aspect is 90% of the game. I keep my strategy simple. I don't add too many indicators and variables that could only serve to confuse the student. A very simple set of parameters to cover the 10% allows a trader to have confidence in his strategy. Too many indicators can spoil the set-up as do too many chefs spoil the soup. 

There are some wonderful traders in my chat room of various levels from beginners to veterans who trade with aplomb. Sometimes it is hard for any one of us to draw the line between ego and confidence. We are emotional beings and we need a set of constructive rules to help us stay the course and sometimes we need the gentle support of a fellow trader to help us keep the emotions out of our trades.  

We all blurt things out that may not be constructive sometimes. I am guilty of doing this myself now and then but the rules help me to keep in line. I am very careful not to use words that attach emotions to trades. Words like "fear" and "anger" are two that I believe do not belong in the same context of a trade. Psychologically, just putting those words in the same sentence with your trade will attach those emotions to it.

I also make an effort not to knock down a trade that a trader has just made. When a trader asks me about a ticker in the context of considering a trade, I happily give my two cents, but when a trader states that he has already made a trade, I try to look at his position constructively rather than knock him down the way "Bill" did with me. I don't see the point. After all, he is not going to get out of the position he just entered into. This could become a nightmare of overtrading and serves no purpose. If the trader had a reason for entering the trade, say at a support level that may not be an entry that jives with my strategy, I hold off making comments until I can be constructive in a way that is helpful. 

And so I say to all of you retail traders, young and old, newbie and veteran, be supportive of one another. Share your wisdom and experience if you have it but stay constructive. And for those of you who are newer to the game, remember that the best traders are only right about half the time. Those are the statistics. Look for a mentor who can give you a strategy for keeping the odds in your favor and don't send hateful messages when they get a stock pick wrong. Every trader gets stock picks wrong. What makes a trader great is his ability to be profitable over time. It serves no purpose to try to knock another good trader down. And for those of you who are tired of being insulted, stop rewarding those who insult you. It will not help you to continue to pay them. I am sad to say that I was inspired to write this essay because I came across a post by "Bill today. "Bill" has taken to blogging on one of the trading guru sites, and the theme of his game remains the same. He insults his readers for not being as good as he is. Poor Bill!

For more on Dr. Doug Hirshhorn, check out his site at http://drdoug.com/

And check out the FREE trial to my chat room HERE.


Leave a Reply

Back to Top

Password Reset

Please enter your e-mail address. You will receive a new password via e-mail.