The Mental Edge for Trend Following

Confidence: The Mental Edge

“Originally all of our testing was done mechanically with pencil and graphs that [we] turned into Lotus spreadsheets. …[still today] we use [this] extensively in a lot of our day to day work.”
Tom Bozarth
Formerly of John W. Henry & Co.

Most traders are conditioned to respond over and over again in the same way to the same experiences. They choose what makes life familiar and comfortable. They don’t need to maintain a mental edge since nothing changes for them. What can be done?

Instead of looking for commonalities in the market, look for what every successful trader has in common. Every trader who has broken through to sustained success in the market has a common characteristic: Confidence. In other words, no matter how good you are at analyzing the market, if you don’t have confidence, all you’re really doing is repeatedly creating experiences to which you will respond with similar frustration and anxiety.

How do you achieve confidence? You gather knowledge and practice discipline. The more you learn about the markets and your approach to trading the markets, the more effective you become as a trader. The more effective you become, the less fearful you are. Confidence is the lack of fear. That’s it. Lack of fear. When you are confident, you can win.

Ask yourself:

  • How do you handle your emotions? Is there a process?
  • What is your perception of the world? How did you arrive there? Is it accurate?
  • Are you able to have the same emotion whether you win or lose?
  • Do past mistakes make you hesitant to pull the trigger today?
  • Do you have the belief system of a winner or loser?
  • Do think in terms of probabilities?
  • Is the way you attach meaning to things too wrapped up in personal emotion?

No matter your profession the answers are critical for everyone.


From reader, Robert Bassett (Jan 8, 2004):

This is a tremendous article, very truthful and to the point. I’ve been charting for about 15 years, it’s a labor of love for me. I spent a lot of time with a very successful trader in my first two years of learning. I felt undercapitalized, and as you know, that can lead to “fear” if one lets it happen. It’s amazing what I learned through all this time. But, as your article indicates, without confidence, this doesn’t amount to a hill of beans. The bottom line is will I ever act on the mountains of “experience” of charting and following the futures markets? Or will I remain buried under the avalanche that is created by lack of confidence? Here’s hoping your article is the first step in the digging out process to breaking through to the other side. Thanks.

From reader, James A. Boubong(Jan 8, 2004):

I learned this formula years ago while learning, then teaching golf. It holds true in all of life’s meaningful endeavors. In the last few years, I have employed it in my trading. Simply put: HABIT -> CONSISTENCY -> RELIABILITY -> CONFIDENCE

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