The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught. What they can't do is give [people] the confidence to stick to those rules even when things are going bad.
RICHARD DENNIS
There are two things that are absolutely critical: You must have confidence, and you have to be willing to make mistakes regularly; there is nothing wrong with it.
Confidence is the second virtue that all outstanding traders must possess. Confidence is a belief whose foundation lies in faith. Faith is based on a definite conviction that an ultimate outcome will be achieved. Outstanding traders have faith that they will make a profit over time. They have faith that their methodology will work over the long haul. They are confident because of their faith that they will achieve their ultimate outcome, that their methodology will evolve to the point where it is profitable. Their confidence is also derived from all the research (a reference, and a vehicle) they conducted to develop their methodology. These traders obtained their confidence after they had faith that they would triumph. Granted this is a subtle difference; however, it is a critical difference.
When traders have faith that they will triumph, their level of confidence dramatically rises. They can then develop and refine their trading methodology until it is profitable. Their confidence is derived from their references about their own abilities and the abilities of others.
Many novice traders have faith in the computer program they purchased or the newsletter they are subscribing to. This faith then gives them confidence based upon their reference about the validity of the program or newsletter, which depends on how successfully the marketing department presented the material. Their confidence is based not on their abilities as traders, but on the abilities of the copywriters for the advertisement. The confidence of novice traders is also based on their ego, which convinces them that the computer program or newsletter is worthwhile. This confidence is shattered after they get a margin call or realize that their account is down 50 percent. It is shattered because the feeling of confidence generated by the copywriters has been negated by the reality of the marketplace. When a belief is violated, negative emotions result. The purpose of the advertisements is to generate feelings of faith, by giving us what we believe are valid references. This allows our mind to convince us that our belief of certainty is valid. However, as we learned in the previous chapter, if the feeling of certainty is created or dependent upon the action of others, it is probably the result of an uncontrolled ego.
Other new traders are able to see the fallacy in newsletters and prewritten trading programs, and decide to purchase a computer software that allows them to write their own program. By now you know that it is their ego telling them that they can write a program, and become fabulously wealthy from trading it in the next six months. After all, they and they alone have the unique ability to write the winning program! Once again, their confidence is derived from the feeling of certainty generated by their ego.
That confidence will be shattered when they have to wire more money to their account after their superbly written trading program blows up.
The point that I am striving to make is that in order to have genuine confidence, a trader has to ground that confidence in faith. If the feeling of confidence is being created by the trader's ego, then the confidence is in fact false. The confidence that most new traders possess is based on nothing more than quicksand. In other words, the confidence is built upon false evidence that appears real. That is correct for those of you sharp enough to catch it. FEAR. It is the ego operating from a state of fear that generates the illusion of confidence. Most novice traders, told that their confidence is based upon this illusion, would vehemently deny it. However, in almost all cases everything a novice trader does is based on fear. Fear in all cases is evidence (references) that appear real but that are in actuality false. In most cases the evidence presented consists of untested beliefs (our own or others), untested/invalid trading methodologies (our own or others), and references that have not been validated. Confidence is an illusion if it is not founded upon faith in our own references. It is an illusion if it comes
from our ego, and involves arrogance and conceit.
Confidence must be built on the virtue of faith, and in order for that to happen you must acknowledge how your ego is distorting your perceptions of reality. The level of confidence needed to become an outstanding trader is based on a deep inner conviction of faith that your abilities, and ultimate methodology, will triumph in time. When you have real confidence in your ability as a trader, you will not care what anyone else says about the market direction. Real confidence will allow you to have the persistence to remain with your trading
methodology. Your level of confidence will allow you to base your trading perspective on your own research. In fact, when Richard Dennis taught his novice tradersa group who would later be called the "Turtles"he always asked them a simple question to see if they understood. The question was basically along these lines: "If your methodology is telling you to get short sugar tomorrow on the open, and you find out this evening over dinner that I am getting long sugar tomorrow on the open, what do you do?" The only correct answer is "I would still go short sugar on the open." That is real confidence derived from faith, with the ego in check. Allow me to ask you a question: Are you confident that you can drive your car to the dry cleaner? In any type of weather? Of course you are. Why? Is it perhaps your level of faith that derives from your confidence is based upon your own valid references? Would you be interested in having me tell you over the next six pages how to drive there? Why not?
The outstanding trader will have the exact same belief for the same exact reasons concerning trading as you have about driving to the dry cleaner. You will not care if it is sunny or rainy, or if there is a snowstorm in progress, for you know that you will eventually get to the dry cleaner regardless. You are not going to consult the weather channel, read a book, or
subscribe to a fax service on the best route to take. Nor will you waste your time talking with your neighbors about driving to the dry cleaner.
The reason is that you have confidence in your ability to drive to the dry cleaner. That confidence is founded upon your faith in your outcome. Further, your references reinforce your feeling of confidence. An outstanding trader will have the same belief about trading. An outstanding trader will not care about what others are thinking, what the fax services are saying, or how "stormy" the markets are. All outstanding traders have a deepseated confidence in their ability to overcome every challenge the market might present. That confidence allows them to consistently apply the trading methodology they have developed. Their confidence is founded upon the certainty that they will achieve their desired outcome. How do you develop the confidence to consistently trade your own, unique trading
methodology? Easy! Since confidence is a belief, it can be obtained (if lacking), changed (if disempowering), and increased by using the techniques on changing a belief previously covered. Just remember that confidence implies faith in your own beliefs and abilities. It also implies that your ego is controlledthat is, your confidence has no conceit mixed in with it. Your confidence level will increase after you have started to control your ego. Confidence is strengthened when you realize that you and you alone must have faith to devise your own trading methodology. Your trading methodology will reflect your unique perceptions and beliefs. Your trading methodology is how you as a trader interpret the action of the market. It is how you identify the trends, reversals, and market indecision. It is how you enter and exit the market and how you know that your trade should be exited.
The really important thing to remember is that before you can begin to develop and gain confidence in a trading methodology, you must have faith that you will achieve the outcome that you desire. You must have faith in your abilities to develop an effective trading
methodology. Confidence gives you increased levels of discipline, persistence, and faith. Confidence also gives you valid references, methodologies, and beliefs.
Without confidence you will not have the ability to implement all the other virtues that becoming an excellent trader demands. Confidence in your abilities will give you the perseverance to continue developing your abilities as a trader. Learning to control your ego, while having faith that you will accomplish your outcome, will give you the confidence you need to succeed.