Wikipedia defines self esteem as a person’s overall emotional evaluation of his or her worth. In short, it’s your opinion of your capabilities and personality and it defines your attitude towards yourself.
Self esteem is also a trait, meaning that it’s a permanent quality that doesn’t keep wavering between high and low.
What Self Esteem Issues Have To Do With Traders?
Being performances so important in trading, you may realize that self esteem issues may become an important barrier for you.
Successful trading comes down to this: overcoming your personal psychological barriers and conditioning yourself to produce feelings of self-trust , high self-esteem, unshakable conviction, and confidence which will naturally lead to good judgement and winning trades based on a proven methodology James Buzzard
Balanced self esteem is everything in trading; it helps you take right decisions, stand by them and accept what comes your way with confidence. Confidence in your judgment is important because it helps you avoid wavering; one of the biggest mistakes in trading.
By now, you should already know that there are no shortcuts to success in trading. Discipline, backed by the right level of self esteem is the only psychological route to winning trades. When we analyze the relationship between trading and self esteem, a few conclusions hit us right away.
Firstly if low self esteem is bad for a trader, very high levels of self esteem could be even fatal. Secondly, as traders, we are alone in front of the market and our PnL; as a result, the only motivation that we get has to come from within. So it wouldn’t be wrong to say good self esteem is the lifeline of our profession.
Read on to find out why I’ve dedicated an entire post to the importance of solving self esteem issues and how to cultivate the confidence that will help you immensely in your journey as a trader.
Why Is Healthy Self Esteem Vital for Traders?
If you don’t know who you are, this [the market] is an expensive place to find out. Adam Smith, The Money Game
Self esteem issues are like a cord that binds us from doing anything; how many times have you waited to pull the trigger on a trade though your instincts keep telling you to do it. This is because you lack the confidence to take action when it’s required. Later, when this results in a loss, it slashes your self esteem even further. This is a vicious circle that’s very hard to break.
One can never be a pro trader with low self esteem. Just a few losses in the market will make such traders quit and what’s worse; this can happen repeatedly. Such traders are harsh on themselves each time their trade backfires and quit the market; but they keep coming back following the advice of others and the same incident happens over and over.
High self esteem gives us the confidence to bounce back after a bad phase in the market. It also gives us the strength and poise to act rationally though we may be emotionally strung up.
Low self esteem induces fear- fear of change, fear of risks and fear of experimenting. Since change, risk and experimentation are the very elements of trading, it doesn’t make sense to get into the market feeling scared of them.
When your self esteem is poor, you tend to rely solely on the advice of others. While this works at times, it doesn’t make you a trader. This kind of trading is sure to backfire at one stage and at that point of time; you wouldn’t know what to do since you’ve not done your ground work.
When you have poor self esteem, it shows! It gives others an opportunity to further push you down by saying you took wrong decisions. Again, the vicious cycle catches up with you.
What happens when your self esteem is too high to match your performance? How often have you seen people in trading chat rooms who give calls and insist on sticking to their calls, no matter how the trade progresses. Often, their overconfidence even affects others in the group and they follow the call blindly, often resulting in loss. To these traders, it’s their ego, not the market direction or data, which dictates the trade. This is as risky, if not more, than low self esteem.
Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. Marty Schwartz, Pit Bull: Lessons from Wall Street’s Champion<c/ite>
When the impulse to prove that you are right overpowers common sense, you are in dangerous territory; you just keep willing things to happen though chances are highly likely that they won’t.
So we’ve seen that in both cases self esteem issues (low self esteem and excessive ego) can completely ruin the journey of traders. What we need is “healthy” self esteem that nurtures the confidence and discipline that’s needed to trade and bring down the excessive pride that prevents you from absorbing the wealth of knowledge that the market has to offer.
How Do You Build Healthy Self Esteem In 6 Easy Steps
- Knowledge and Practice. Knowledge is the best architect of confidence. When you are thorough with what’s happening around you and what should be done on your part, your self esteem spontaneously improves. Knowledge combined with experience is even better because experience teaches you the harder lessons the market has to offer.
- Research and Planning. Set a trading strategy, plan your trades after enough research and stick to disciplinary principles of trading. When you do all this, you may not become a profitable trader overnight, but you will definitely see progress in your trading pattern. Another important: stick with a good plan, do not jump from one approach to another.
- Assess. While low self esteem can be judged as well as corrected, excessive self esteem is always difficult to diagnose. Where does the partition lie between high self esteem and egocentric confidence? When the direction of your trade steers to appease your self-image instead of your common sense, when you ignore all indicators to give in to your ego and when you feel the urge to always have the upper hand, you know you are in trouble with yourself. The only measure to prevent this is by sticking to disciplined trading; let rationality and marked entry-exit levels guide your trade and don’t be afraid to be proved wrong.
- SWOT analysis. Write down your strengths, weaknesses, opportunities and threats and plan your trade based on these results. For instance, if your low capital is your weakness, excessive leverage is definitely a threat; so avoid going in for borrowed money and trade in cash instead.
- Take Time Off. When you’re feeling too low, get off the system. Even if you trade now, you’re probably going to incur further losses anyway because your prudence is on the wane. Keep away from the markets for some time, take a breather, read books and boost your confidence; then come back to your desk and start trading carefully. With every break, you can bounce back with more self-belief.
- Forgive and Forget. Don’t blame yourself too hard when the tide turns against you; you are dealing with a highly volatile environment. Also, once you’ve completed a trade, forget everything about it. It’s futile to keep tracking the trade and finding out how much you lost because you squared off too early.
For all those who’re out to find out the best winning strategy, the best trading practices, the best shortcuts to the market, here is a concluding quote:
There is no holy grail, there is no magical system. You have to win the battle within you first before you can win with the markets. Maria Psarra