One Step at A Time

One may walk over the highest mountain one step at a time.
Barbara Walters

"I want to be an expert trader. I want to be able to handle anything the markets throw at me." Is this you? This is a nice sentiment, wanting to be a trading expert who can trade under a variety of market conditions with many different methods. It's also a very ambitious goal. Trading in a variety of market conditions takes time and vast (years) of experience, as well as an advanced skill set many novices simply do not possess. Even many experienced traders find the task daunting, and when they experience setbacks they become discouraged. It is much more useful to pick a few key trading strategies, identify the market conditions conducive to those strategies, and trade only under these ideal conditions while you build up our trading skills and confidence. For example some people trade extremely well in strong trending markets utilizing only a couple of indicators and not well in choppy markets, while others are just the opposite.


It is essential that trader's build up a sense of confidence with but a few key strategies. Psychologists refer to this process as building self-efficacy. Self-efficacy is different from self-esteem. A person can have a low self-esteem, yet believe they can perform a specific task under a specific set of conditions - that is self-efficacy. You can believe you are an average trader but have specific abilities when trading a particular strategy under very specific market conditions. 


Research on self-efficacy has shown that when people believe they have self-efficacy regarding a specific set of skills, they set challenging goals, show unfailing persistence, experience pleasant moods, and can easily handle stress. These characteristics are conducive to profitable trading.Anything you can do to increase self-efficacy will help you master the markets and achieve long term profitability. 


Two obvious ways to increase self-efficacy are: 1) start off trading with methods you have mastered so that you meet with initial success and increase your feelings of efficacy; and 2) practice and gain experience as a trader. The more success you achieve, the more likely you'll be able to trade in a greater variety of market conditions and persist until you achieve consistent profitability. 


So don't be overly ambitious. Set realistic goals, achieve initial success, and build up your sense of self-efficacy. The greater your self-efficacy, the more success you'll achieve, and the more profitable you'll be in the long run.

Reprint from PrudentTrader Archives 2004