About six or seven years ago, my dad handed me a book titled The Inner Game of Tennis.
“Read this book. I think it’ll help with your trading,” he said.
I was sort of confused. I had never played tennis, so it wasn’t obvious to me how the game related to trading.
The small paperback with yellowed and musty pages was published in the ‘70s, and I sensed by the book’s title why my dad thought it might help — I decided to give it a try.
My baseball background helped me grasp the mental aspects related to playing tennis that were described in the book.
Turns out, trading is a lot like tennis … and most sports.
A trader faces challenges in the markets the same way John McEnroe faced challenges on the tennis court.
Those challenges are mental.
As with athletes, traders who learn to overcome mental obstacles find success. And their experience lets them approach the game with confidence.
While I read the book my dad gave me, I noticed it covered parallel concepts I had read in a classic trading book: Market Wizards: Interviews with Top Traders, by Jack D. Schwager.
In his book, Schwager interviewed Dr. Van K. Tharp, a trading psychologist, and a wide range of traders with a profitable record of their success on the trading floor.
In the interview, Dr. Tharp discusses the five market-based beliefs common among winning traders, which he identified during interviews he did while working with elite traders.
Today, let’s look at the fifth and final belief: Winning traders believe they’ve won the game before they start.
It sounds cocky … and risky.
But it’s all about having the right kind of confidence.
So, let’s run through ways you can trade with confidence, too…
Don’t Let Misplaced Confidence Defeat You
For more on the fifth belief, watch my YouTube video below.
To refresh your memory, let’s go over the five beliefs:
- Money is not important.
- It is OK to lose in the markets.
- Trading is a game.
- Mental rehearsal is important for success.
- They’ve won before they start.
When he discussed the confidence that elite traders show, Dr. Tharp was careful to differentiate between justified confidence and misplaced confidence. Here’s what I learned from his comments.
- Justified confidence does not exist alone. For traders, it accompanies other beliefs like the ones we’ve discussed in previous weeks.
- Justified confidence is a product of experience. Tharp worked with traders who developed and tested trading models over time.
- Justified confidence is correlated with commitment. Traders who are truly committed to success become confident traders.
Misplaced confidence, on the other hand, is empty and foolish with nothing to back it up.
It’s me expecting to win Wimbledon because I’ve watched it on TV for five years in a row.
Not gonna happen.
Maybe if I put in hundreds of hours of training and had God-given physical talent, I could step into a Grand Slam tournament with a legitimate shot at winning a game.
But even then, I would never feel certain about winning.
Because justified confidence is not the same as certainty.
Confident traders don’t believe they’re going to win money every time they make a trade.
Yet they believe they’ve won the game before they start because they know how to overcome challenges even when they lose.
Here’s what I mean…
Losing the Battle, Winning the War With Yourself
Win or lose, a confident trader has learned to overcome obstacles of his own making.
In The Inner Game of Tennis, author and tennis pro W. Timothy Gallwey wrote about the two selves in each of us:
- Self 1 he called the teller.
- Self 2 he called the doer.
In other words, our mental self and our physical self.
Gallwey found that our mental self interferes with our physical self.
Our physical self learns from repetition and intuition, and it can do some amazing things. But our mental self tends to mess up.
Instead of freeing up our body to perform a maneuver, our mind stresses about proper biomechanics. Overthinking is the fastest way to sabotage the process.
But even if we mess up in battle, we can still win small victories.
We win when we overcome the challenges and obstacles of our mental self.
A confident tennis player may lose a set, but he wins if he learns to stop letting his mind hinder his backswing or doubt his forehand on the next point.
A confident trader may lose a trade, but he wins if he learns how to eliminate wrong-headed emotions or takes ownership of a bad decision.
Confident traders know nothing is certain. They also know their capabilities and their limits.
This gives them confidence to overcome mental obstacles standing between them and their goals … even if it means losing some money on the way.
A Confidence Checklist to See It, Believe It and Win It
If you want to believe you’ve won the game of trading before you start, here’s how:
- Determine what you believe.
- Find or develop a model and test it.
- Commit to success.
- Overcome mental obstacles.
- Be confident.
This confidence checklist parallels the five common beliefs of winning traders. I hope you’ve enjoyed them.
I think they provide a beautiful mental framework for approaching the market. Of course, I’m here to help guide you on your trading journey as well.
Until next time, I wish you great success.
Good investing,
John Ross,
Senior Analyst, Banyan Hill Publishing.
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