Building Confidence!
By Cliff Clark
When a trader sends a private message to me one typical statement is: "I need to develop confidence" or "I've lost confidence in my skills". Confidence is a much misunderstood concept in the trading world. How do we define confidence? One dictionary defines confidence as:
The feeling or belief that one can rely on someone or something; firm trust ("we had every confidence in the staff" ).
The state of feeling certain about the truth of something ("it is not possible to say with confidence how much of the increase in sea levels is due to melting glaciers" ).
a feeling of self-assurance arising from one's appreciation of one's own abilities or qualities ("she's brimming with confidence" ).
There are two types of confidence, unfounded confidence and solid confidence. Unfounded confidence is what happened to me the first time I went to the race track, I won over $300! I was so confident I could do it again the next I went to the track I tripled my bet size. You can probably guess what happened next. I confused confidence with optimism, that was the wrong kind of confidence. The solid kind of confidence is developed through the proper experience in applying a sound method. I know what you are thinking. “Here is goes again he is going to tell me to develop a trading plan”. Ha! Now you are starting to see the light!
When you begin to trade, you have very little confidence. Don't confuse confidence with optimism. It's ok to lack confidence in the beginning. Confidence is first developed through building a trading plan with defined strategies and management and then testing the plan. You will then begin to develop your confidence trading small positions until you hone your skills. You can't hope to be confident in your trading plan until you've proven to yourself that it works and this takes time.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
