These days, it seems to me that many traders feel the need to be overconfident
with their trading, as if it's a necessary part of becoming a good
trader that you have to act like you're invincible, especially on social media
or in the comments here on our channel.
But let me tell you from experience that this is often the thing that
leads to a lot of traders failing. We might feel that we're competent in our
analysis and confident in our trades, but we can never come anywhere near to
knowing with a hundred percent certainty,
what's going to happen next. No matter if we think we do have that
amount of certainty, we don't.
Now I already know that if you mentioned George Soros online, it's like asking
for trouble in the comments section.
I've made that mistake before, but look, whatever you think about his political
views and whatever he does for his money, whether you love it or hate it.
He's still one of the greatest traders of all time, and we can
still learn a lot from what he does and what he did in the markets.
So in one of his books, he's asked about his analytical ability and he says
I am not a professional security analyst.
I would rather call myself an insecurity analyst.
And when he's then asked to elaborate on that comment, he goes on to explain
how he knows that he may be wrong.
And that gives him a sense of insecurity. Because of that,
it keeps him alert and he's very critical of himself.
He's constantly looking for the flaws in his position because
he feels insecure about it.
He knows the flaws must exist.
And then once he does find the flaw in the trade, it doesn't mean
that he just closes his position.
In fact, now he ends up feeling more confident.
The insecurity is gone because now he knows how he could be
wrong and he can be prepared for that.
He also mentions how, you know, he now knows how he could be
wrong, but the market doesn't.
So this means that he's actually ahead of the curve.
So what he'll do is then look for signs that things are going wrong.
And as soon as it seems that things are, he'll close the position, based on actual
evidence that he's wrong in his position, rather than just having blind confidence
that he's right. Now, this actually goes against what most traders do.
Most traders will do their analysis, open their positions and
be convinced that they're right.
It literally can't go tits up.
Now, of course, some traders doubt themselves endlessly, and they usually
don't make it to the point where they start profiting from their trading
when they feel so insecure constantly like, oh my God, what am I doing?
Open a trade and close it immediately.
I'm not talking about that.
I'm talking about the traders that you see arguing online, not accepting opposing views,
they're right and everything that suggests otherwise is wrong.
You'll see it all the time in the YouTube comments.
But although not everyone will give it the big I am like that and make
it obvious that they think they're right, the majority of traders
still do something very similar, but much more subtle and insidious.
They will experience confirmation bias.
And they'll do this thing where they scour the news or data, the charts,
with very selective attention that causes them to only see the things that
confirms their viewpoints and ignore all the things that don't confirm it.
And guess what?
This is obviously a recipe for disaster, right?
You see, it's important to have conviction in your trades.
Otherwise you're just going to be shaken out of your position at every fluctuation
the market makes, right.
You have to have a certain element of diamond hands, but let's not confuse
conviction with overconfidence.
There's a saying that I really believe in and I quote it all the times.
You've probably heard it from me before.
It's from a chap called Paul Saffo
who's a famous forecaster and the saying is strong opinions, weakly held
So you can have enough conviction to open a trade, but be willing
and ready to change your opinion when you're proven wrong.
Because here's the thing, as traders
once we recognise that we do have flaws in the way that we think, and you know
we have these biases, with things like confirmation bias that can work
against us and cognitive dissonance that doesn't allow us to face the facts
once we're too firmly into our position.
Once we recognise that we do have those flaws,
we can come up with approaches that counter those and stop us causing
huge disasters for ourselves.
So once we're aware of them, we have to figure out how do we counter that.
So just like George Soros, you should start to become more of an
insecurity analyst. Rather than having confirmation bias and looking for
things that confirm your points of view,
take an approach
that's more similar to the scientific method and look
for dis-confirming evidence.
This means you're looking for information that can show you that your viewpoint,
your position, your opinion is wrong or not true, or the opposite
is the case or whatever it might be.
And once you find those things, just like George Soros, it doesn't
necessarily mean that you have to exit your positions, but you will be better
equipped to make the right decisions.
Now a response I often get, particularly from new traders when I
discuss this sort of thing, is that yeah, these kinds of things work for
fundamental analysis or long-term investors, but technical traders
we don't need to worry about this sort of thing.
And that's simply not true.
In fact, this is not just a trading or investing thing, it's something that
applies to every aspect in life.
It's just a good way to be.
But if you are using technical analysis for your trading, Let
me give you a simple, practical thing that you can start doing to
make use of this sort of approach.
Now, I talked about this in my video on context-based
trading, which is how I trade.
I went into a lot more detail there, and you can find it linked up there if you
want to watch that as well. I recommend doing so if you haven't already. But basically
a lot of traders when they do their analysis,
you may have seen on things like trading view or on Instagram, they'll come
up with one outcome, they'll often draw an arrow on the chart to show what outcome
they think is going to happen next.
And so this is what they think is the next likely outcome.
And that's what they're going to trade based on.
But when I do my analysis, I don't want to have that sort of tunnel vision
and only see one potential outcome, because then I'm just going to have
selective attention or I'm not going to see all the ways that I could be wrong.
So instead I'm looking at what all of the potential outcomes could be.
All the alternative outcomes. That way,
I now know what may happen next, not just the one that I'm going to be trading,
but every other potential outcome.
And now I can think about what sort of activity in the market
or what sort of information might come out that would confirm or
disconfirm any one of these outcomes.
So what might happen if I'm wrong with my trade?
What signs would that be
that that's what's playing out?
I can spot those because I'm not so firmly in my viewpoint, thinking
that I'm a hundred percent right.
I'm not only seeing one outcome the market's going to make.
So all of these bits and pieces that I can keep an eye on to see which
outcome is playing out or signs that the outcome I want to be playing
out, isn't going to be playing out.
Those become the focus.
These are what I'm looking for during my trade to help me with my trade management.
You know, I've learned the hard way, unfortunately, that no matter
how convinced I am of something, the market doesn't always
necessarily have to agree with me.
And I'm sure it's going to happen the same for you too.
If it hasn't happened already, you can almost guarantee it will happen
in the future. Because many intelligent people like you have gone broke
because they think the market's wrong and their analysis showing that they're
right. But you can't fight the market.
As the saying goes.
The market can stay irrational longer than you can stay solvent.
So we have to stop allowing overconfidence, stubbornness
ignorance, and all these other deceptive little issues.
We have to stop them coming into our trading. Instead actively go against it.
Become an insecurity analyst, and actively look for the flaws in your position.
And that's what will save you from disaster.
So, if you found this one useful, please do hit the thumbs up button.
And let me know your thoughts in the comment section down below.
I am expecting that there'll be some George Soros hate down there.
So perhaps we can offset that with some on-topic discussions
instead. Please do subscribe
if you want more trading lessons and we also have a
second channel, Market Movers, where I go through the financial news and
the charts during the week to see how things are moving the price
and it's a bit more practical.
And if you want to know more about how I trade, check out the free training
that's linked below in the description box or at the end of this video.
Thanks so much for sharing your time with me.
I appreciate it.
And I'll see you soon.
Take care guys.