How to Rebuild Confidence in Trading After a Severe Loss

Brian McAboy  |

Has your confidence been shaken in your trading?

If you’re like most traders, your confidence has been beaten down by the markets – or so it would appear. In reality, the problem goes beyond those losing trades that are easy to blame for the current state of affairs. In this article, we’ll take a look at the real reasons why you’re not feeling nearly as confident as you’d like, a fatal assumption that keeps you stuck in that lousy rut, and the simple steps you can take immediately to build your confidence – the right way – so that it lasts.

Enough Trading Knowledge to Be Dangerous

Let’s start at the beginning, because that’s where the problem really originated. Most of us start our trading careers with our mouths are watering to a degree, thinking how simple this business is compared to others. It all seems straightforward enough, and of course it lacks the complexities of other businesses. It’s just you and the markets. No products or services to create or market. No employees, no customers, vendors or even competitors – so simple.

“Enough to be dangerous” is probably the most appropriate term to describe 98% of the traders out there. Why? As a group, traders are smarter than average, and as business pursuits go, trading is extremely uncomplicated. As a result, nearly everyone jumps right in, thinking that if they can just get making money, that everything else will fall into place, and the consistent profits will somehow just happen. With this false-confidence in hand, the account gets open, funded, and the trading begins. Soon after comes the disappointment and frustration.

The humbling lesson is that it isn’t that simple, that you’ve underestimated what it takes to make money as a trader and especially consistently over the long haul. It looked so easy at first, but you very quickly realized that you were missing some pieces to the puzzle, that there were some keys to this game that you didn’t know. At one time, it all looked so clear and almost obvious, but now you’ve had experience of things not working out like you thought they would, and you don’t know what to do because those markets are so darned unpredictable!

That fear of the unknown, the inherent uncertainty of the markets, and the lack of knowing what to do to get things under control are creating the anxiety that has your confidence circling the drain. The situation gets further aggravated by information overload and plenty of mis-information. Additionally, the vivid memories of the stinging losses only amplify the anxiety and fear of repeated failure.

When you underestimated what self-directed trading was about and what it entailed, that caused you to feel okay with skipping several basics of trading and of business in general. There are dozens of aspects of trading that can contribute to or take away from your success, but they aren’t all of equal importance. Some have a greater impact than others, and what follows are the key handful that deserve priority, because if they are neglected, not much else matters. Left unattended, consistent profits in trading will continue to elude you, and your psychological issues will continue to make your trading stressful.

The Factors of Trading that are Necessary for Success

Arguably the most essential skill set for any trader concerns trading systems. Your trading system is your central most important matter. It is the foundation of your business, your daily guide to trading, the means by which you implement your strategies to make money, and your greatest source of confidence or lack thereof. It is concerning your trading system where several damaging myths and misconceptions exist that create tremendous disappointment, stress and heartache.

If your system is solid and it is of sufficient quality, this goes a long way towards desirable trading. This brings us to the first misconception: that a good idea for a system makes for a good system. Many traders and system creators make the erroneous and often fatal assumption that just because you have a decent strategy on which to base your system, that the system you create from it will be easy to trade and consistently produce profits.

Not all systems are equal however, even when comparing different systems based on the exact same strategy. Some will be more ‘trade-able’ than others. If the system you are using lacks certain qualities, it will be at least somewhat difficult to execute and inherently create anxiety, doubt and other issues commonly attributed to a lack of ‘discipline’. If you don’t know how to evaluate a system’s ‘trade-ability’, then you may wind up blaming yourself when in fact the problem lies within your system itself and is the real reason you aren’t as consistent as you’d like to be.

In addition to the manner in which the system is constructed, you have the chosen rules and indicators used. This is the ‘nitty-gritty’ of how the ‘buy low, sell high’ of your strategy gets implemented. What you can expect from with regards to the performance of your trading system will depend on the details chosen here, since they directly determine the potential for your system regarding profit, drawdown, winning percent, etc. If your expectations are significantly out of alignment with your trading system’s ability to deliver, your confidence will continually be crushed as your trading will simply not be able to meet your expectations, and disappointments will occur again and again.

If the potential for your system does not meet your objectives, or you’re in the situation where your system has been performing satisfactorily, but now it's not, you must be able to adapt your system, to make changes that bring it up to the desired level. Many traders are very willing to try different things to get their trading working, but do not know how to go about it in an organized manner. Thus, changes get made, but it doesn’t take long and many things have been tried, but performance is still not desirable, and now they don’t know what has helped and what hasn’t. This only further saps your confidence when it happens.

Success in Trading is Proportional to Knowledge

In summary, when your trading system is solid, well-constructed, and is in alignment with your expectations, you will find yourself feeling quite confident and secure in your trading. Knowing how to evaluate the quality of your system, how to properly test and analyze to know its potential for realistic expectations, and what to do when it is either lacking something or is not performing, only bolsters your confidence in yourself as a trader. This establishes the solid foundation on which to trade with confidence regarding both your trading system and your ability to deal with the problems associated with your system. It is quite common in trading for profits to be directly proportional to skill and confidence level, so use the information you found here to boost your confidence!

If you enjoyed this article, feel free to download the Trading Plan Financial "What-If" Analyzer, a fun tool which helps you trade better, by going here!

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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