Building better conviction for your trades

Discussion in 'Psychology' started by jbtrader23, Apr 9, 2004.

  1. I believe conviction is what seperates the Buffet's, Soros' and Templeton's from everyone else. These guys and other billion dollar traders have such an iron level of conviction in what they are doing, there's no more guess work.

    Many people wrote off Buffet as an old fogy in the late 90's because he wasn't buying tech stocks. Imagine if you're on a deserted island and everyone around you is going out and pulling down coconuts out of the trees. They are so tasty! Look, everyone is doing it, therefore it must be so. They're going to make my life better. There are no harmful side effects. Yet Buffet is in the corner (i.e. Nebraska) and he's not nibbling on this fruit. What's wrong with that old man.

    Well, that "old man" stuck with what he knew. He only bought stocks at certain prices, he had tried and true principles that have lasted for decades and he wasn't about to jeopardize his companies health on a new exotic fruit. And that's why he has more cash than most 3rd world countries.

    Jim Rogers of the Quantum Fund spoke about his conviction for trades in "Market Wizards". He mentioned shorting gold at $675 and HOLDING ON while gold went to over $800, only to crash. That took an incredible amount of conviction.

    Where does it come from?

    It comes from your beliefs about what works. And your beliefs about what work come from your experience and your environment.

    Trading without extraneous information helps strengthen your conviction. The most profitable thing I ever did was turn off the TV, getting away from the chatter and gossip. Getting away from internet sites that weren't helping me. <b> Guarding your mind is tremendously valuable. </b>

    When there is no opposition to your methodology, you can judge yourself much better. There's a better sense of clarity.

    How much more conviction would you have for your trades if you ONLY used your current methodology and past data and backtests that you have? If you only used what was relevant.

    The main problem is that most people don't have the experience to only use their current methodology and delete all other information. Build as much experience as possible through backtests and real world experience. To short gold at $675 and hold on for another $125 required experience. The experience isn't necessarily in years. It's in examples and past trades. If I had hundreds or thousands of previous bubble examples, that's certainly better than just one previous example. If I examined the nuances of different bubbles, that would help. If I had a well defined exit strategy, that would help as well. If you build up a certain level of experience and preparation, conviction automatically increases.

    Another ingredient for building conviction is knowing why your methodology works. This is much trickier.

    Jim Rogers builds his methodology around supply/demand fundamentals and the cycles of human emotion for example. Buying on panic and selling on euphoria. Since human emotions never change, the strategy will never change. The methodology is based on solid ground.

    Ask yourself, why does my methodology work? What are the underlying principles behind it?

    When you eliminate excess information, when you focus on your results and experiences and when your methodology is based on timeless and well grounded principles, that's the recipe for more conviction in your trading.
  2. >Jim Rogers of the Quantum Fund spoke about his conviction for >trades in "Market Wizards". He mentioned shorting gold at $675 >and HOLDING ON while gold went to over $800, only to crash. >That took an incredible amount of conviction.

    It's not only a question of conviction here: thre is more then 18% of price error I'm sorry but on futures with the margin call haha ! Of course with OPM=Others People Money ... and after Hindsight :D

    BTW do you think that in book they report stories where the convictions lead to disasters huh ? So it is completely biased. Conviction without reason is stupidity. It's even better to be ignorant but being conscious of being ignorant.
  3. The guys you are taking as examples are basing their conviction on fundamentals, as everybody should know fundamentals can take a very long time to realise and if you haven't a purse of the same size than the bankers well... Soros fund is so big that he can add and add and add to his losing trades until finally he is right and reverses but this is not feasible for somebody else in every case :D.
  4. gnome


    I'll say there are about a half dozen ways to skin the market's cat. Being astute at fundamental analysis [with deep pockets] is one of them.

    As a trader, you will be successful when [any only when] you have (a) confidence that your plays are *probably correct* or have a high reward-risk profile, and (b) stop loss discipline.

    "Conviction" is what you hang your hat upon when the market goes against you... much like the late, great Ed Hart used to say, "... Definition of 'Investment'?... a busted trade".

    If you have conviction as the market goes against you, it's usually only a matter of time before the market busts you out.
  5. xs900


    Regardless of replies to your Thread..........I consider you're sentiments to be excellent.

    I made progress when: I burnt (ha ha) all (but 5 ) books, cancelled varous subscriptions and listened to no-one. (well, almost no-one.).............progress can be made, slowly. Can be better to have decisions come OUT of your mind (based on experience etc.) rather to decide based on ideas being forced INTO your mind..........the adventure continues :)

    Perhaps: He/She who believes the most makes the most.