I suppose I made that post at least in part because I have the problem of overconfidence. So in a way I was curious to see what anyone else would say. Nevertheless, I have had a few more thoughts about overconfidence, which I will post here now. When I am overconfident, I falsely believe that I can trade beyond my skill set, which has decreased somewhat with age. I'm not nearly as quick as I use to be. Overconfidence usually reflects an exaggerated view of a person's abilities, which can be fatal for trading, where accurate and realistic perceptions of a trader's skill level are crucial. I know from my early years that I was especially overconfident when I felt uncertain about my abilities. When people feel inadequate, they often tell themselves that they are superior so as to bolster their feelings of incompetence. I know, because I did that. It's hard to escape this dynamic process of "ego defense." Everyone feels inadequate every now and then, and thinking, "I'm doing great" can soothe unpleasant feelings of incompetence. It's probably not a good idea to do this very often, but doing so from time to time is relatively harmless, and it may even be a useful strategy when used sparingly. The main thing that helped me get rid of overconfidence was realizing that the 800 pund gorilla was not me, but the market. The market can give you many humbling experiences. That's for sure. Telling yourself that you are a smart and brilliant trader has its time and place. It's fun occasionally, but if you do it too often, you may never look at your trading skills objectively, and take the necessary steps to build the skills you need to become a successful trader. It is best to restrict such self-enhancing strategies to off hours rather than during the trading day. It isn't useful to be overly optimistic and overconfident during the actual trading day, but during off hours, getting psyched up, and feeling a little omnipotent can be helpful. During off hours, it can be used as an effective motivator, especially when you encounter a transitory set of losing trades (ouch) and feel unrealistically disappointed about your current circumstances. At these times, you may want to convince yourself that if you take specific action and trade a detailed trading plan, you can get yourself out of a minor rut, those times when if you just make a few more trades, things will turn around. Overconfidence is a big problem, however, when you overtrade and do it impulsively. The overconfident trader may put on trades that just won't pan out. Over time, a great deal of money is lost, and it is hard to get out of the hole. At these times, it is especially vital to take a brutal, honest look at your trading skills. You must gain an accurate assessment of your skills, identify your weaknesses, and build skills to compensate. Focus on performance rather than potential rewards to your ego and social status. Doing so will help you develop an accurate view of your skills and a realistic level of confidence. And if you have an accurate level of self-confidence, you will trade more profitably. Comment to shark flu: I post here because although I may at times be overconfident in my trading, I do not feel I am superior to anyone. And if I can help a fellow trader to achieve success and profitability, then I will post here even if I get a lot crappy criticism for the posts I made. Foolish and snide comments roll off my back like water off a duck. They can never hurt me as much as I can hurt myself making stupid mistakes when trading.
overconfidence is a great thing to have in this business. My best trading always occurs when I feel like im on top of the world and walk into the office KNOWING that I am going to be a winner today. Knowing that no matter what I do its going to be the right decision. Now while this is obviously not realistic (being absolutely right all the time) but I think there is a relationship with being very confident (almost cocky confident) and having a high success rate. When I feel this "overconfidence" I don't second guess myself and I just seem to be "in the zone" more.
I don't believe in all this psychological psychobabble or the therapeutic clichés endlessly pumped out by self-proclaimed trading gurus, either you have a viable trading plan and the discipline to trade it no matter what....or you don't. And to heck with 'humble'! If you're successful in such a challenging business as trading where a reported 95% lose money then you're entitled to have an ego the size of a house! 'Mind Muzak', it's everywhere, you just can't get away from it unfortunately!
I believe Joe is right when he says that this has to do with a feeling of low self-esteem for most people. Low self-worth implies that the person is somehow underestimating what they can do. The reason why some traders are cocky and in many standard measures "overconfident" and yet they feel that they perform the best under such conditions is that they have a good connection to who they are and their self-worth and thus they tend to not get too carried away to either side. On the other hand when a person with low self-esteem performs on this unexpectedly high level, they extend these feelings of capability beyond reality just as they did before with the feelings of low self-worth. Thus a crash (return to reality) comes soon enough. It feels sort of like an oscillation - you're too far down one day and too far up another. The goal is to stay in the middle or slightly above.
I believe Joe is.....trying to sell some books and training sessions, I guess business must be slow or the gullible novices just aren't as gullible as they used to be Really? I thought the goal was to have a smooth, steadily rising equity curve.
Joe, Over confidence and low self esteem are two sides of the same coin.... traveling companions in a manner of speaking. They simply highlight the fact that you are out of touch with your abilities relative to the task in hand. regards f9