Determining The Fine Line Between Confidence & Arrogance In Forex Trading

Trader or not, we all know that the financial markets are risky. Everyone has to figure things out on their own, taking time and facing challenges to become a better trader. The skills required to become a forex trader Read More

fall under a big bracket – from basic technical skills to the ability to have emotional control. Because of their ignorance, many don’t check what falls into this subset. So, it wouldn’t be surprising to hear, “ Successful trading is only possible if you have an excellent trading system.” Half true!

Despite having excellent strategies and knowledge, many traders still struggle because they’re not confident, a trait you can’t develop after executing a few trades. Those who think that way develop arrogance. As a result, they take bigger risks. They don’t know when to stop trading. But how do you know whether you are being confident or just arrogant? Let’s understand this recognition by knowing the difference between the two.

Recognise the difference between arrogance and self-confidence

Think of a confident person you know. A friend. A Mentor. Or anyone you admire. What do you see? Confident people are fully aware of what they are good at and not. They remain grounded, yet they don’t exaggerate their abilities. Moreover, we neither see them brag about their skills nor deny their shortcomings. Arrogance, however, is clear. You can spot such individuals in a room full of people. These individuals often make statements with great assurance, even if they’re incorrect. What’s more, they not only believe their own words but can also convince others of their validity.

From a trading standpoint, confident traders are well aware of their trading boundaries, both in terms of their strengths and limitations. They know when to take a risk and when to back off. In contrast, arrogant traders often overstep their risk boundaries. Their “I-know-it-all” attitude doesn’t let them see things clearly. They might make trades without proper calculation, causing problems for themselves.

Furthermore, traders with genuine confidence recognize when they’ve made a mistake. They constantly seek to improve. On the other hand, arrogant traders tend to believe they can do no wrong, often thinking of themselves as “the best” in the field.

How to develop real self-confidence as a Forex trader

Since we have discussed what separates a confident trader from an arrogant, the next thing you might want to find out is how to become a self-confident forex trader. As discussed, a good trader is someone who understands the importance of balance. In any trading scenario, while ambition without caution can lead to significant losses, being overly cautious can result in missed opportunities.

Below are some skills that every confident trader should have:

Figuring out your risk tolerance

Confidence in trading isn’t just about skills or trust in your strategy. It’s also about understanding how much risk you’re comfortable with. There’s a misconception in the trading world that more risk equals more profit. But the flip side, that higher risk can lead to bigger losses, is often overlooked. Knowing your risk tolerance is crucial.

So, when you’re about to open a trade, ask yourself: How much risk should I take? Don’t risk so much that you could lose everything quickly. But also, don’t risk so little that you don’t gain any valuable experience. A common guideline is to risk between 1-5% of your trading capital. If you’re unsure about determining your risk-to-reward ratio, consider using a trading calculator. It can help you figure out the appropriate risk level to aim for a specific profit target. Here are a few good ones that you can use:

Read up on market analysis

You’re trading forex, a sensational global market that sees billions in currency exchanges daily. But do you truly understand it enough to make informed trades? While you don’t need to be an expert on every aspect of the market, it’s essential to be familiar with the pairs you’re trading and the king of currencies – the dollar. What factors are influencing the dollar’s value? Having this fundamental knowledge will enhance your analysis.

An economic calendar can be a trader’s helping hand in fundamental analysis. If you’re using the MT5 trading platform, you will get an in-built economic calendar. Thus, you will get live updates, which will keep you informed and ahead of market movements. You can trade with the following MT5 brokers:

Learn some technical analysis skills

Skills and confidence are co-related. If you are good at something, you will naturally feel confident about it. This is evident in the everyday examples we observe. Often, you’ll hear people express confidence in areas they excel in while also admitting areas they’re not as proficient in. The same principle applies to trading. If you are well-versed in your technical skills and possess confidence in both your limitations and strengths, you’re on the path to becoming a successful trader. Therefore, the primary task is to develop a trading system that yields positive results. Dedicate time to its development, test it on a demo account, and periodically reassess its performance to ensure its efficacy.

Develop a daily trading routine

In order to master any skill, you must practice it on a daily basis and that’s how you become consistent. Are you trading every day to be a consistent trader? Don’t confuse this trading every day aggressively. Your trading routine should focus more on productive trading. Instead of being fixated on the quantity, do quality trades in small slots. Every trade you enter, big or small, can be a learning lesson for you. Recording your trades would also be helpful for you, as this will help you find out where you are lagging behind. Thus, when you make a trading routine, make it comprehensive by recording every piece of information about the trades you partake in.

Avoid revenge trading at all costs

Traders often have days when they think, “If only I had done this or that, I wouldn’t have lost that trade.” This feeling of regret is common. Many traders have felt this way, and many more will in the future. It’s essential not to be too hard on yourself. This mindset can be self-destructive because traders don’t learn from their mistakes.

Instead, they focus on trying to recover their losses. Unfortunately, trading with this mindset rarely yields positive results. If you’re solely driven by a money-oriented approach, you’ll trade with a weak mindset, prioritizing potential profits over risk management. Therefore, it’s crucial to steer clear of revenge trading.

Above all, stay humble

Do you ever wonder why traders who rise from rags to riches manage to sustain their success over time? What’s their secret? They remain humble! Of course, skills play a significant role. Your analysis needs to be on point. But these successful traders ensure their mindset remains steady. They cultivate confidence, establish firm rules, and set boundaries that they seldom, if ever, breach. So, no matter where you stand in your trading journey right now, embrace this attitude. Losses or wins, take them the same way and promise to work better the next time.

Wrap Up

A trader will have both wins and losses as long as they are trading. What you learn from them will determine the trajectory of your trading career. A few wins are important for any trader, as they instil confidence in you, pushing you to do better the next time. However, a few wins never guarantee that the next trade you make will also be a win. Thus, from the very beginning, do not let this be your attitude. Stay true to the ground and work on the skills that we discussed, as they will save you from going down the path of arrogance.