How Overconfidence Destroys Profitable Traders
Understanding Overconfidence in Trading
Welcome everyone to another article.
One of the most dangerous stages a trader can walk into is not fear but overconfidence. (EGO)
Overconfidence in trading is essentially ego.
However, there is still an important difference:
- Confidence is a real belief built on proof, statistics, and discipline.
- Overconfidence is an inflated belief in your ability beyond the proof. This is driven by ego.
Many traders do not fail because they do not know enough.
They fail because at some point, they believe they know enough or know everything.
What Overconfidence appears as in Trading:
A trader builds a system. ( yay! )
They go on a clean winning streak maybe 10, 12, even 15 profitable trades in a row.
At this point, the trader begins to think and assume:
Ive cracked the code.
- Risk gets increased .
- Position sizes get bigger .
- Rules start to bend .
Confidence continues grow until it crosses a dangerous path where belief is no longer supported by data, statistics and proof.
Reality eventually steps in.
You will never again feel as confident as you did during your first major winning streak when it looked like the market finally made sense and success was figured out.
That feeling is exactly what traps traders.
Overconfidence WILL break Risk Management
Overconfidence destroys a trader by slowly dismantling their risk management, their system, their discipline, their psychology and their consistency.
It rarely happens all at once.
First:
- Ill just risk a little more this time.
- This setup looks perfect.
- Im on a winning streak.
Over time, the trader begins to:
Ignore position sizing rules ( Too ma