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Peak Performance Trading Tips

By Van K. Tharp, Ph.D.

These trading tips will help you get yourself in the best possible condition mentally to perform at a peak level. They are not necessarily new, but they are critically important.

So whether you’ve heard them before, or not, now is the time to employ them in your trading and in your life. Both will improve as a result.

Tip 51: What It Takes To Have Confidence

Dear Dr. Van Tharp: Overconfidence presents a trading conundrum. I find I can’t trade big or successfully without lots of confidence. But when I’m at my most confident, the point where I lose all anxiety, I tend to have my biggest losses. How can a trader retain a healthy level of anxiety while remaining confident enough to "stay big"?

Sincerely,

N.

Dear N,

First, you have to know yourself. And this isn’t a small step because most people are not willing to go inside and do some exploration because they are too afraid of what they might find. Instead, they just say, “I already know myself.” But what if you have unlimited potential and you just don’t know how to tap into it because you are not willing to explore how you are blocking yourself?

Once you know yourself you can set up objectives that you are comfortable with and then set up trading systems that really fits you. Jack Schwager remarked after two market wizard books that the key element of success of all of the traders he interviewed was that they had systems that fit them. And I believe that’s part of having the confidence to trade your system.

So let me ask you the following questions – all of which are necessary to have a system that fits you.

Have you written down your beliefs about the big picture and does your trading system fit the big picture?

Have you written down your beliefs about the market (what works and what doesn’t) and does your system fit that.

Have you written down your beliefs about each part of a trading system and does your system fit that.

Are your objectives clear and do you have a position sizing algorithm that’s designed to meet your objectives.

Typically if your trading system fits all of those criteria, then you’ll feel really confident trading it. If not, then there are more questions to ask yourself.

What are your criteria for feeling confident about a trading system?

Do you understand how your system will perform in the six kinds of markets (and I’ll address this on the next tip). And here I don’t mean just its average performance, but the statistical outliers (i.e. two standard deviations away from the mean). Are you happy with that? Also, if your system is performing well above average, do you realize that and understand that below average performance usually will follow.

Do you have a worse case contingency plan and do you know how to keep most of those potential disasters from wiping you out? This is an important part of confidence and if you are not there then you shouldn’t be trading.

Lastly, are you following the ten tasks of trading as discussed in my Peak Performance Course? These are designed to 1) keep you disciplined and, most importantly, 2) prevent mistakes or at least prevent you from repeating mistakes.

I’ve covered a lot in this tip, but your question encompasses a lot. Trading is really a business. Most businesses fail because of lack of planning and what I’m really suggesting as the answer to your question is that you:

Treat trading like a business and not a hobby. If you haven’t done these things, then you’ll typically be the most confident at the end of a winning streak and then have your biggest losses, just like you said. If you have done these things, then you’ll understand the big picture for you and your performance will be much more consistent and elevated.

I’ve seen major trading entities that did not cover many of these points with their traders. Most of them performed poorly or eventually failed. And I’ve coached some entities (as well as many individuals) to encompass these points and when they do, they tend to flourish.

Click the Peak Performance Trading Tips header link above learn more about Van Tharp's excellent trading training programs.

Good day and good trading.

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