Confidence vs Competence

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Are you Confident and Competent To Make It In The Fast Paced Trading World?

How do you feel when you press “High” or “Low” on your trading platform? Do you feel secure in your assessment of what the market is doing? Or do your hands shake, uncertainty stalling you every step of the way?

What about when you are in a trade? Do you wait patiently and confidently for your trade to complete, only exiting early when you have a good reason? Or do you waver in your judgment, constantly second-guessing your decision and wondering if you should get out immediately?

Confidence definitely isn’t something that is either a 1 or a 0. It is a spectrum. Most of us are never going to feel 100% confident in our trades. But we do generally think of confidence as a desirable trait. We do not want to be overconfident, but we do want to actually have some faith in our own decisions.

Does the typical binary options trader feel confident? I do not know—but I do know that confidence represents a big struggle for plenty.

We tend to have a belief that if we are confident in what we are doing, we will succeed. If we are not, we will fail.

I think that the real nature of confidence is a lot more complicated than that.

 

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The Dunning-Kruger Effect

I recently read somewhere that most of us conflate the idea of confidence with that of competence. Immediately I saw the sense in this; if someone does a great job presenting themselves to us as a confident person, they sell an idea to us that they know how to perform. Someone who trades with self-assurance gives a great impression. Why would they have all that confidence if they did not know what they are doing? So we naturally assume that they do know what they are doing.

But think harder about that for a moment. Chances are good that if you think over your life, you can spot examples of people you have known who were extremely confident but totally lacking in skill.

There is actually a name for this in psychology. It is a cognitive bias known as the Dunning-Kruger effect.

David Dunning, one of the researchers who studied the bias, came up with the following explanation:

“If you’re incompetent, you can’t know you’re incompetent … The skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.”

That makes sense. Basically, take that newbie binary options trader who for some reason is utterly convinced he knows what he is doing and is going to make a million dollars in his first year. He approaches every trade with confidence—maybe he even gets lucky and wins just enough to sustain the illusion (for a time). He is so ignorant of the reality of trading and the real skills required that he literally has no way of knowing yet just how badly he is about to lose.

I would argue there are plenty of other factors that might play into this particular cognitive bias as well. Many people have a need to protect their emotional pride. They can take this so far that they believe they can do no wrong. They may even sustain that delusion against all kinds of evidence to the contrary.

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The reverse can happen too. You probably know some overconfident, conceited traders who believe they are way better at what they do than they really are. But you also likely know some overly modest traders who vastly underestimate their own abilities.

These traders may assume that their performance is only average—or that the tasks they manage to succeed at are “easy” for everyone. They may overlook victories and magnify failures.

Once again, there are a lot of reasons why this might happen. In some cases, it may point toward problems with self-esteem.

In other cases it may point in the direction of extreme dedication. Someone who is fighting hard to become really good at trading might obsessively take note of everything they do wrong. They have set standards for their performance which are much higher than those set by their fellow traders. Since they have not yet met those higher standards, they do not perceive their own success or skill. They are constantly striving to become better, and thus fail to see just how good they already are.

How we define competence is going to have an impact on how confident we feel.

Reframing Confidence

Binary Options BettingAt this point it becomes hard to define where we stand in terms of skill. You may wonder just how much your emotions and perceptions influence your self-image as a trader. Are you really as good as you think? Are you really as bad?

If you are no longer sure how skillful you are, it is helpful to reframe your idea of confidence. Go demo trade 60 second options for a while. You need to learn to broaden it a bit and stop simply equating it with trading competence.

There are varying definitions for the word “confidence.” If you ask Google to define the word, you get these definitions:

“The state of feeling certain about the truth of something.”

“A feeling of self-assurance arising from one’s appreciation of one’s own abilities or qualities.”

“The feeling that one can rely on someone or something.”

There is a problem with that first definition when it comes to trading. You are never going to feel certain of anything in an occupation that forces you to stare uncertainty in the face every day.

The second and third definitions are not bad at all. But the question ultimately is what you are feeling you can rely on, and which abilities or qualities you are putting value on. Most of us simply tie value to the wrong things.

Consider the third definition. If you have a hard time feeling like you can rely on yourself (because of poor self-esteem for example), you can often get around that problem by testing a trading method until you get excellent, consistent results. If you rely on the method, you can feel confident in what you are doing.

Coming back to the second definition, “a feeling of self-assurance arising from one’s appreciation of one’s own abilities or qualities,” many of us place emphasis on the wrong abilities and qualities.

We place emphasis on our ability to win now, instead of our ability to win eventually. We value the certainty of winning instead of the possibility or likelihood of doing it. We value perfection instead of self-improvement.

Most of all, we devalue failure.

This is a problem, because failure is an inevitable part of every learning process. How can you expect to make progress toward your goals when you are actually avoiding learning? How can you build self-esteem and confidence when you are condemning yourself just for taking the journey?

You Can Be Confident If You Are Competent At Improving

You do not have to be 100% competent at trading to find a way to be confident in yourself and your trading activities. Nobody is 100% competent at trading, including the most confident traders you have met. The ones who actually are successful though (or will be someday) are those who are competent at improving themselves and confident in their ability to learn and grow.

To discover self-confidence through learning, you have to accept that you will make mistakes, especially trying to trade 60 second options. Sometimes you will lose money. You will fail, time and again. Sometimes you will look and feel like an idiot.

So long as you are learning from that process, that is perfectly okay. You are not a failure—you are simply a trader who is growing and evolving through a natural process. There is no way to become a better trader without making mistakes along the way. Just don’t make them at scam binary broker houses (just read those comments!) or you are guaranteed to lose your money.

We live in a world that demonizes mistakes and upholds an unreachable model of perfection as the standard for self-esteem. Ironically, those are beliefs that will hold you back for the rest of your life if you keep putting stock in them. They will actually prevent you from attaining the only competence you really need—the ability to improve.

If you can acquire that one ability, you will be able to get up each time you fall, realizing your failures are all part of the process by which you may one day become a successful trader. You will embrace the entire process. You will feel the same confidence in the face of your mistakes that you do when you experience your wins. You will discover that the two are intrinsically tied together. You will no longer cripple your growth by tying your self-confidence to unachievable perfection.

So next time you find yourself struggling with your confidence and composure before or during a trade, just remember that your confidence should not hinge fully on the result. It should come from knowing that whatever happens, you will learn from it. You will take that knowledge and use it to improve your trading skills. Every day, you will grow through that process, shaping yourself into the winning binary options trader that you strive to become.