Conviction

One often hears about the necessity for having conviction in order to succeed in the markets. Successful trading often involves being contrarian and taking the road less traveled -- after all, each trade you place is a claim that the market is presently wrong, and it takes confidence and courage to be able to buy while the rest of the world is selling. But it's my belief that one should strive for complete conviction only in one's own abilities as a trader, while letting go of the notion when it comes to market opinions and analyses. The line between conviction in ourselves and conviction in our positions is a fine and easily blurred one; however, the implications when we cross that line are prodigious. Not only does putting complete faith in our positions serve as a liability in slowing us down if contary action is eventually required, but it could also be a sign of faltering faith in ourselves. In fact, I believe it makes sense to say there is a direct negative relationship between the the two: the lower our level of conviction in our abilities as traders, the more we tend to place our hopes in any given market position or trade.

Whenever I find myself unwilling to reconsider the arguments against my outlook and/or clearly define my "uncle point" on a position, it's likely that I've allowed myself to drift across that line. Placing my hopes with the market over having faith in myself in finding the next opportunity is the equivalent of throwing up my hands in resignation, a concession to laziness in not wanting to re-examine the possibility I could be dead wrong. By this point, a trader has clearly lost sight of the fact that each trade taken is but one in a long line of thousands, and it's no coincidence that we are most vulnerable to our own convictions after stumbling upon a string of losses, in rush to "get it back".

So what would be the proper mindset, if one is to refrain from fully aligning onself in the direction where capital is already at risk? Conviction implies a settled state of opinion and the inertia of a decision already made; this simply leads to a kind of prejudice towards one market direction or another. But let's face it: assumption is always the path of least effort. And when has the market ever rewarded the followers of that path? It's far better to strive to be continually skeptical and yet boldly decisive when the moment requires. The difference may seem limited to semantics, but I think the interaction between our perceptions and the market should be a continually active process, and that includes methodically denying ourselves the allure of false comforts that accompany an unyielding sentiment.