Developing Conviction


I can’t think of one thing harder to do in the world of trading than develop conviction. Well at least for us retail guys. Big bank rolls transfer risk from process to time. That’s another story for another day though. Today I’m talking about all of us in the cheap seats who keep getting F’d over by US brokers (FXCM, thank you so much)… Again, a rant for a different day.

Think about it for a second. What do most of your loses have in common? Mentally I mean. I mean obviously they all didn’t work and you lost money. Duh. I mean think back to your last 5 losing trades. Notice anything? Think back to the moment you took the trade. Think about how you felt. Did you feel confident? Was your entry exactly what you wanted? Was your stop in a place that would have without a doubt made the trade wrong? Was your trade properly sized in accordance with either a leverage plan or risk plan? Where you able to shut the computer off and just walk away and let your trade either work or not because you fully accepted the risk?



Or did your last losing trade go something like this:

I placed it because the market was moving and I didn’t want to miss out. I didn’t plan it. I actually planned to sell the GBPJPY that day but ended up buying it because, well it was going up. I put my stop way too far away because it “needed room” but I didn’t really know for what… It would just suck if price went there. My trade size was pretty big because I had just lost on my last trade and where my stop was, well, price will never go THERE… And it was weird because once I placed the trade I had rolling sweat down to my butt and I couldn’t shut the computer off because well and I seriously need this win.. .price will never go THERE…

Which set paragraph describes your last losing trade? Which paragraph describes 85% of the time of your last winning trade?

Why? Why do we put ourselves through this?

Because we let the market push us around. I am still guilty of this. It doesn’t go away if your a discretionary trader.

I get it. Like Bruce Lee said, we as traders need to be like water. But think about this, water didn’t move unless it was acted upon to move. Being like water doesn’t give us a licence to just do dumb stuff all day because a 5m chart is acting like a the emotions of a teenage girl.

We can change our opinion if we have done the work to do so. Until then, we must stick to our guns.

How does a trader develop conviction?

Here are two things a trader MUST do to develop a daily directional conviction:

  1. Higher time frame directional analysis- We have to have a direction for the day. It could be some moving averages like I use. It could simply be what did the last daily candle do and WHERE did it do it. Before you make any trade entry plans, develop a directional bias on either a daily or 4 hour chart.
  2. Decide-Commit-Act- Sounds easy right? until “the market starts moving… Decide your higher time frame directional bias. Commit to that direction UNTIL SOMETHING ON THE HIGHER TIME FRAME CHART TELLS YOU IT’S CHANGED. And then Act, take every trade that sets up in that direction until you get the result you want. This requires you to have a sound money management plan in place. I won’t go into all of that here because we would drown in details. Just know, that to hit the trades you need to hit, you may have to swing a couple times. Be committed to your ideas. Don’t let the market drag you around.

Something I want to be very clear on though because someone out there is holding on to a huge draw down and will read this post and be like “I’m the YOLO Wolf and I am so convicted I’m right I will ride this till I either get rich or margin called…” That’s not what I’m saying.

There is no conviction in prediction

The only thing you can find conviction in is your process. You are never right or wrong. You simply adhere to your process or you don’t. This has been so hard for me to learn. I have spent months learning this lesson. I am convicted to stick to my process. And you have heard this from me probably 100 times but I will say it again: your results will never produce conviction. You will develop your conviction before the results come. And if you don’t you will do exactly what I did and go for days or months with great success and then when your conviction gets tested, when the market leans over and whispers in your ear “you don’t know anything at all and this is all luck and your luck has run out” all those results will disappear and you will be left with nothing to hold on to. And then you will have to go about the real work of developing that conviction.. for real…

Conviction comes from hard work, not results. Go work hard to develop your conviction before you take your next trade, no matter how long it takes. Maybe that way you can get up from the computer and go live life instead of having sweat rolling to your butt every day.

Have a good one






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