Confidence can be an important psychological tool for the trader – important enough to make the difference between a winning trade and a losing trade. When you develop your trading plan, it is obviously important that you have confidence in its accuracy and usefulness and in your belief that you can follow your plan closely and execute it successfully. 
Often, traders fall into a mental “I know it all” trap, where they use their confidence to nurture their ego instead of using it to be appropriately decisive in their trading and investing decisions. Such misplaced confidence can be crippling to trading success, because any potential influence from the environment (media, others’ opinions, etc.) that could sway the trader from sticking to his trading plan will have far more power. When a trader is caught in this type of trap, his ability to question his opinions and ideas diminishes. If his initial reaction to a suggestion is to accept it, he loses the capacity to question his acceptance; and if his initial reaction is to disagree, then he loses the capacity to question his disagreement, which can cause even the slightest suggestions from news, colleagues, and other influential sources to be magnified in the trader’s psyche.  (more…)