Confidence without humility is arrogance.
Arrogance is deadly
Confidence without humility is arrogance.
A buddy of mine wrote a great response to an HBR article on confidence. He summarizes by noting that those with confidence dare to fail. Confidence is the willingness to make an effort and accept the consequences, regardless of the outcome meets your goal.
My read on that is confidence is the courage to proceed knowing that your information is incomplete. It’s taking that trade not because your system tells you to but because your gut tells you to. That’s fine. Allow your gut to make that call. What about humility? Where does that come in? Humility is entering that stop order to protect your downside. Humility is an acceptance that you may be wrong. Confidence without humility is arrogance. Confidence without humility is dangerous. It’s taking that flyer on crude oil futures on Tuesday night and not placing a stop...rolling with your gut and not protecting the account.
I’ve been there. I blew out my first futures trading account doing just that. I bought 5x my usual position size in Swiss Franc futures one night, went to bed, and woke up to a flurry of calls from the margin clerk at my FCM. It happens. I was arrogant. I had the confidence to take on the risk but lacked the humility to accept that I might be wrong.
I’m certain that lack of humility ends more trading careers than lack of courage does. Sure, pulling the trigger is scary at times, but it also becomes addictive. That leads to overtrading, but the real downfall is the addiction to taking on risk and not having the humility to accept that you may be wrong. We get arrogant. We double-dow. We add more exposure to an already losing position.
On the other side, not many traders will admit to an addiction to getting stopped out of the market. It’s rare, but you will find some traders that thrive on taking losses. Does this mean they’re humble? Possibly. Less arrogant? It could. They think it’s the greatest thing in their trading as they “learn” from their losses. Those losses are not failures. They’re an opportunity to learn. The great thing about taking that loss is that you don’t have to worry about it anymore. The position was underwater, and now you can breathe again. There’s a lot of truth in that. That’s a fantastic mental hack.
It’s an interesting mindset. Live to love your losses. Celebrate your failures. Taking your loss eases your anxiety and clears your mind. Sure, I’d rather be booking winners all day, every day, but that’s pretty much statically impossible, so I live with it.
Did you backtest your model? I’m sure there’s a comfort level of losses in the historical returns. Taking those losses then supports your research, doesn’t it? You’re supposed to have “x” losses for “y” wins. Your process is working as designed.
That’s how easy it should be to accept humility. Know that you’re human. Know that you’re fallible. Seems pretty straightforward, doesn’t it? Clear cut? Yet, we fail. We lack the acceptance of our shortcomings while we easily accept, acknowledge, really, the shortcomings of others. The markets absolutely have a knack for humbling people, and those who don’t welcome that humility with open arms tend to leave the industry quickly with emptier wallets.