Possibly the Worst Enemy of a Trader

Overconfidence will destroy your trade, your plans, and your account.

Hey there! My name is Nate and I write for WOLF Financial. If you enjoy learning about trading, I guarantee you’ll also enjoy my newsletter A Trader’s Education, and more of my content on 𝕏 @tradernatehere. Thanks for reading!

This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.

We've all been there. You're on a winning streak, and it feels like you've cracked the code.

You're invincible, unstoppable, the master of the market.

But then, the tide turns.

Suddenly, you're not just losing trades, but your account is hemorrhaging money.

What happened?

You fell into the overconfidence trap.

Overconfidence is a trader's worst enemy. It's a sneaky beast that creeps up on you, often disguised as success.

Overconfidence can ruin your trading account faster than a market crash and it doesn’t always happen the same way or at the same pace.

I think it is helpful to review all aspects of your trading strategies as well as your trading habits. That is why we are going to discuss the pain that comes with overconfident trading.

Here are four ways overconfidence can be detrimental to your trading as well as ways you can avoid making these mistakes.


When you have just locked in a massive trade and see your account building, it is easy to start seeing opportunities everywhere. You can quickly forget that not every market move is a chance to profit.

Overtrading often follows big wins for novice traders and can lead to increased transaction costs but more importantly, it creates increased overall risk.

Of course, you feel fantastic, your plan was executed to perfection and now you are ready to do it all over again.

So, what is the plan? You spent hours on the trading plan that landed you the big profits. Are you going to just drop those profits into a trade that you haven’t planned out?

Are you going to consider the five minutes you spend coming up with the next trade plan “good enough” to put your money to work?

Overconfidence makes you forget all of the hours you spent preparing for your successful trade and pushes towards making uninformed, rush decisions in the form of overtrading.

Ignoring Risk Management

Overconfidence often leads to a disregard for risk management.

You might start to believe that your trades are 'sure things' and start risking more than you should.

Even the best traders in the world don't win every trade. Cutting your losses quickly is part of the formula for long term trading success.

Always stick to your risk management rules, no matter how confident you feel.

If you are going to ignore your stop loss, why spend the time identifying the right level to have a stop loss in the first place?

If you are going to ignore support and resistance levels, why bother drawing them?

Using CPNG as an example, here’s a look at what happens when you decide to set aside your risk management tools.

Daily candles for CPNG.

CPNG had been printing money all year but then stumbled in September.

In October, CPNG started showing signs of life again and pressed higher but there was trouble ahead.

The first sign was a rejection at the anchored volume weighted average price (AVWAP). Shares sold off but held just below prior support.

This support line was now resistance and shares rejected yet again, signaling potential for a continuation to lower price levels.

The confidence built from the success seen earlier in the year could make it easy to ignore these obvious signs.

Confidence is key when it comes to trading. But the trader that finds the most success can be cold and calculated without thinking about past or future trades.

Focus should always be on the present trade and adhering to your plan.

Neglecting Research

When you're on a roll, it's easy to start believing that you have a sixth sense for the market.

You might start making trades based on gut feelings rather than solid research.

Or worse, you miss out on trades because you stopped doing the research.

Take the recent break out for MARA.

Daily candles for MARA.

Had I not done my research last weekend to see that it had broken above a key resistance level as well as moved above the AVWAP from recent highs, I would have missed out on huge gains.

(You can check my Savvy Trader portfolio to see that I did in fact get in on these gains!)

The market doesn't care about your feelings. Always base your trades on thorough research and analysis.

Dismissing Losses

Overconfidence can make you dismiss losses as flukes or bad luck. But every loss is a learning opportunity.

If you ignore your losses you are likely to repeat the same mistakes. Always take the time to analyze your losses and understand what went wrong.

I find this especially helpful after a big winning streak. Calibrate yourself and prevent losses that come from overconfidence.

How do you avoid the overconfidence trap?

Stay humble. Remember that the market is unpredictable and always changing.

No matter how much success you've had, always stick to your trading plan, manage your risks, and never stop learning.

Remember, trading isn't about winning every trade. It's about managing your risks and making more on your winners than you lose on your losers.

Stay confident, but not too confident. Appreciate the wins and learn from the losses and success will follow.

That is all for this week’s newsletter!

If you found this information helpful, consider sharing it with others and have a great week ahead!