This column was originally published on RealMoney on July 5 at 10:02 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.Many traders seem to have confidence problems. They are either overconfident or lack confidence. Each problem will cut into profitability in its own way. And both stem from the old rule that you're only as good as your last trade. A trader who has a series of profitable trades is at risk of concluding that he has mastered the market. He has finally realized his true potential and now can get on with the business of getting rich. This epiphany leads to a tendency to overtrade. After all, when you are supremely confident in your abilities, doesn't it make sense to trade more? Heck, trading less would be silly. You are seeing things so clearly that you want to seize on every opportunity. Conversely, the trader who suffers a string of losses risks losing so much confidence that he is paralyzed. All of a sudden, he is so riddled with self-doubt that he starts second-guessing himself. If his research indicates that a stock is likely to move higher, he'll refrain from acting. He'll doubt his own ability and instead adopt the armadillo position, curling into a fetal position within impenetrable armor. If your defense is so tight that you avoid trading, you'll never make any money.
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