How Trading Beliefs and Markets Conditions Impact Your Trading Strategies
06 Sep 2018

How Trading Beliefs and Markets Conditions Impact Your Trading Strategies

When you ask a trader about trading

06 Sep 2018

When you ask a trader about trading strategies, some traders will offer a list of trading systems that they have ranked based on how well or how poorly the system worked for them. Yet often you will find two traders who worked with the same system yet had completely different results. One trader saw huge gains in the trading system and uses it as their go-to strategy to implement. The other person who used this same strategy won’t trust the trading system with a 10-foot pole because they had poor results and an awful experience.

When such a situation occurs, it often helps to look beyond the trading system and instead look at the trading beliefs that each person holds when performing stock and options trades during fluctuating market conditions. If the person has a low belief system, they may have been too overconfident and engaged in too many risks so they didn’t reach the financial success that they wanted. A person who has a high trading belief may have done things in a different manner to reach more favorable results.

Understanding your own trading belief during different market conditions can allow you to understand your strengths and your weaknesses when using a trading system. By fully analysing your behavior, you can build more confidence in the trading system and take the right actions to weather through both winning and losing periods to consistently make gains.

Low Belief in Trading System

When you have a low belief in the trading system, you are using more raw emotions and gut instinct to dictate your trading activities instead of trusting the trading system you are using. You may only use the system during the good times, as you become overconfident that these good times will stay forever.

However, this low belief in the trading system ends up creating havoc when market conditions become more difficult. When you experience a loss, you take it badly as you completely ignore the trading system because you may feel that the system is failing or that it betrayed you. Now, you are ignoring signals and trading haphazardly.

If market conditions worsen and become more challenging, you may completely abandon the trading system. You are no longer making the same money that you saw during the good market trading period and you simply don’t know where to go from there to reach favorable gains again. You start searching for a new system as the same cycle begins all over again.

Medium Belief in Trading System

Traders who have a medium belief in the trading system will have a wait and see strategy without fully trusting the system. Even when you are executing trades during favorable market conditions, you are not confident because you simply don’t know what is coming next. You are always waiting for the worse to happen.

When difficult market conditions do appear, your existing scepticism in the trading system comes to the forefront. You stop following the trading rules as you just want to abandon ship and grab what profits you have. You fear risk as you take your profits quickly and just let the losses run on forever.


When you have a medium belief in the trading system and are facing challenging market conditions, you often start modifying the system without sticking to it. Making multiple tweaks and changes to your trading rules won’t allow you to create a solid and steady strategy that allows you to get through those challenging market periods.

High Belief in Trading System

What you want is to have a high belief in the trading system. You are confident that whatever the market has in store, you will be able to get through it to have huge profits. When market conditions are favorable, you are more relaxed in your trading as you are making sound and knowledgeable decisions. You know huge profits are coming your way.

If you are facing difficult market conditions, you don’t become tense or anxious about the trading system. You remain confident that you will get through this period and survive due to sticking with the established strategies. Even when market conditions become challenging, your confidence doesn’t waver. You don’t abandon the system as you are patient. The trading system has prepared you for these drawdowns as you are prepared to grind through this bad period by reducing your exposure to the market until conditions turn favorable again.

The level of belief you have in the trading system will dictate how you handle changing market conditions. Knowing what your trading beliefs are in the system and how these emotions impact your stock strategies will give you greater clarity in your trading behaviors. You can then develop a stronger belief in your trading system so you are using it to the fullest advantage.

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