tpredictor 

There are two types of confidence. Confidence that one has an edge or skill in predicting the market. This type of confidence is prerequisite but insufficient for sustained success. The second type of confidence is the knowledge that one can preserve through adversity. It is much more rare and difficult to obtain. Let me back up, I believe that most traders are rational and do have an edge. The real question is why do traders who have an edge blow up? The answer is normally over leverage and uncertainty regarding their precision. It is not enough to have an edge-- even a significant edge. One needs to know their precision if one wants to leverage to the maximum extent which is what most retail traders attempt to do. You can do a few things: 1. Go with a broker who will enforce a daily loss limit on you. 2. Define your strategy. 3. Backtest the elements that you can. 4. Create a contract and defined game plan.

Great advice.

#1 is something most traders don't like talking about or don't take advantage of, but it's useful for traders with risk/overtrading/impulse issues - and I'm speaking from personal experience. As long as it doesn't become a crutch, it's a useful safety mechanism.

The confidence issue is a deep one, and the answer (if there's ONE), probably centers around how effective one's journal is - not just as data, but in developing your entire process out, so that "trading executions" is just one simple step.

But for traders recovering from huge drawdowns, blown accounts, slumps etc.....honestly one thing is to make sure you have cash flow. Get a job, consult, whatever. Anything to remove the cash flow pressure from each trade.

After that I'd agree with your post about setting artificial limits on your daily losses from your broker.

If a trader is HONESTLY making money on demo for a couple of months then consistently losing after going live....then it's a head issue (and a process one, to sound like a broken record). The best resources on those issues are sports psych and learning theory books, imo.

Good luck to the trader who bumped this thread!

tpredictor 

1. Go with a broker who will enforce a daily loss limit on you. 2. Define your strategy. 3. Backtest the elements that you can. 4. Create a contract and defined game plan.

I agree Re: #1, @mcjackson. Objective, independent risk controls (Such as daily loss limits enforced when available with one's broker), seem an indisputably good practice. I've heard murmurs this suggests some kind of weakness, but I don't think so. While attention to risk management is of course crucial to profitability, some of the best traders in the world have nonetheless "Blown-up"... And this is avoidable! Prop firms, banks and hedge funds separate these roles at a macro level to address cognitive biases and conflicts of interest among other issues.

If you're an independent trader, its simply a business decision, and to me an easy one. Why risk a losing month (Or worse) because of an oversight or stupid decision? There's too much at stake!

ness1g 

How do I rebuild confidence? Suffered huge losses for the past year due to lack of discipline, switching between different trading methods and biggest losses were by trying to get my money back and losing several times more my daily limit loss. Now back to sim, all mistakes are corrected , winning trades 30 days in a row , not 1 losing day. Very simple and profitable winning method. Currently working on finding even better entry point with smaller stop loss. But how do I rebuild my confidence back to replenish my account and go back to live trading? Any help or suggestions is greatly appreciated? Thanks

I'm sure you are aware that you are aware that sim trading is very different from a live environment. What I tell my clients is that once you find a strategy you are comfortable with, start with the minimum amount, trade using 1 contract, give yourself a daily stop loss and build from there. The markets right now are pretty volatile, so proceed with caution. 1 lots and being mindful of your stoploss with some discipline is the way to get through it. Getting back on the horse is the only way to go and from there you can only start building your confidence.