Aug 11
15
I enjoy watching many different types of programs on television, including (the dreaded) reality show.
In a short clip from Giuliana and Bill, Bill (Rancic – who is famous for winning the first season of The Apprentice with Donald Trump) is on stage at a seminar for entrepreneur and says the difference between successful people and regular people is fear. I’m sure the entrepreneurial minds out there will be able to translate how conquering fear will help in business – but in the business of trading, conquering fear definitely ranks high on a traders list.
• Is this a good trade?
• Does this trade setup fall within my methodology?
• Are there any major economic news out there which will effect my trade?
• Should I wait to enter at a better price?
There are hundreds of questions racing through your mind before you pull the trigger on a trade, especially if you’re scalping.
When people talk about fear in trading, they’re usually only referring to one thing – losing money. Some traders may also fear having a losing trade on their track “record”. The fact is, however, if you play it right, you can have more losses than wins and still make money.
Regardless of what the reason is, the question remains: How do we conquer fear when trading?
Professionals have many suggestions on how to conquer your fear when trading. For me, there are 2 things which help ease my blood pressure when pulling the trigger on a trade.
1) Sound Money Management
If you’re trading, you will lose. Let’s just be realistic. I still get a little chuckle when people tell me they’ve traded “X” amount of trades or “X” amount of years with no losses. Maybe there are traders like that who exist, but that will definitely not be the norm.
So, how do you prepare psychologically for losses?
If you know, before executing a trade, you are only risking a calculated, pre-determined minimal percentage of your account, then this in itself may help ease your fear about trading. If the trade goes against you, your account will suffer minimal damage.
However, without proper money management, a string of bad trades can completely wipe out your account.
A good friend (and former registered advisor) told me before he would take a client’s funds for management, he would give them a test. He would tell them to get in their car, drive on the freeway, take a $100 bill out and throw it out the window. While this probably initiated a laugh out of the potential client, the point he was making was simple.
Trade with risk capital only – ie. money you can afford to lose. If you’re trading your next mortgage or car payment on the markets, you’re setting yourself up for failure.
2) Develop And Follow Your Methodology
This is the major part which should help calm the nerves. If you have a concrete methodology which you have backtested and refined over a length of time, you can calm the sweating palms by knowing you are following your methodology. Although no methodology is perfect in all market conditions over an extended period of time, having a solid methodology will prepare you for market swings and will take the guess work out of entry and exit signals.
Trading is risky and its not for everyone. Traders must have discipline and be able to take their ego out from losses and control their emotions. And another emotion traders must conquer is fear.
Fear is an emotion which is difficult for anyone to overcome. But, with the right mind set and tools, fear is something you can overcome on your way to becoming a consistently profitable trader.
