Overcoming Trading Fears

[Alchemist]

It's been said that trading is 90% emotional, and 10% technical. Never is this statement truer than when you are in the first stages of your trading career. Do you often find yourself (or used to) thinking, "Damn, why didn't I take that trade. Chart setup was perfect. What was I thinking! I was so afraid of pulling the trigger". Well, if that's the case, you have probably entered the "trading mental block" zone.

Let me tell you a bit about the early stages of my trading career. Back in '99, I was in my senior year of college, studying Finance and Investments in NY. Since I was planning to embark upon a trading career as soon as I finished college, I decided to give myself a head start. I decided to start doing a little bit of trading on the side, to get a feel for how trading worked, to test the waters!

So I armed myself with a Tradescape account, took some college money(note this as it will be crucial) and dumped it into the account, and off I was, trading in the early to mid morning, and going to classes afterwards. I remember I "liked" trading JDSU which, in those days, was trading well over $100. I emphasized I "liked" because the first 2 months I didn't really place that many trades. In fact, I was very busy watching my stocks fly away and, much to my chagrin, in the direction I originally predicted. I was afraid of pulling the trigger. And it was getting worser and worser. Almost every time I was about to place a trade, I had some kind of weird mental block and my index finger froze on the mouse. I had to do something about it.

First of all, I decided to go back to paper trading for a while. That would give me some time to clear my mind a bit and do some situation analysis. Sooner than later, I realized I had made several medium to large size mistakes in my early trading career, both emotional and technical.

Technical mistakes

• No newbie should trade a high priced - high flyer stock such as JDSU at that time. Those stocks shouldn't even be paper traded!
  
  I fixed this by choosing lower priced stocks trading around $50 at maximum. Later, I fell in love with NITE, which was trading right around $50 in those days.

• I was not keeping a trading journal of my actual wins and losses, and my trading setups in general.
  
  I started keeping a daily journal of all my trading activities. I took notes of all the trades and their outcomes. I filed every chart or trading setup and the reason why I liked/disliked it. I wrote down everything. This helped me a lot figure out whether I was right in my predictions or not. Thus, it helped build more confidence in myself.

Emotional mistakes

• Earlier in the article, I mentioned that my initial trading stake was taken from money originally apportioned for college expenses. This was a major flaw in my trading approach. Never ever play with scared money. Scared money is funds you cannot afford to loose. Be it college money, retirement money, or whatever monies which was not originally regarded as risk funds. That kind of money weighs heavily on the amount of pressure traders have to already go through. It's money you just can't loose. As a result, you tend to sit on the sidelines on most trades, you exit too early on good trades, or stay too long in loosing ones.
  
  I was able to solve this major flaw in my trading plan by postponing any live trading to a later time. That is, as soon as I would finish my college studies. In the meantime, I saved a few hundred dollars every month and divoured every trading related material I could put my hands on. And of course, I paper traded a lot! This way, I was able to stash away a little risk capital and have a fresh start again, free of any financial related worries.

Of course, other causes might be playing an important role in your trading state of mind. For example, having a mentor can sometimes help overcome any fear you may have at the beginning. However, most times trading fears stem from an increased pressure to either make money or not loose money. Solving this issue first is of paramount importance for new and seasoned traders alike.

[OverTheTop]

Congrats on your first article. It's very helpful and nicely written. it's a very effective and down-to-earth analysis of what TO do and what NOT to do. I know you had me in mind when you wrote it

thank you!!!

[scalper]

I read both of your articles and I like them a lot. I especially like this article and how you describe in detail your own personal experience and managed to overcome your fears. traders need this kind of articles.

I'm looking forward to reading more articles from you!

scalper