By David Adams
Every day trader goes through several phases early in his or her trading career. Some of the phases are quite pleasant, and others are downright painful. It is import to be cognizant of your emotional mindset during each phase of your trading career. Of course, brand-new traders have usually learned a new trading system or taken a trading course and are anxious to implement what they have learned. Often times the reality of losing trades is a shock to new traders. A string of losing trades creates trepidation and fear in the new trader. Sometimes this process takes a few weeks, sometimes it takes a few months; but at some point most traders go through a phase where they are fearful of placing a trade. They have lost their self-confidence.
There are several telltale signs that I often notice in traders who are fearful, some of those traits include:
• A trader will identify a nice set up and failed to take the trade, finding arcane excuses for failing to initiate the trade.
• A trader who is trading out of fear will be positive three or four ticks and exit the trade prematurely, failing to let the trade run its course.
• A trader who is trading out of fear will often set ridiculously tight stops in an effort to stem the losses he or she is experiencing, excessively tight stops (especially if the stops are less than the Average True Range) will generally compound losses.
• A trader who is trading out of fear will often blame the market for his losses, not understanding the maximum “the market is always right, and you are always wrong.”
On a positive note, I have found that most traders who fall into fear-based trading usually move through this phase after a period of time. Gradually they regain their confidence in both the system they trade in their ability to execute the system. On the other hand, fear-based trading can be the stopping point in some trader’s career. Generally speaking, I notice some fear-based traders will return to in their simulated trading and continue on the simulator until they gradually lose interest in trading. For this group of people, fear is the end of the road in their trading careers.
It is a challenging task to emerge from the fear-based phase of trading, as traders have to learn to trust their instincts and the system they trade. When a trader falls into this malaise, it is often helpful for he or she to seek out a mentor or experienced trader to help them understand their fears and provide support for trading correctly. Of course, there are those traders who have the ability to regain their confidence on their own, but my experience tells me that a third-party mentor is an effective remedy for fear-based trading.
As an aside, the next phase after fear-based training is the eternal search for the magic system that will allow the fearful trader to become profitable. These individuals search for years for a system that can reverse their unprofitable trading. Of course, such individuals might as well be searching for the Holy Grail. The search for the Holy Grail is a terminal condition. Finding a good trading system, learning that system thoroughly, and executing that system with precision is the answer to becoming a profitable professional trader.
In summary, we have outlined a few variables that exist in traders who have evolved into fear-based trading. We have suggested several remedies, including finding a reputable and knowledgeable mentor to help a trader overcome his or her fears as it relates to trading. Finally, we have mentioned a third phase of trading, which is searching for the Holy Grail and described this quest as a termination point in a trader’s career.
About the Author
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