“The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.” –Joe Vidich
Trading with fear is a losing proposition, as it will inhibit your ability to enter a profitable trade, or cut a small loss before it becomes a big one. Fear generally comes from a lack of faith in your trading plan, or yourself. Here are a few ways that you can overcome fear.
Don’t be afraid to lose on a trade: Traders fear being wrong so much they will hold a small loss until it becomes a liability. They will even add to the losing trade in hopes that it comes back. Never add to a losing trade. Don’t be afraid of having a small loss. It is much better to cut your losses than to be wrong in a big way.
Don’t be afraid to lose trading capital: New traders hate to lose money; they don’t understand that 40-60% of their trades will be losses. Don’t fear losing your capital so much that you can’t take an entry. If you can’t accept losses, you can’t trade.
Don’t fear losing potential profits: The fear of missing profits causes traders to chase a market trend far beyond the correct entry point and skews their risk/reward ratio. Trade at your system’s proper entry point or secondary entry signal. Don’t chase a market just because you are afraid to miss out on profits.
Don’t fear your ability to maximize profits: If your rules tell you to get out of the trade, then exit. You must be disciplined about taking money off the table, and being greedy for that last few dollars could lead to major losses. Let your winners run but when the runner gets too tired to continue, bank your profits. Fear can lead to bad decisions, on both ends of the trade. It can impair a trader’s ability to take an entry signal and miss out on a winning trade, and it can limit their ability to let a winner run in order to collect all potential profit. Fear comes from a lack of faith in oneself, or in the chosen trading system. The only real fear a trader should experience is the fear of trading before they are ready. Trading before developing a solid foundation of knowledge or a trading plan should scare any new trader.
Successful traders trade a plan based on logic, reason, probabilities, historical prices, and risk management.
