Fear & Trading
Most new traders realize after only a few live trades that they are terrified of the markets. This is why most traders fail. They aren’t able to execute under the pressure their fear creates. I’ve had plenty of clients admit that putting on a live trade, particularly after a losing trade, or string of losers, is one of the hardest thing they’ve ever had to do. Is it the money that causes them so much fear? To a degree yes, particularly if they are undercapitalized to begin with, but plenty of traders tell of the same fearful experience while trading micro contracts, or even from executing trades in a demo account. So it’s not just the money that brings about such strong emotions. What about fear of failure? We’re probably getting warmer. Failing at a vocation is a fearful thought. We however feel it is actually your “future” which causes so much emotion. The idea of your future life where your computer becomes a personal cash station, which is essentially what would happen if you mastered the art of discretionary trading, is truly the equivalent of heaven on earth for most of us. Can you imagine not having to worry about money? Imagine being in a position to able to help out your family, your friends, or any charity you thought worthy. That would be a good position to be in. You life would be like one of those car commercials around the holidays where your loved ones look out the window and there would be a brand new sports car, or luxury SUV parked at the perfect angle in your marble lined driveway with a big red bow on top. You’re wife or husband would look at you with incredible surprise, and joy, and love! And you’d wink, “That’s right baby”, and hand her the keys. You’re there! That’s what you want. That’s what you’ve been dreaming about since 4th grade when you first found out your parents had to work all day to get paid money to buy you shoes, and put gas in the car, and save money to pay for your tuition. And now you’ve found a way to get beyond all the work and worry. Now you can get your dad, or brother, tickets to the home opener in the luxury box suite, and your mom, or sister, tickets to whatever she wants, and pay for your family to come along with you on your Hawaiian vacation in January. Whether you know it or not, this is how your thoughts subconsciously work. Moments after you find out how trading works and how you have control over every decision and can make unlimited amounts of money, you start dreaming the near-impossible dream. But it’s no longer impossible to you. There are people that do it… granted not many, but you realize it is possible. From that moment on you start mentally blocking out anything that could possibly get in your way of achieving that dream of total freedom. And that’s when, rather than come up with a sound plan to achieve such a lofty goal, you start taking wrong turns. Rather than address the roadblocks along the way – inexperienced mind-set, improper method, no back-testing information, no trading plan, over-paying for educational services and transaction costs, etc, – you pretend like they are not there, because too often the person you go to for help in achieving this fantastic dream of total freedom is the same person who makes a living from cashing checks written by you and people like you. It’s human nature to agree with someone who is telling you what you want to hear, and it’s not an easy thing for the average person to back-up and change course once they’ve made even a modest investment in either time or money. And it is usually right about that time when you actually start trading live that you start to realize that you are a long way off from that dream of the holiday Lexus in the driveway and the Hawaiian vacation, and worse yet you are out a bit of time and money too. That cash station you thought your computer was to become is more like a Pandora’s Box with e-mails coming every 12 minutes from this training service and that signal service. You realize that the trading course you did buy didn’t come with a phone number you can call when you have questions, and your e-mail questions keep coming back with another sales pitch to upgrade to the next level course for only $5,995.00. Scared? Terrified is more like it because instead of making incremental headway toward a lofty goal you’re starting to realize you’re in a position where common sense, and your spouse is telling you to stop throwing good money after bad and accept your place in life, which is where you were before you cooked up this dream of being a trader. You now have three choices, stay scared, be depressed, or keep going down the dark narrow tunnel you find yourself in.
So you want to be a trader, heh?
If the answer is still yes you better get on the right path, which means a lot of manual back-testing and then demo trading with different methods until you settle on the right method and then finalize your trading plan. And while this is a good road to be on, you’re still going to face mental hurtles which may be based on conditions you likely are not aware of.
Jay Norris is the Chief Market Strategist at Clovernest Financial Group and the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Courses Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.