Lacking the Courage to Pull the Trigger?
If you have become fearful about entering trades, consider the following:
- Realistic Expectancy
Every trader must somehow embrace the fact that losses are an inevitable part of trading. The 1980's Blackjack pro (card counter) knew that he had a slight edge over the casino, but that he would win only (say) 52% of the hands dealt. So although he was EXPECTING TO LOSE 48% of the time, he knew that if he was dealt enough hands, played rigidly according to his system, and managed his capital conservatively enough, he could ultimately grind out a living from the game. That is the kind of attitude that a trader must cultivate. The difficulty with trading, of course, is that the odds are not precisely calculable, and (especially for the longer term trader) the "game" is played out much more slowly, giving one much more time to agonize over losing "hands".
- Statistical Confidence
Again, like the Blackjack pro, in order to pull the trigger without fear, you must have complete confidence that your system will, on balance, deliver long term profit across all of the market conditions that you have decided to trade. Anything less than complete confidence will result in hesitation, and perhaps worse, deviating from the rules, especially when the inevitable losses occur. A "mechanical" (as opposed to "discretionary") system arguably allows less room for deviation through hunches or emotion. How one attains this confidence depends on one's individual approach, and psychology: it might involve computer-automated back-testing, or paper trading for a significant period. When you "know" that following a certain set of rules (or "principles", for the discretionary trader) will ultimately deliver, then you have a logical recourse that tells you that profit will ultimately be maximized when you DO (whenever required) pull the trigger.
- Manage Risk
This is a textbook cliche, but you need to know - and manage - your risk on each trade. Set predetermined exit points, to exit losing trades quickly. Nobody can forecast the market, and therefore control potential winnings, but everybody has a large measure of control over the size of potential losses. Knowing your risk has both financial AND PSYCHOLOGICAL benefits.
- Position Sizing
Following on from this, it's important that each person trades at a level that they feel comfortable with. Very simply, if you are becoming too emotionally involved with your trades, and/or feeling anxiety over possible losses, then your position sizes are TOO HIGH. Most of us can sleep when facing a $20 loss, but not a $2,000 loss. This is arguably the most important point of all.
- Market "Disinformation"
The markets are cynical in that they don't always reward "correct" decisions, or punish "wrong" ones. Again (I'm afraid) the Blackjack analogy. It is a correct play to stand on 12 when dealer's upcard is 4, but you will nonetheless lose many hands doing so, increasing the temptation to hit in this situation in the future. Which brings us back to points 1 and 2: viewing trading as a long term "numbers" game, gearing your expectations of risk and loss accordingly, and having the confidence of proof of concept.
- Mentoring
If, after all of the above, you are still struggling, then give your buy and sell signals to a trusted friend, and have him pull the trigger for you. Extending this idea, consider having a "mentor" or friend as a trading partner, to share the burden with. Those having problems with discipline might find it helpful in having an objective assistant who can sort the forest from the emotional trees, in much the same way that a person with a "spending problem" can benefit from having an independent person as a mandatory co-signatory on his chequebook.
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