There’s a fairly common affliction that affects many traders and the problem tends to affect inexperienced traders the most; it’s the fear of actually pulling the trigger on a potential trade when your set up occurs…
Although the affliction mostly affects inexperienced traders there are times when successful traders can also experience the fear. In this article we’ll examine why this fear manifests itself and what solutions are available to counter the affliction.
Many traders will recognise the situation; they’ve spent time perfecting a trading system that works for them. They’re comfortable with; the level of risk, the time frame, the security and their broker. They look for a set up to occur and will be ready to take the trade. But when their perfect set up occurs they hesitate, they pass up on the opportunity convincing themselves that something is not quite right. The opportunity passes them by, they then watch helplessly as their trade would have reaped profit. They’re left feeling annoyed, anxious and baffled as to why they can’t perform the exercise of one simple click of the mouse. So why does it happen and what are the solutions?
Firstly, let us offer up a reason as to why this issue may affect inexperienced traders; their new found knowledge exceeds their experience. Despite having tested their theories using practice accounts, to then perhaps move up to trading micro lots, then full lots, new traders cannot quite match up their lack of experience with having found a trading method that could finally work. They don’t have the years of experience to back up the strength of their convictions. So what’s the solution?
Before we look at the potential solutions it’s important to assure new traders that their experience is very common, they are not unique. They’re one of hundreds of thousands of traders who’ve experienced the exact same issue. And because it’s so common many of us more experienced traders have developed coping strategies to move through the barrier. Here’s just a few suggestions…
Lower you risk.
Whatever it takes lower your risk until the ‘sweaty palms’ and indecision disappears. Even if you’re reduced to trading pennies, knowing that you’ll temporarily have no chance of making a living from such tiny positions, do it. Get the fun back in your trading. Do you ever ‘bet’ on a football match, or a horse race? If so you don’t expect to win every bet, so why should trading be any different? Place your bet (your trade) at such a low level that your loss is the price of a couple of beers. This exercise, if repeated often enough, should help restore the simple reflex action of placing a trade.
Act like an actuary or accountant
Another method is to stop looking at your trading as a challenge, or a wage level income. Set yourself, within the confines of your bullet proof trading plan, a set amount of trades that you’ll test your new strategy on. In doing so your trading becomes an actuarial exercise in proficiency and probabilities as opposed to the personal battle you’re currently viewing trading as.
You could decide that you’ll take 50 trades with your new strategy and set up and your risk per trade will be 0.1% therefore even if you lose all trades your combined loss will be 5%. Once those fifty trades are executed you’ll then thoroughly analyse the performance using the professional tools many of us ‘pro’ traders would use. Such as divergence from the mean and the Sharpe ratio. Now 5% is an annoyance, but it isn’t account of career terminal and let’s be honest, if you can devise a strategy that loses fifty trades in series you’re the most marketable trading commodity many of us have seen in ages.
The last suggestion is the most obvious; introduce automation to your trading. You could do this by perfecting your own expert advisor using a platform such as MetaTrader4, therefore the emotions are removed. The drawback is that many inexperienced traders want to see the action. However, there’s just as many quite prepared to wake up seeing if their Aussie or yen trades have triggered overnight to then count the loss or the profit. Then there’s the other simple form of automation; using market orders, trailing stops (fixed or dynamic) and take profit limit orders.
As stated earlier it’s important that new traders recognise the problem, the fact that its a common affiliation and that there’s methods to navigate through it. So if you’re stuck in the headlights try to use one of the suggestions we’ve made. Or if you have any others please share them with us in the comments section as we’d welcome your feedback.
Good Trading To You