8 Practical Tips To Dealing With Fear in Your Trading

How To Deal With Fear? Identify & Quantify It

I have found that the best way to deal with fear (especially in the market) is to identify your fear (what do you fear most) and quantify your downside (how much you are comfortable losing, if wrong).  Then exit if your pre-determined stop loss is triggered.  This is a bit more challenging than it sounds.  However, through practice, it is very possible. 

 

8 ways to deal with fear:

 

1. It doesn’t matter why you’re scared.

Knowing why you’ve developed a particular fear doesn’t do much to help you overcome it, and it delays your progress in areas that will actually help you become less afraid. Stop trying to figure it out. Just accept it, release it, and look for a solution.

 

2. Learn about the thing you fear.

Uncertainty is a huge component of fear: Developing an understanding of what you’re afraid of goes a long way toward erasing that fear.

 

3. Train.

If there’s something you’re afraid to try because it seems scary or difficult, start small and work in steps. Slowly building familiarity with a scary subject makes it more manageable.

 

4. Find someone who is not afraid.

If there’s something you’re afraid of, find someone who is not afraid of that thing and spend time with that person. Take her along when you try to conquer your fear — it’ll be much easier.

 

5. Talk about it.

Sharing your fear out loud can make it seem much less daunting.

 

6. Play mind games with yourself.

If you’re afraid of speaking in front of groups, it’s probably because you think the audience is going to judge you. Try imagining the audience members naked — being the only clothed person in the room puts you in the position of judgment.

 

7. Stop looking at the grand scheme.

Think only about each successive step. If you’re afraid of heights, don’t think about being on the fortieth floor of a building. Just think about getting your foot in the lobby. Then slowly go from there.

 

8. Seek help.

Fear is not a simple emotion. If you’re having trouble overcoming your fear on your own, find a professional to help you. There are lots of treatments for fear out there, and no good reason not to try them under the guidance of someone with training and experience.

 

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mental capital

Mental Capital

Invest, Don’t Spend Your Attention.

Most people spend most of their time and mental capital reliving the drama of their past or worrying about their future.  Doing either of these takes you away from the present moment or forces you to spend your attention on something that has a very low ROI.  For a better ROI, I’ve learned that if I invest my attention on the now (focus on finding new opportunities and properly managing my existing positions) I will do much better in the long run. Focusing on the now, helps me invest my attention, not spend it.  

 

The Only Time You Can Find New Opportunities Is…

I learned that the only time I can find new opportunities (in life or in the market) is in the now. In fact, the only time I can make any decision, large or small, is in the now. Even if I decide to do something next week, or at any other point in the future, when that time comes, I will do it in the now. What happens most of the time is that I found myself unconsciously thinking of the past or worrying about the future and that prevented me from having a “clear head” when looking for new opportunities. I read somewhere that worrying about the future is like praying for what you don’t want.  

 

Learn From The Past, Prepare For The Future & Focus On The Now:  

It is important to learn from the past and prepare for the future but I do my best to make sure that it doesn’t consume me and take up all of my attention- all the time. I used to spend the most of my day thinking about how I got stopped out of XYZ or missed that monster stock (or any other drama of my past), but found out that doing this would prevent me from finding new opportunities that exist right now. 

 

Mental Inventory: 

Now, before I start my “research” or make a decision, I do my best to focus my attention on the present moment. I do this by taking a mental inventory and make sure my head is clear before I engage in that activity- large or small. This helps me shift my thinking to the now and opens me up to finding/receiving new/big opportunities. It also helps me to invest my attention and not spend it – which yields a much higher ROI.  

 

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When To Raise Your Stop Loss

when to raise your stopsWhen trading, it is important to progressively reduce your risk.  Knowing when to push the proverbial SELL button is crucial.  

We must understand that in order to win, we need to compound our returns over time.  If we don’t have good sell stops and we take bigger losses, these losses will work against us exponentially.  For example, if you have a 10% stop loss, it will take 11% to get back to even.  If you have a 15% loss, it will take 18% to get back to even.  And if you have a 50% drawdown, it will take 100% to get back to even!  Even for an experienced Trader, it could take Years to come back from a 50% drawdown!

Here are Key Insights To Consider when Raising your Stop Loss:

Timing is critical:

You need to know what your time frame is.  Are you a short-term swing trader who plans to buy and hold a stock for a couple of days/week?  Are you more of an Intermediate-term trader who will hold a stock for several weeks, months or close to a year?  Or, are you a long-term investor who likes to buy and hold something for over a year or longer?  Once you identify what your time frame is this will help dictate when you are getting in and out.  Keep also in mind the following:

  1. Identify Your Support Levels
  2. Observe Behavior Your Stock Around the Key Moving Averages
  3. Identify Distance between entry and exit points

When To Raise Your Stop Loss and Compund ReturnsTop Considerations:

  1. Plan When You are Going To Get In and Out
  2. Identify entry points close to support and close to moving averages. 

I like to consider both since it will solidify that exit point and a breakdown of the chart.  

3. The tighter the distance between entry/exit the easier it will be to compound

Remember, you are a winner so go out and remember these key insights when raising your stop loss today!

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How I See Markets

How I See MarketsInfinite Opportunities:

Those of you who know me know that I focus heavily on leading stocks. Why? Because by definition, leading stocks out-perform the market. So my chances for success are skewed in my favor when I focus on leading stocks. That is one tool in my tool box but not the only tool. I strongly believe that there are infinite opportunities in the market. My job is to find – and then – capitalize on them.

More than one way to win:

One of the many reasons why I love this business is that there are many ways to win. In Jack Schwager’s “Market Wizards” book series, you have some Wizards deploying some tactics and others deploying the exact opposite tactics!  Both enjoy huge risk-adjusted returns (even though their strategies are polar opposites).  This means that you can find the way to win that works for you and leave the rest behind.

Bottom Fishing:

There is an old adage on Wall Street that says, “Don’t catch a falling knife.” In trading terms, the adage means do not buy stocks that are falling to new lows because it can keep falling (and blow you out in the process) before it bottoms and turns higher. Typically, bottom fishing is not for me. I prefer to buy leaders. But every once in a while a stock or sector jumps out at me that might be worth a closer look.

Let the Market Guide You:

When done right, and with proper risk management techniques, buying near a bottom (think if you bought in early 2009) can be very lucrative. My goal is to capture the bulk of the move, not pick a top or bottom. I do this by being patient and letting the market come to me. I find it much better to wait and see a healthy pattern emerge and then begin accumulating a position- when the market confirms a bottom is forming.

 

Check out some of our other blog posts:

 

5 Things I Wish I Knew BEFORE I Started Trading

When I first started trading, I made every mistake you can think of.  It took me a while, but after years of experience and being consistently successful, I figured out a process that can help save time and money.

Here are the Top 5 Things I wish I know BEFORE I Started Trading:

1) Identify your Goals and Lifestyle:

When we first start out, we assume we will put our money into the market and at some point in future it will grow.  Most people think this way, however, trading in the stock market is much more challenging.  Therefore, we need to first establish what are our goals and what we are trying to accomplish by trading.  Are you looking to generate a supplemental income, trade full-time, save money for retirement?  It is important to understand one’s goals prior to embarking on trading in the market since those goals will determine how you behave and it differs drastically based on your goals. 

You also need to identify what your current lifestyle will allow you to do.  Are you going to try to trade full-time?  Do you have a full-time career?  If you have a full-time job, it will be challenging to dive right in as full-time trader.  You will need more time to study and educate yourself on the market and do the necessary research.  What does your lifestyle allow?  

Once you determine your goals and lifestyle, write them down and then match them up.  This will help you figure out how to achieve these goals based on where you are right now and where you ultimately want to be.

2) Surround yourself with Successful Mentors/Ideologies:

The road to investing in the market may feel daunting, but keep in mind that someone’s already successfully done what you want to achieve!  Research who these people are and their journeys to success.  For example, if you want to be a long-term investor and want to try value investing, then check out Warren Buffett.  If you want to look at growth stocks, check out the book “How to Make Money in Stocks” by William O’Neil.  His book talks about stocks that have historically been successful and identifies what those traits are.  This will help you set-up your scans when you are ready to buy stocks in the market. 

Surround yourself with mentors…whether it is a blog, YouTube channel, book, etc.  Social media also makes it so easy to reach out to these mentors.  You may be surprised that these people may want to help.  Remember, they started out just like you did at one point in their lives. 

3) Develop a Business Plan:

5 Things I Wish I Knew BEFORE I Started TradingDevelop a Business Plan around your methodology.  A book that I found useful is “Super Trader” by Van Tharp.  He goes into detail about developing a business plan around your trading, the psychology behind the trade, as well as risk management and position sizing.  Something I discovered is that Position Sizing and Risk Management are more important than the stocks you pick.    

Now that you have identified what your goals are and what your lifestyle is, the next step is to figure out what you intend to trade.  What type of markets, Stocks, or ETFs are you looking to trade?  Write this down and have a business plan for each method of planning and style of trading.  My advice is to have separate plan for each methodology.  For example, keep your “Shorter term trades” in one account, “Long-term retirement trades” in a another account, etc.  Focus on one goal, become proficient and then take some time to learn.  What may take you a year or two to learn will last you the rest of your trading career.  Take the time to learn your craft!   

Also, be sure to note the following in your business plan.  When do you intend to trade?  Where are your ideas going to come from (your own research, reading newspaper, blogs, etc.)?   Be careful about having too many sources because this larger funnel of ideas will be tough to manage.  Instead, try to focus on one. 

4) Create a Trading Plan:

Develop a trading plan for each trade you are going to have.  You can download a free trading plan template by clicking here. This trading plan will help keep you organized regarding what stocks you are trading.  Write down what your actual plan is for this trade and do all this grunt work before you enter the trade.  Note on your trading plan where do you plan to enter, under what circumstances, and what is your exit strategy.  Keep track of the reward and risk of the trade.  What are your reasons and basic idea for the trade?  What do you like about the company and the stock?   Whatever is the answer, write it down!  Also, remember that trading is also emotional so keep track of overall feelings about the transaction.  Trust your gut!  Think about the other person and why they are selling to you.  Step away as a neutral observer. 

5) Everyone Takes Losses

5 Things I Wish I Knew BEFORE I Started TradingWhen you are finally ready to fund your account and start trading, start out small!  Make sure it’s an amount you’re not worried about losing if you lose all of it.  You will make mistakes and everyone takes losses.  It’s a learning process.  Be prepared to lose.  Continue to adapt your process and when you are consistently successful, then allocate more dollars to grow your fund.  Don’t forget to review your trading plan and your business plan once a quarter or at least semi-annually to look at all trades.  This will help you continue to grow as a trader and see what’s going right and wrong.   

These are the 5 helpful tips I wish I knew when I first started trading.  This upfront work is going to save you so much time and money.  I wish you much success with your trading!

Leave a comment on below and share what tips have worked for you. 

 

 

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