Handling Fear

A reader asks: How do you handle fear? I seem to have plenty of it.

Let's get one thing straight. Fear, for the majority of traders, is a very real thing. You have it, I have it. Others have it as well. What is it that traders fear? The top three, in order, are:

1.Fear of missing a trade.
2.Fear of losing money.
3.Fear of being wrong and losing face.

In order to become a professional trader, you must learn to deal with fear. The first step is to acknowledge that you have it, which is what you have done. Once you admit to fear, you can begin to deal with it.

When you notice the impulse to trade based on strong fear, it is usually best to literally step out of the trap by stepping out of the situation.

You need to get up, walk away from the computer. Turn off the television if it's tuned to a financial station, take a walk, get something to eat, go outside and cut the grass, water the lawn, or do anything that will move you out of the fear/panic mode.

Don't return to your trading desk until you have managed to achieve some emotional control over your fear/panic reaction. If you can't get a grip on your fear, then don't come back that day.

Most likely you will find that even if you keep thinking about the miserable market conditions while you water the lawn, simply getting away from the keyboard and monitor is enough to make a difference. It removes the demand to take action, and gives you the mental space to gain perspective and let go of your impulsive, fear-based reaction.

Know what i fear? In fact it scares me to death! Vendors who post here instesd of the trading advisory services topic!

lets use our voting powers........so basically I am going to vote this Ross post down because I think it is a commercial for his products in some off handed way...I'm not sure if that is a good enough reason to vote it down but I guess it is for me.......so down goes my arrow!!

That seems reasonable to me BruceM.

I've also voted him down but for a different reason: I've asked him a couple of questions as replies to his posts and he never comes back to answer them. Just goes on and posts new topics.

Apart from the commercial aspect of his posts I do think that every now and then he'll post something of value. However, that value is lost, IMO, when he doesn't answer questions and expand on what he's saying.

he has a habit of pasting the same post on any forum he comes across. he even pasted other's post without acknowledging of OP.

Although interesting posts (I guess), I'm thinking Joe and his Ross Hook are better viewed thru the eyes of a child for Christmas. I mean, ain't old Joe the spittin' image of the jolly old fellow?

You be the judge ...



Here's the hook:





Here's the real (better) hook:

Unloading on good ole' Joe, where's your Christmas Spirit guys.

If you pay close attention to what Joe says in his posts, he does touch on some important ideas. Although this particular posting of his lacks depth.

A large percentage of the new traders I meet who are struggling to reconcile their simulated trading performance with their live trading results are stuck on the issue Joe mentions here. Specifically, the struggling trader is so scared (I would use the term "panic stricken") of giving back the first few ticks of profit in a live trade, the trader will "short circuit" a good trade by snatching the tiny profit immediately. This reactive behavior kills trading performance because it never allows even one high quality trade to develop fully into a solid profit. I have found this problem to be especially difficult to help someone break free from. With the new generation of trading platforms supporting OCO order pairs and chase algorithms for trailing stops, you would think once the trade goes live the trader's work is done. Instead the trader will start fiddling with the live orders and invariably find a way to outsmart themselves and kill the trade.

Anyways, the reason I wanted to comment in this thread is to state that I view trading fear (heat/emotional content) as a function of position size and leverage. The larger the position size and/or the higher the leverage of the position, the more heat a trader will experience. It's the old "can you sleep at night" test. Each of us has our individual emotional comfort zone and has an emotional limit in live trading, whether it is day trading, swing trading or longer term investing. Some people can simply take more heat (tolerate more risk) than others, and conversely some people have a very low threshold of risk tolerance, I would say its almost genetic (hard wired in our minds). Part of this is environmental, in how we respond to (internalize) a loss. If losses really hurt on an emotional level, then I would think the culmination of these losses (painful emotional experiences) over time will erode the capacity to tolerate risk. The base emotional need to avoid (past) painful experiences overwhelms the higher order desire to allow a trade room to develop into a larger profit. Viewed from this perspective, Joe's suggestion of taking the dog for a walk to the park or mowing the yard (ie. avoid the fear of pain by leaving the house), will not have any lasting effect or help permanently resolve these more complex emotional issues.


or

Some good points there pt_emini. I completely agree with you on the size issue. Your ratio of money risked to money available should be very small. You should never be risking more than 1% of your capital on any one trade. This would allow you to sustain 100 losers in a row before you were taken out of the game.

I agree ... some definitive, great points made. But my question is if that's Joe or Forest Gump mowing in your pic PT?
_____________________________

Tagline: Gettin' paid to trade or paid to mow ... think I'll be doing both come the new year. Meanwhile I'm just feeling all warm fuzzy Christmassy.

And I wish all here a very merry and happy HANUKWANZAAMAS ... and an insanely profitable New Year!

Originally posted by day trading

Some good points there pt_emini. I completely agree with you on the size issue. Your ratio of money risked to money available should be very small. You should never be risking more than 1% of your capital on any one trade. This would allow you to sustain 100 losers in a row before you were taken out of the game.

I'm always glad to see anyone discussing using a small percentage risked per trade. I'm frequently saying 1%, and mentioning that some use as little as 1/4% or 1/2%. What I wanted to mention, though, DT, is that you'd get a lot more than 100 losing trades out of that 1% per, because the amount you can risk declines as the account balance declines. In the hypothetical extreme where there is no minimum margin and no smallest unit of measurement (in this case the penny), it's like the old classroom experiment where you divide the distant between you and someone else by half, and repeat, and you can never actually touch. Theoretically, if you lose 1% each time you would never lose all your money, ever. Point is, disregarding margin requirements (something that makes this theoretical and not practical), to reduce your account to 1% of the starting amount you can actually do 458 trades if my math is correct (.99^458 = .01). How many one could actually do would depend on how much 'margin cushion' they had to start with, but that holds in this example or in any example.

Originally posted by pt_emini



...Specifically, the struggling trader is so scared (I would use the term "panic stricken") of giving back the first few ticks of profit in a live trade, the trader will "short circuit" a good trade by snatching the tiny profit immediately. This reactive behavior kills trading performance because it never allows even one high quality trade to develop fully into a solid profit.

Part of this is environmental, in how we respond to (internalize) a loss. If losses really hurt on an emotional level, then I would think the culmination of these losses (painful emotional experiences) over time will erode the capacity to tolerate risk. The base emotional need to avoid (past) painful experiences overwhelms the higher order desire to allow a trade room to develop into a larger profit. Viewed from this perspective, Joe's suggestion of taking the dog for a walk to the park or mowing the yard (ie. avoid the fear of pain by leaving the house), will not have any lasting effect or help permanently resolve these more complex emotional issues.

Good points.

Jim, I completely agree with you and I think that your math is correct.