Friday, November 5, 2010

The Daily Note - Trading Fearless

Much is said/ written about how we trade, how we should trade, and there's always a discrepancy when we actually trade. There is a reason for that; namely, fear.

No matter how much we practice on paper, discuss, analyze and philosophize or imagine and visualize our trades, the one factor non of those will include is the actual feeling of fear when the trade involves real money.

It is important to note here that this fear is not only real, it is realistic because once the money is gone, it is really gone. There are no redo's or oopses or I didn't mean its. It's gone as if you put a match to it and watched it poof in flames. So if you do not feel fear as I described that, I did a poor job of writing, or you have ice in your blood and money to burn so this article is not needed by you.

The fact is we all feel it no matter how much experience we have had trading. If not, you lie because the reality is that we know the potential of loss. But the real question to put here is not will we lose, but HOW MUCH are we going to lose. When you start turning the question around, and examine the possibilities within it, you shall see that you have control of the fear and that you are the sole controller, not some other trader out there who is your nemesis.

In order to accomplish fearless trading you need to accomplish loss control. Along the way of your trading education you have learned a style and a strategy and a boldness with which you approach the trading day, yet what many and most traders I speak with lack with all that knowledge is the same boldness with which they follow their stop loss rules; if they have one even. Most stuffed that somewhere in the last place of order forgotten immediately after entering the trade therefore unwittingly making their fear factor increase by x strength.

Do you doubt me? Try this on a live trade: Buy 2 small lots (100) shares of xyz stock; let's pick one that can whip you about just for a snack. Using your usual strategy and rules for entry, place your stop and 1st target in immediately in on one trade and not the other.

Now, observe yourself and your reaction as you watch the chart, ticker or whatever method you follow to track the trade. Which gets most of your attention? Which gets most of your trepidation? Which gets your finger twitching over the mouse at each tick? Which do you take sooner when a profit is available? The point here is that fear not only gives you stress over the loss of money, but also stress over the potential gain of it; leaving you to be unable to run the gain to further profit.

So, trading fearless does not mean you do not trade without fear, but that you control it to the point where it becomes a non-issue. Fear is a friend when you can control the cause and an enemy when it's allowed to go unchecked. No soldier goes into battle without fear, but it's controlled with ammunition, training and the knowledge that one does not jump up and down in front of the enemy and shout "here I am!" . Know that when you trade without calculating and setting your stop, you are not only doing that but also putting down your weapon of defense.

Happy Trading, Living and Dancing

The Daily Pick - TBA
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