One of the biggest hurdles in trading is overcoming our natural tendencies (or bad habits) we bring with us when getting started. If we’re not careful, these seemingly small behavioral biases can turn into big problems and prevent bigger success down the road.
The three biggest trading challenges I see traders faced with (including myself back when I first started), are:
- The fear of losing
- Hesitating (thus missing opportunities) and
- Getting out too early
Let’s go over each trading challenge in detail… and how to overcome it.
1. Overcoming the Fear of losing
Let’s face it, none of us like to lose, let alone lose money. Instead of thinking of a losing trade as a failure or mistake, try looking at it as simply a cost for playing, almost like an ante in poker.
The key is to structure your trading in a way that you can take on a number of losers without depleting your account too much. Looking at your R-Multiple and Expectancy calculations can help give you a better idea of what your loss limits should be.
Action Step – To overcome the fear of losing money when trading, consider the money already spent. Once your account is funded, pick a specific dollar amount (say $500). Keep track of your losing trades and once you hit that $500 threshold return to a SIM account for a week, or until you feel confident in your trading again.
Another trick is to try visualizing the market filling your order and then stopping you out BEFORE placing the actual trade. This can you accept the max loss on the trade and help keep you calm when in the real trade.
2. Overcoming Hesitation or Fear of Pulling the Trigger
Sometimes the most painful loss is missing out on a winning trade. Hesitation is a result of a lack of confidence. To build confidence we must master our trading method.
A SIM account is a great place to begin because it allows us to focus just on the execution without the emotional side of the equation in play. It’s important that once you fully understand the method that you move to a real account.
Keep a note card in front of you with the criteria that triggers a trade. This will force you to clarify your trading plan into a clear and concise picture.
You need to become comfortable not second guessing your decision making. Sure after the fact it’s easy to make corrective actions on what you should have done, but in the moment we usually only have a limited amount of information and we have to make the best decision with the information we have in front of us.
Action Step – To overcome the fear of pulling the trigger spend the time to master your method on a SIM account to the point that you’ve seen the setups work over and over again. This confidence will diminish your fear and hesitation.
3. Getting Out Too Early
You probably have a plan for when a trade goes against you, but do you have a plan for when a trade goes in your favor. Most of the time, a newer trade will get out too early because they are scared and don’t have a plan to manage a winner.
Action Step – To ensure that you are maximizing the profit on a trade have a target in mind before you enter and place a limit order at that price once entering. Once you’re in a trade, you can literally sit on your hands until either your stop is hit or you reach your target.
Trail stops are also a great way to let the market tell you when to get out. By simply trailing swing lows, or swing highs you can stay in the market until the momentum begins to change.
As with mastering any discipline it takes time. Repetition is your friend. There is no substitute for time in front of the screen and patience pays off in the end.
To uncover more trading insights such as this visit EminiMind.com.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.