Every Trader’s Worst Enemy (And How to Beat It)
Now, few things pack as much punch…
Words like intimidating, formidable, and debilitating describe its impact.
And many people will do almost anything to avoid it.
Do you know what I’m describing?
Well let me tell you…it’s none other than fear.
Of all the emotions, fear can be the most brutal. Not only can it stop you from doing what you want, it can also pull you back when you try to move forward.
Many traders really struggle to control their fears. It often leaves them frozen. They can’t bring themselves to buy or sell when they need to. At other times, fear causes them to panic in the face of uncertainty.
I’ve seen fear end more than a few careers over the years. How you manage this powerful emotion could have a big influence on your chances of success.
I want to read an email to you. It’s from someone whose fear of trading is overwhelming. He is at a stage where he’s ready to walk away.
This is what he says:
“I’m mentally beating myself up every day. Algorithmic trading really got my interest when I first heard of it. I completely get the concept. But that’s where it ends. I just can’t let the trades run. I’ve had a few goes, only to get cold feet. I just don’t have the nerve. That’s the brutal truth. And I hate owning up to it.”
That’s from, Gary
Now, I believe Ian’s fear comes down to one thing: losing money.
And he’s not alone. I’ve seen the fear of a financial setback stop many traders.
The challenge people like Ian face is sticking to a strategy. They simply can’t follow their trading plan — and it’s not due to a lack of discipline, but due to fear.
Now, I’m no mental health specialist. But I do know about fear when it comes to taking financial risk. This is something I’ve had to work on over the years — many traders do.
The truth is, you don’t need a high risk tolerance to trade. There are things you can do to override fear. And this makes it possible to keep going when others stop.
So, my own fear is of a sudden, extreme loss. One so big that it takes me out of the game. I simply couldn’t trade if I let this fear take hold.
So what do I do? Well first, I need to know my downside. I need to understand the worst that could happen. If I can accept this, then I won’t have a problem placing a trade.
You see, a big part of fear is worrying about the worst possible outcome. But if you know the worst result isn’t that bad, then you remove the fear. It’s a bit like a child turning on their bedroom light — all the scary stuff goes away.
The second step is good position sizing. And this can make all the difference.
Now, position sizing is a big topic. I can’t do it justice in a few words. But let me say this. I never risk more than I care to lose. A loss will rarely cause me a second thought.
Think of it like this: Fear is a response to potential danger. The key is to reduce your risk to an acceptable level. This shuts off fear’s fuel supply — it can never get going.
I’ve had to face fear many times in my career. Chances are you have too.
I remember the fear of taking my first trade for the bank. I remember the fear of starting a business from scratch. I remember the fear of using my own capital to trade futures markets.
What if my best effort didn’t work out? The fear of failing was always present.
But here’s the thing. I can’t think of a time when facing my fears led to disaster. Sure, I wasn’t always successful. But I’ve never done something challenging and looked back with regret.
There’s no doubt in my mind — learning to manage fear has made me much better off today.
So that’s all for this week. If you liked this video, or even if you didn’t, click here and leave me a comment, or maybe a thumbs up. Let me know if fear’s been an issue for you.
So until next time, I’m Jason McIntosh, and let’s find some trends this week.
I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.