Fear is responsible for around 90% of the mistakes new traders make. Fear will usually manifest itself in three different forms in trading: Fear of losing money, fear of missing out, and the fear of uncertainty. Here are three ways you can combat these fears to help you take your trading to the next level.
Study Your Data: Know Your Best Setups
In the article "7 Hacks For Newbie Traders To Win Faster", we mentioned how your trading journal will tell you what setups you perform best in (earnings breakouts, parabolic shorts, red to green, etc). If you can accurately assign probability to every scenario you encounter in your trading day you will know exactly what situations to get involved in, and which ones to avoid. If you don't have a trading journal, it will be hard to assign probability to any trading scenario making it hard to find or define your edge.
There is no trading strategy that wins 100% of the time. Whether a trade is going to be profitable or not is an unavoidable uncertainty in trading. Once you can accept this, you will realize there is no reason to fear being wrong because it is out of your control.
One of the hardest parts of being a new trader is that you don't know what trades you should be taking because you haven't defined yourself as a trader yet. Uncertainty of whether you should be in a trade or not can be eliminated once you can define your most successful trading scenarios and assign probability to them. Once you can do this, you just have to wait for these setups and ignore everything else. Your fear of missing out on a big move will also decrease because you know that the stock that made that big move was not one of your go to setups. If you cannot define the scenario and assign probability, you're just gambling even if the trade would have played out nicely.
Come Prepared To The Market Every Day: Develop A Winning Routine
Preparation creates confidence and confidence eliminates fear. You cannot roll out of bed at 9:15, ask your chatroom what everyone is watching, and expect to trade for a living. If you're just following others alerts and ideas and not doing your own preparation, you will always be trading with fear because there are so many aspects that are uncertain. If you have recorded and categorized all of your trades and have a sufficient sample size to trust the data, you will know what setups you will be looking for in the morning, and you can create a winning routine for yourself.
Before 9:30 AM you should have your own watchlist ready, and have a trading plan for all the stocks on your list. You should know all of the key areas of support and resistance are on the daily, what sector each stock is in, what the float is, how much you're willing to risk on each trade, what direction your bias is (long or short), any news catalyst causing it to gap up or down, how it's trading relative to other stocks in its sector. You should try to prepare for as many scenarios as you can for all the stocks on your watch list. Here are a few questions you can ask yourself:
- What will I do if XYZ stock opens weak?
- What will I do if it opens strong?
- Do I want to scale in or go full size immediately?
Once you have done all the proper preparation, there will be much less uncertainty in your trading.
Risk Proportionately To Your Account Size
Sizing in too large relative to your account size is the number one cause of the fear of losing money. For example, if you're trading a $2000 account and you're using all of your margin to short 2000 shares of HMNY, of course you're going to be shaking with fear. Your fear will either cause you to freeze and not stop out when you're supposed to or cause you to panic and stop out as soon as it goes 1 tick against your position. Ideally you're only risking 1-2% of your account. This proportion will allow you to focus on letting the trade play out and not on the money at risk.
If you’re not sure of the setups and price patterns that we’re talking about you can learn them all in our Bulls Bootcamp. It's an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at firstname.lastname@example.org today!