How do you eliminate fear from trading?

Fear is one of the most difficult obstacles in trading.  Fear of losing money.  Fear of the unknown.  Fear of missing out.  it is the root cause of self loathe, self doubt and self sabotage.

I don’t really know if one can ever trade without ‘some’ element of fear - the key is controlling and channeling this strong emotion to become a consistently successful trader.

Discipline brings confidence.  Confidence overcomes fear.  But over-confidence destroys your account.  It’s a vicious cycle.

Some successful traders learned the business from the very best tutors and mentors.  So, they know what they have works and it reduces the ‘fear’ emotion.

Other traders have been trading for a long time and have had the financial means to sustain their ‘education’ of trading and have gained the proper knowledge and experience to overcome fear.

But what do you do if you are just starting out?  With a limited account?  You’ve purchased or discovered the best trading system and now it’s time to put it in action.  You’ve created a demo account and have been successfully paper trading for a while.  Now it’s time to go live.

After your first trade or two, you quickly discover things about yourself you never knew.  It’s not quite the same, is it?

Here are some tips that I think can help a trader overcome fear of trading:

1. Perhaps the most important factor: Accept the fact that you might lose on any particular trade.  Embrace the risk – if you do not (or cannot), then trading is not for you.
2. Start with small amounts, gain the confidence in your system and move your way up to larger positions.
3. Know your risk: Do not enter a trade without know EXACTLY where your risk is (stop).
4. Have an EXIT strategy: Not only do you need to know your risk, but what is the goal of a trade – Profit targets.
5. Do not trade with money you cannot afford to lose (like rent or mortgage money).
6. Once in a trade – do not change the rules.  I’ve mentioned this before, but it is amazing how many traders deviate from their plan once things do not go right (or even if they do go right).
7. Work in a stress free environment where you cannot be easily distracted during trading hours.  Causes mistakes and mental errors.
8. Never be afraid to take the next trade.  After a couple of losses you might be scared to take the next trade (unless your plan dictates you stop after X losing trades or $).
9. If you are unsure of the market or it’s direction, not taking a trade is not a bad idea.  Sometime the best trade is the one you did not take.
10. Never be afraid to ask for advice.  There are hundreds of awesome traders on Stocktwits who gladly make their time available to help and assist other traders.

As always, please make sure you have a plan and are following it properly.  It is the founding cornerstone of your trading career.

Stick to the plan and you’ll be alright.

Have a great weekend.

Why traders need a killer instinct, among other things…

Trading is one of the most difficult professions that can be undertaken by any person.  Period.  This is especially true for beginners who get so discouraged after a while that they give up usually within the first year of trading.

The odds are stacked against you as a trader, and it is a zero (even negative) sum game.   Almost every element that is critical to your success is out of your control and in the hands of the market.  The ONLY things that you, as a trader, can control are when to get in, and when to get out.

Furthermore, not only is the fate of your trade in the hands of the market, but perhaps, the biggest threat to your success is yourself – self-sabotage, trading out of fear and greed.

Developing a killer instinct in trading is absolutely critical for long term success.  This means having and developing the ability to consistently make profitable trades and overcoming all the challenges that almost all successful traders experience.

By killer instinct I don’t mean destroying other traders – it simply means having the discipline and confidence to execute your trades according to your plan.  It is something that can be taught, harnessed and developed through hard work and experience.  As such, here are some points that I believe help in creating and developing this instinct:

1. Perhaps the most important factor – create and use a TRADING PLAN.  I cannot overemphasize the importance of this point.  If you don’t have one, create one immediately.  Print it out and read it everyday if you have to.
2. Discipline – the discipline to execute your trades according to the plan.  The discipline to stick to your plan through good times and bad.  If you have done your homework, you’ll know that every system has drawdown periods.
3. Never, EVER, make up the rules or change them on the fly.  In the heat of the moment, it is easy to ‘tweak’ and bend the rules.  Especially if you are on a winning streak.
4. Never take the ‘revenge’ trade.  Imagine this – you take a trade, it comes to within 1 tick of your target, then reverses to hit your stop.  You immediately reenter the market (maybe in the opposite direction) only to have another losing trade.  There will be losses – as a trader you need to accept and embrace losses as part of this business.
5. Never move your stops (especially to increase risk) in the middle of a trade.
6. Never chase an entry.  If you’ve missed the trade, there will be others.
7. Understand how emotions and Psychology affect your trading decisions.  You are the greatest risk to your success.  It is not the market, it is not the dog, and it certainly is not ‘THEM’.
8. Self-analysis – a must for every trader.  Keep records of your trades.  Understand your tendencies, strengths and weaknesses.  Analyze your system and keep track of its performance every day, every week and every month.
9. Set goals – what do you want out of the market?  What is it you are trying to achieve.  Do you have a daily goal?  A weekly goal?  Whatever it is, know and understand what it is you are trying to achieve.

Killer instinct comes from discipline, and the confidence knowing that your trade will be ‘right’ more times than not.  You are trading the probabilities.  There are no guarantees, just like any other business.  You need to do your homework and execute your plan accordingly.

There are opportunities to make a profit every single day in the market.  And once you achieve that consistency, trading can be a lot of fun.  Most importantly – never give up.

Have a great weekend.  I’ll post my Stocktwits50 recommendations later today.

Lessons I learned from Trader Mike

When I started daytrading, I spent countless hours trying to find and learn from successful traders. I would search the internet and scour the forums to find experienced traders who have gone through the ups and downs of trading and were willing and humble enough to share those experiences with other traders. Of course, such magnificent traders are a dime a dozen on Stocktwits today. But a few years ago, one had to dig a little harder to find these traders.

One such trader was Trader Mike who has an excellent blog. It used to be a daily routine to visit his site, where I learned quite a bit about trading, Psychology, other traders (like Maoxian), keeping good records, self-analysis and keeping things simple. I also learned that many successful traders (if not all) follow quite similar paths of mistakes, experience and eventual success. One of my favorite posts is How I Became Such a Great Trader where he shares some valuable insight on his past experiences and some of the things he does to stay sharp.

Another lesson I learned is that while it is critical to focus on the technical and physical aspects of trading (trading plan, setups, charts, etc.), it is also very important to focus on the emotional aspects such as Psychology and self-affirmations. Now what's that you may ask? Trader Mike was not shy to share that he listens to a trade affirmations CD to make sure his mind stays 'right'. After purchasing the CD and listening to it, I understood why. I have converted the CD to MP3 and I listen to it as often as I can (on my iPod or PC). Here is a clip below:

Some golden nuggets of advice from Dr. Elder on Psychology

Dr. Alexander Elder has written some excellent and practical books on trading and psychology of trading, among them Trading for a living, and Come into my trading room. I’ve read his books and recommend every trader do the same.

However, in addition to reading his books, I also have Trading For a Living on CD and I make an effort to listen to it as often as I can. He emphasizes a lot on psychology of trading, as do many experts like Mark Douglass in Trading in the Zone (another must read).

Below is a clip from Dr. Elder’s book on Individual Psychology. In it, he offers some excellent advice for the average trader and some common mistakes that traders make (over and over again).

Some of my favorite quotes are along the following lines: The goal of a good trader is to NOT make money - it is to trade well. Money follows... Just because you have a successful system does not mean you will make money...