How to keep calm whilst trading? How to stop trading fears? If you're asking these types of questions then you're asking the wrong ones.
You need to be asking, how do I develop great trading habits?
Riddle me this: if a professional trader and newbie have the exact same trading plan, why is it the pro sticks to it and the beginner doesn't?
The answer is experience of course.
But what is it the successful trader has learned that the newbie has not?
Most beginners attempt to get rid of their trading fears, and sometimes the results are devastating.
We cannot get rid of our trading fears - they are part of who we are. Neither should we, because as Ed Seykota once said:
There are old traders, and there are bold traders, but there are very few old bold traders
ALL traders are scared of losing. But the best ones have learned to reduce their fears.
In this post, I'll tell you the only way I know how to do that.
The fight or flight response
Despite the great advances in our modern-day world, much of the mental make-up of humans is the same as it was when we were running around naked on the plains of Africa.
Or living in the caves of Europe.
We still react on impulse.
And we still worry about our survival.
We no longer face death from the woolly mammoth charging us whilst hunting - our fears manifest in more subtle ways - reflecting the society we live in today.
One of modern-day man's greatest fears is around money. And the fact there never seems to be enough of it.
Mortgage payments, unemployment, feeding the kids, buying the latest iPhone etc
It's rare we face death on a daily basis, and so these are just a few of the concerns we have replaced it with.
Whenever we lose money, we see it as a direct threat to our very survival - which it (in most cases anyway) definitely is not.
It matters little though; because whether it's outrunning a sabre-tooth tiger, or feeling the pain of a trade down 100 pips - our bodies exhibit the same symptoms:
- tunnel vision
- fast heartbeat
- blood vessels constricting
- loss of hearing
- uncontrollable shaking
- weakened bladder
- no desire to eat
Welcome to the fight or flight response. Totally needed to survive life or death situations. Yet totally useless when trading Forex.
Under the fear response blood pumps to the muscles for extra speed and strength.
And away from your logical rational brain.
This is the reason your trading always go to shit.
The stress response literally hijacks your executive brain, and all your best plans go out the window.
You start trading on impulse rather than logic.
You start pulling your protective stops.
You get back into a trade when you shouldn't.
Often you even know you are doing it, but are powerless to do anything about it.
Poker players call it going on tilt.
Too much exposure can lead to a severe downward spiral. Both physically and mentally.
It can also, and often does, cut short many a promising trading career.
Feel the fear and do it anyway
I've been asked countless times, how do you stop the fear in trading?
Wrong question, sorry.
That's like asking a fitness coach, how do you stop being lazy so you can run?
To develop a habit of running you just run.
And to develop great trading habits, and confront your darkest trading fears, you just trade.
I'm always lazy before running, and I'm always fearful when in a trade.
That fear is multiplied if my last trade was a loser.
It is multiplied further still if I've had a string of them.
But that never stops me placing the next trade. And it rarely, if ever causes me to break my trading rules.
Why is that?
Every one of us comes to trading to make money. But while newbies concentrate on the money, pros concentrate on the process.
That's the difference that makes all the difference.
As a trader, your end goal needs to be, perfect trade execution - not profit.
There is a caveat. You need a system that works. And money management that works too.
Provided you have both of those, then your sole job is to execute your system consistently every time.
A winning trade can be a bad trade if you didn't follow the rules.
And a losing trade can be good trades if you did.
Win or loss, if you followed the rules, congratulate yourself - you won. You did the right thing.
Grade yourself on execution
Your goal should always be perfect trade execution. And you should always perform an after-trade audit.
Here's a sample list of questions you could use:
- did I enter too soon?
- did I enter too late?
- how did I exit? Was it on impulse?
- did I break my trading rules? Which ones?
- did I enter for fear of missing out?
- how stressed was I during the trade?
- was I comfortable with the trading size? Was it too big, too small, or just right?
But heh, I'm a realist. I was a losing trader for many years. So I know how losing traders think.
After a run of losses the last thing you want is some questionnaire telling you how pathetic you are, right?
So if you can't stomach a full after-trade audit, just grade yourself, 1-10 on how you think you did.
That's in itself is a great place to begin.
Trading with confidence
There's no magic cure for ridding trading fears. But, taking pressure off yourself to make money is the place to start.
I know of no other way of reducing the fight or flight response than actively diminishing the role of money in trading.
You might think it's groovy to visualise the profit you're next trade makes.
But the minute you think of it, you open yourself to disappointment, fear, and the bad trading habits that come as a result.
Stop thinking of the money and even if you lose the next trade, and the next after that, rest assured you're slowly putting in place the building blocks for a profitable trading career.