I will probably preach this as a trader until the day I die… Fear and hesitation are the biggest killers in any persons endeavor to trade the financial markets. These two emotions, traits, sensations or enemies as I call them will take any trader out at the knees and ruin any possibility of attaining the goal of learning to make money from the charts. They are the cripplers.
So where do they come from?
I can’t say as though I have a really good handle on that. Maybe they are a part of what Steven Pressfield termed resistance, the force that keeps human beings from attaining the greatness that is in them. Maybe they are apart of what the Bible refers to as evil, the enemy of mankind. Maybe they are chemical reactions that are simply learned behavior from those times earlier in our life when things didn’t go right. Times when we risked something and got our butts kicked and we now have the sub conscious screaming at us to never be in that situation again… Maybe its all of the above. Maybe it doesn’t matter where they come from or who they are. Maybe all that matters is that they are there to change us and make us better at whatever it is we want to do. Want to get on stage? Fear and hesitation are whats commonly called stage fright. Want to write a book? Ever heard of writers block? Want to start a business? Are you afraid to take on the responsibility because you are now the boss and there is no one to blame for sh**ty hours and pay but yourself?
How does fear and hesitation play out in trading? There are two places that I see it most, both in my trading and in those around me: Loss of money and false precision.
Lets do loss of money first. It’s a little easier. I am afraid to lose my money. You probably are too. If I lose my money, I don’t pay bills. If I lose my money, I have just lost the tool that I need to go to work tomorrow. Cash in a traders account is no different than a hammer in a carpenters work belt. They are used for a purpose, to make money. They are just tools, nothing more, but nothing less. So I am afraid to lose money. Got it. That fear is pretty simple to state, understand and solve, at least in our heads. First I would point you back to my little Plateau Trading/ Mastery paper (Click Here). Here is the way to stop losing money. Its so simple. Ready?….. Stop trading so big!! I can speak from experience, there is much more fear when I have placed a trade for one full standard than there is when I have placed a trade with a mini. Whats the mind set behind that? Just do the job and make more pips until you can successfully trade one standard and not pee your pants every time there is a 3 pip movement and have this overwhelming urge to jump ship. Once you have convinced yourself to trade smaller, you can now go about the business of mastery. The free throw shots I have talked about on the podcast or the plateau or Jiro. Its all the same. Its not a new idea. To be good at something takes time. Put in the time. I decided several months ago that I wanted to be the best in the world at making pips. I want to be able to accumulate outstanding amounts of pips every day, every week, every month, and every year. You know what happens when I take the pressure off of those pips having to make me money TODAY? I can actually learn my craft. I can become a master. Of taking pips. And then, once that’s done, making a bunch of money off of those pips is inevitable. So to summarize the first point, so much of our fear and hesitation comes from too much risk. The loss of money puts the amateur in position to lose too much money and that makes us fearful. Its simple truth. I trade small now, I sleep at night even if a trade remains open, I make it my goal to make a ton of pips, and I see results that will compound over time. It’s no longer a lottery ticket, its a profession.
Second, false precision. This is not so much a root cause of fear and hesitation as much as it’s the way we tend to try to deal with those enemies. I see it all the time. Matt Lacoco and I have spent hours talking over cigars about the idea of false precision and I will harp on it to anyone who will listen. False precision is a transfer of risk of outcome. I have talked about this before too. We have a tendency to transfer the risk of outcome to anyone who will accept it now a days. Insurance companies, a boss, government, our churches. Anyone who we can look at and say “just in case I can’t make it, you can make it for me”. Sound terrible? Let me say this, I am not against any of the people or organizations on the list above, but they do suck out our ability to be responsible for outcomes.
So again back to trading. What is false precision in trading. Simply, its the improper use of indicators. One of my big AHA! moments was when I realized that indicators could not help me make a decision in the present. When two moving averages cross, its not an indication of current price action. The move is over. Your late. But we need this for some reason. We need these lines and colors and bars and all of these outside resources to confirm what we know: when price goes up, its time to sell, and when price goes down its time to buy. We “transfer the risk” of our decisions to these lines and say well, if it doesn’t work that’s because the system has a loss rate and my stop loss was properly placed and blah blah blah…. The indicators were a transfer of risk. The stop was a transfer of risk. The fact that you put no work into understanding that system you just bought and went live on it is a transfer of risk. Basically it just means I didn’t have the stones to manage through the trade and own the outcome. You traded too big (from above) and then you gambled and got emotional. I have been through draw downs that would have made me lose my mind six months ago but today, I know it wont kill me and I know that no matter what, I can make decisions that will get me out of that trade better than I sit right now. Don’t let an indicator steal the best trading tool anyone has, your ability to stand strong and make decisions and manage through tough times.
To wrap this up because I’ve already taken too much time, fight it. Thats all I can say. Fight the battle to be greedy and think well trading isn’t worth it if I can’t make a million dollars tomorrow… Fight the need to justify your decisions. Make them and then manage through them. You own it. It’s not the stochastic’s fault you sold at the bottom. Own your risk, no matter what you have to do in life own your risk, its the only way you can actually own your reward.
until next time… whenever that is.