Fear: Navigating the Trading Mindset
Fear: A Guide to Overcoming Mental Traps and Obstacles in the Early Stage of Your Career
The Pain
It was a Friday morning, I had made an average of $40 trading each day since Monday and I felt like a genius. I was on a sure path to success. I had just made enough to buy myself a new video game or spend an entire afternoon outside.
The market opened and I sized into a losing trade, first feeling comfortable, then averaging up into a short trade as it surely had to come down. 30 minutes later, I had lost $527 dollars, multiple months of work and what felt like my will to live.
I drove to the lake and sat down on a bench, crying about how incredibly dumb I had been.
Sounds somewhat familiar?
This type of episode happened over and over again until I reached a point of no return. I changed my trading completely and swore to myself I would learn and never repeat the same mistakes again.
A few years later I had my first 10k trade, my first 100k trade and what would become the journey of lifetime. I worked through the mistakes on my own, without a mentor for the few first years of my career. I wish I did have someone.
I would like you to be able to learn from my mistakes in this post.
This series will focus on the main mistakes I made along the way, putting an emphasis on the beginning stages of this journey. Furthermore, we will focus on simple suggestions to make the mental toll this long road subjects you to easier.
Hopefully, for some of you, we might even find a quicker path to reach the oh-so-desired destination.
Today we will focus on FEAR!
‘The greatest glory in living lies not in never falling, but in rising every time we fall.’
- Nelson Mandela
Fail, Learn, Succeed: The Cycle of Progress
If the journey of a trader was to be characterized, it would all boil down to rethinking the concept of failure. Failure unlocks unknown potential, it points you towards a better version of yourself. Giving up leaves you with the old, flawed version of yourself.
Lean into failure, as it is the key to your success. Accept it as part of the journey and create a culture of non-acceptance towards letting failure lead you to give up.
Failure = Opportunity for greater understanding
Overcoming the Fear Factor: Taking Control
On the other side of the spectrum we will find fear. Fear comes in many ways in trading. Let us find the kinds of fear.
Fear of losing money
This can be a common fear for new traders, as they may be hesitant to take trades that have the potential for large losses. This fear can lead to missed opportunities and can prevent traders from reaching their full potential.
Fear of missing out
This fear can drive traders to make impulsive trades in order to not miss out on potential profits, which can lead to poor risk management and significant losses. This is the most destructive one of all.
Fear of failure
This fear can make traders hesitate to take risks and make trades, which can prevent them from achieving their goals.
Fear of losing control
This fear can make traders feel overwhelmed by the markets and can lead to irrational decisions like cutting a trade for no reason. Overthinking through a lack of planning plays a big role here.
Fear of being wrong
This fear can make traders hesitate to admit when they've made a mistake, which can prevent them from learning from their mistakes and becoming better traders.
Fear of being judged
This fear can make traders to hide their losing trades or not seeking help from other traders(pod), which can prevent them from learning from their mistakes and becoming better traders.
The Core Issues of Fear
Trading became approachable to me once I forgot what people told me it was about. I started out thinking it was a quick way to make money, but stayed because I realize it was a game only limited by my own beliefs. I started seeing trading differently and used a few mental tricks to help me succeed.
The emotional attachment to money comes can be solved by:
Using 1/3 of the amount available for you to trade with. beginner traders trade about 2-3x bigger than they actually should which creates a huge amount of fear. Keep 1/2 to 2/3 as reserves to reload the account. The focus for beginners is building up experience, it is staying in the game, not making money. Making money requires that learning curve…
If you blow up before that you will continually be stuck in the first phase without a shot at success.
Use an R system to manage your risk. This will prevent you from trading too big or too small. An ‘R’ is a risk metric based on a percentage of your account. For example 2%. You use 1R for a B setup, 2R for an A setup and so on. It will allow you to be consistent and avoid random sizing as you start to trade.
Wiring out to create a cushion and ideally investing to create passive income to cover expenses. If expenses are paid off my passive income, the pressure of performing as well as fear of missing out linked to the erroneous idea of more trading= more money will dissipate.
Time: Whatever you can do to expand the time you give yourself to make money the better. If you have to pay the bills next month and have no savings you will not make it in trading. Your first goal is to save up and give yourself a real shot at trading. I gave myself 1 year and had the luck to have small expenses which allowed me to fully focus on the craft.
Lack of preparation is fairly easy to solve, yet most will skip it and blow up shortly after:
Prep, Execution, Review. If you understand in advanced, while money is not at stake where to enter, take profits, stop out and why you trade something specific it will take a huge amount of pressure off your shoulders. Using sitting orders like stop orders and range orders to manage a trade (putting them exactly at the levels dictated by prep), can help with making sure to execute as planned.
Pod review. Let your trusted trading buddies review your charts, plan, thought process and so on. It will eradicate the bias you have about your own performance. Trading directly attacks your emotional core and you would be surprised how much you lie to yourself on a daily basis.
Data of course will help you tremendously. I will redirect you to the blog I wrote about this topic in order to learn about strategy building and what I would do if I had to restart from 0.
Reality vs Fiction
There is no business in the world that is as lied about as trading. The distortion between the ‘laptop trader’ and what it actually takes to become a trader is immense.
Many people are drawn to the market by the promise of quick and easy profits, but the reality is often quite different. Here are a few tips to help you separate fact from fiction when it comes to trading:
Be skeptical of promises of easy money
There is no such thing as a "sure thing" when it comes to trading, and anyone who promises you otherwise is likely trying to take advantage of you. Be wary of any system or strategy that promises to make you rich overnight, as these are often too good to be true.
Do your own research
Don't rely solely on the advice of others when it comes to trading. Formulate your plan before listening to anyone else, even your pod(which has a bigger role during reviews).
Start project ‘Mimic Pro‘
I want you to start a document outlining what the best traders and investors do on a daily basis. Their routine, their processes, their trades/investments, the review, the things they read, the people they talk to and more. I want you to focus on individuals in this project that do not sell any type of trading education. The reason is not that everyone of them is fake, but more that anyone that is successful and does not sell anything has less reasons to distort reality. I would start by focusing on the market wizards as well as the best investors of all time laid out below.
Understanding reality will make you understand that trading is the act of selectiveness, emotional control, data and edge based decision making, risk and money management and most of all failure.
Next week we will attack a few more big points in this ‘Mental Traps and Obstacles in the Early Stage of Your Career’ series.
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Fantastic topic. Really like this one.
The little intro section hits home hard. I think this point in the journey is breaking point for most. After big losses, the mental hurdles you have to jump through are immense. You start to question if any consistency you had before that was just luck, if you ever knew what you were doing at all in the first place, and feel like you're going back to square 1. I'm not sure you ever really get over it if it's a truly significant amount to you, but this mindset is fantastic. Printing this out and putting it by my trading setup:
"Lean into failure, as it is the key to your success. Accept it as part of the journey and create a culture of non-acceptance towards letting failure lead you to give up."
Thanks for shinning a light on the path to consistent profitability. Leaning into "mimicking a pro".