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Fear in trading is driven by uncertainty and it is caused by feeling like we might lose more than we are comfortable with, so how do we overcome the fear of taking action? There are two things that you’ve got to do to overcome it.

First, you must understand your personal objectives, particularly around drawdown. Ask yourself if “how much drawdown is in my account?”, “can I stomach and still sleep at night with that much drawdown?”. Some people are comfortable with an account that fluctuates wildly. Young people who earn a lot of money have a long career ahead of them, so that they might be happy with a 30% to 50% drawdown in their account. Someone in retirement who wants to protect or grow a bit of what they’ve got might be only comfortable with a 15% drawdown. Your numbers are your numbers.

Second, design your systems, risk management or position sizing, and leverage to fit those objectives. If you know that your maximum historical drawdown, trading your system, the way you’re trading it now, is well within your bounds of comfort, you can see sleep well at night, wake up in the morning, and pull the trigger. If you know that trading the way you are trading now, the drawdown could be bigger than what you’re comfortable with. You’re going to be nervous every time you pull the trigger.

The key is you’ve got to understand your objectives, then fine-tune your system, approach, and risk management to fit them. If you’re able to do this, then you can definitely overcome your fears in trading stocks.

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