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.
Links to Articles About Position Sizing
Explore more insights into position sizing and improve your trading consistency! Visit our detailed article on how to calculate position sizing for all the details.
- How To Calculate Position Sizing | What Is The Best Way?
- Profile of Van Tharp
- The Dangers of Martingale Position Sizing in Trading
- Position Sizing In Amibroker With SetPositionSize Function
- Master Risk Management for Traders: Proven Strategies to Protect Your Capital and Maximize Profits
- How to become a consistent trader?
- How can I overcome my fear of taking action when trading stocks?
- Trading Psychology | 4 Causes of trading stress and anxiety PLUS how to eliminate them
- Van Tharp – Outstanding Trading Books And Resources To Improve Your Performance
- 4 things you must do to survive stock market volatility
- Is it possible to mitigate huge potential losses?