How to Handle Hesitation in Your Trading

09/03/2009 12:01 am EST


Ron Wagner

Principal Partner,

Have you ever felt the inability to pull the trigger and get into a trade at the right moment, and then chased the stock only to your detriment? Have you ever taken profits way before your target because the stock merely “jiggled,” only to sit on the sidelines, watching your stock run to its original target? If so, you are experiencing the effects of fear. You are not alone.

Psychological aspects make up 85% of the trading equation. Fear is one of the aspects. Ideally, we would all be “emotionless” traders. No fear, no greed, just pure discipline. While this may be a worthy goal, not many can take the leap to this level just because I say you need to. While most people cannot eliminate fear, there are some things you can do to keep it in check. Here are some suggestions:

  1. First, the greatest enemy of fear is a well-laid plan. Have a trading plan that you use that clearly spells out what strategies you will play, how many shares you will play, and how much money you are willing to lose on a single trade. There are many aspects to this plan. These are just some of the basics.
  2. Next, plan out the individual trade. When you see a trade come up that fits into your plan, study the play to find the proper stop loss and target. Play the proper share size so a stop out does not violate your maximum loss per trade. Make your decisions before the trade hits while you have a clear, level head, and then follow the plan without question. You must properly “execute” the trades you have “planned.”
  3. The next step may be the most important: Let your plan go to work. Let the play finish. Unless something changes about the trade, let it come to its natural conclusion, either the target or the stop. Think about it: You have planned a trade while you had a clear head. You believe the trade is worth your hard-earned money. Give it a chance to finish!
  4. Sometimes, there are reasons to end the trade early. Perhaps there has been a change in market environment. For example, you might be long in your play and the futures just took out key support. Or maybe you planned on reaching the target by reversal time and it is almost at the target with the reversal time now here. You may use bar-by-bar analysis to judge an early exit, however, these are the minority of times. The vast majority of times you should leave the play alone. Especially if you have chosen as you should the highest of quality and probability trades. Do not be jiggled out by your level 2 screen. The chart pattern is by far more important.
  5. If you are still so nervous that you can’t handle it, try this next: Sell half the position at an appropriate, reduced target. Get use to taking partial profits and this will let you have confidence in allowing the back half to hit the target. This will also be likely to put you in a “no- lose” situation with the trade, giving you some patience. Good traders sell incrementally on the way up all the time.
  6. If that does not help, then you need to cut back on your share size (or find a trade with a smaller stop) so the size of the potential loss does not trigger your “pain factor.”

Seed of Wisdom

Remember, a well-laid plan and confidence are the enemies of fear. If the above items prove helpful, you will start building the confidence needed to stay with the trades. In the beginning, you should start off paper trading to build confidence in your strategies and with your execution system. Then, as you become successful on paper, start trading small share sizes. Learn to make money before you move up your share size. Only increase your share size when you are successful at a smaller share size. Define what you will call “success” before you advance. If you start to lose confidence or start to get those fearful feelings, cut back on the share size until you get back in stride.

Until we meet up again, stay safe and remember, nobody is making you trade. So, only take trades and investments that line up with the highest probabilities that fit into your specific plan!

By Ron Wagner

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