Trading Fears, We
All Have Them. Part 2
Last week we looked at trading fears that can keep you
from making the profits that experienced market timers
The prior Trading Fears Part 1 can be read by clicking
It is not the timing strategies that keep timers from being profitable, it
is the fears, which we all have at one time or another, that keep us from making
the trades. In Part 2 we look at more "fears" which must be overcome to be
successful in the markets.
Fear of Letting a Profit Turn
into a Loss
Unfortunately, most market timers (and traders) do the opposite of "let your
profits run and cut your losses short." Instead, they take quick profits while
letting losers get out of control.
Why would a timer do this? Too many traders tend to equate
their net worth with their self-worth. They want to lock
in a quick profit to guarantee that they feel like a winner.
How should you take profits? At Fibtimer we trade trends.
Once a trend begins, we stay with that trade until we have
enough evidence that the trend has reversed. Only then
do we exit the position. This could be days if the trend
signal fails, or months if it is a successful trend.
Does this sometimes result in small losses? Yes. If we
have a false signal to start with it can. But we must look
at market history to understand this trading concept. History
tells us that while there are times when the markets trade
sideways or make failed moves, once a real trend begins,
it usually lasts much longer than anyone expects it to.
no one knows ahead of time which signal is the
start of the next big trend, we must trade them
That means for the few failed trends, the real ones last
a very long time, and generate huge profits. But because
no one knows ahead of time which signal is the start of
the next big trend, we must trade them all.
What happens in the short term can be accepted because
we are assured of profits in the long term as long as we
stay with our timing strategy. We do not try to quickly
lock in profits. We stay with the trend until the trend
This way we obtain every bit of profit that the markets
will give us. And... we do not have to worry about locking
in gains. We let the markets themselves tell us when to
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Fear of Not Being Right
Too many market timers care too much about being proven right in their analysis
on each trade, as opposed to looking at timing as a probability game in which
they will be both right and wrong on individual trades.
In other words, by following the timing strategy we
create positive results over time.
The desire to focus on being right instead of making
money is a function of the individual's ego, and to be
successful you must trade without ego at all costs.
Ego leads to equating the timer's net worth with his
self-worth, which results in the desire to take winners
too quickly and sit on losers in often-misguided hopes
of exiting at a breakeven.
Timing results are often a mirror for where you are
in your life. If you feel any sort of conflict internally
with making money or feel the need to be perfect in everything
you do, you will not be able to stay with the timing
strategy, but instead will allow your emotions to step
into the timing process.
The ego's need to protect its version of the self must
be let go in order to rid ourselves of the potential
If you have a perfectionist mentality when trading you
are really setting yourself up for failure because it
is a given that you will experience losses along the
way in timing as in any trading.
You can't be a perfectionist and expect to be a great
market timer. If you cannot take a loss when it is small
because of the need to be perfect, then the loss will
often times grow to a much larger loss, causing further
The objective should be excellence in timing, not perfection.
You should strive for excellence over a sustained period,
as opposed to judging that each buy or sell signal must
The great timers make losing trades, but they are able
to keep the impact of those losses small.
of trading experience has taught us that there
is no way to keep emotions from affecting trading,
except by following unemotional, non-discretionary
For the market timer who is dealing with excessive ego
challenges, this is one of the strongest arguments for
mechanical systems. With mechanical systems you grade
yourself not on whether your trade analysis was right
or wrong. Instead you judge yourself based on how effectively
you execute your system's entry and exit signals.
Mechanical systems are all that we use at FibTimer.
Years of trading experience has taught us that there
is no way to keep emotions from affecting trading, except
by following unemotional, non-discretionary strategies.
As a market timer, you must move from a fearful mind
set to a mental state of confidence. You have to believe
in your ability to execute every trade, regardless of
the current market sentiment (which is often at odds
with the trade).
Knowing that the timing strategy you are following will
be profitable over time builds the confidence needed
to take all of the trades. It also makes it easier to
continue to execute new trades after a string of small
Psychologically, this is the critical point where many
individuals will pull the plug, because they are too
reactive to emotions as opposed to the longer-term mechanics
of their timing strategy.
And typically, when trader's pull the plug and exit
their strategy, it is exactly at that time that the next
profitable trend begins.
Too many investors have an "all-or-none" mentality.
They're either going to get rich quick or blow out trying.
You want to take the opposite mentality - one that signals
that you are in this for the longer haul.
As you focus on the execution of your timing strategy,
while managing fear, you realize that giving up is the
only way you can truly lose. You will win as you conquer
the four major fears, gain confidence in your timing
strategy, and over time become a successful (profitable)
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Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable.