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 consistently realize.
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.
|"...because no one knows
ahead of time which signal is the start of the next big trend,
we must trade them all."
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 changes.
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 do it.
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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 for self-sabotage.
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 pain.
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 be perfect.
The great timers make losing trades, but they are able to
keep the impact of those losses small.
|"...Years 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
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 losing ones.
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
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) market timer.
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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.