How to Take the Fear Out of Trading

Boris Schlossberg

What is the biggest problem in trading?

It’s fear.

That’s because trading is the only business in the world where every decision you make has a 100% chance of uncertainty. Unless you are cheating, there is literally no way to know how the next moment in the market will unfold.

Sure other businesses have variance. If you own a donut store you don’t know if one day you’ll sell 100 or 500 donuts. Weather, seasonality, competition all have their say in almost any business, but I doubt you’ll find a donut shop owner who’ll tell you that today he may sell zero donuts or he may sell 500. Such a wide variance just doesn’t exist in any other sphere of business life yet in trading it is a daily occurrence.

You can go days, weeks, sometimes months selling zero donuts in trading and that sense of extreme uncertainty is responsible for more mistakes than just about any other aspect of the business.

Ever taken a trade, got stopped out and then got spooked from taking the next one which in retrospect proved profitable?

Of course, you have. Trading may be the business of uncertainty, but I am 100% positive that everyone who is reading this sentence has had that experience.

So what to do?

How do we conquer that fear?

I don’t think we ever fully overcome the problem, but here are a few ideas that can help you stay calm amidst the perpetual uncertainty.

Trade in sets. This is especially true if you are day trading as 80% of FX retail traders do. Don’t think of a single trade as a distinct individual event. If you are a trading a system, estimate how many times that system should trade during a given week.

Let’s say your system trades 20 times per week and on average generates 16 winners and 4 losers. If you hit a losing trade then just think of it as part of the weekly set.

Understand also that not every week is a winner and you could have a run of bad sets. If the week is a loser examine each trade -- was it done to spec? If so then there is no need to change anything. You simply hit an expected losing cycle.

You see what I’ve done there? I’ve actually made my field of vision more blurry. I’ve moved away to an eagle’s eye view of trading. I’ve stopped obsessing about every pip on the chart, every tweet, every noise from my squawk box. I look at the system as a broad narrative story rather than the drama of the minute.

The other thing that helps with controlling fear and uncertainty is to understand just how little you need to make in order to double your money. If you are trading a $10,000 account you only need to make $40/day to turn the account to $20,000 by the end of the year that’s actually pretty hard) but if you made just $10/day you would make 20% on your money and become top 1% of all traders in the world.