One of the challenges that many experienced and successful traders constantly face is that we all have a great deal more to lose. It is one thing to be a beginner who knows very little and winds up losing $5,000 dollars of mad money playing the market. I assure you it is an entirely different matter when you have millions of dollars of firepower at the ready which took you nearly two decades of trading filled with long and stressful 80 hour work weeks to acquire.
What tends to happen is that those of us who’ve been successful become much more risk averse. You may have heard the saying “there are old traders, and bold traders, but there are no bold old traders.” As most of us age, it is natural to become less risk tolerant and, frankly for good reason – through experience we’ve become smart enough to understand the risks and appreciate how markets can wipe you out if you let them. After all, most of us know quite a few friends who simply don’t trade anymore and are forced to work for the man after the grim reaper took them and their trading accounts to the graveyard.
Sad, but true – one of first mentors was fond of saying to me “Charlie – we are only one trade away from working at McDonalds. Never forget that!” And to this day, I can hear him whispering that to me especially when I contemplate an especially aggressive trade and, subconsciously or not, want some lame excuse not to pull the trigger. I also hear this even though I know, based upon every skill and edge that I currently have, that this trade is a correct one to play.
As many of us know, fear can be a firece and unconquearble enemy unless put into perspective and used to our advantage. Fear can make the best of us abandon our strategies at the worst of times. Fear can make us doubt ourselves, our skills and perspectives and positions. Fear can make us play situations far more conservatively or even not all. I see a lot of fear in those who I mentor. More now than ever before.
Frankly, I see so much fear and probably not in the way that you might expect. I’m not talking about fear of a bear market or of Europe collapse or whatever else you think is going wrong now, but simply fear of failure. In my view, there are some very attractive, low risk/high reward trades to make right now, but as things go, there are just as many traders quite fearful of pulling the trigger even though they also see these same trades right in front of their very own eyes. In my view these traders are not trading to win anymore, but trading not to lose, and that is the ultimate recipe for poor performance.
To help an older trader who I’m mentoring with this very issue over the weekend, I shared the following must-read article written many years ago by Doug Hirschhorn. You might want to read it as well if fear has any influence of your trading now. As you’ll soon see – it makes this point quite clear – if you desire to win in the markets, you must learn to how to trade to win, instead of not to lose.