Thursday, February 14, 2008

Two Kinds of Fear

There's one root emotion that drives the market with two outcomes. It's either Fear of losing money, or Fear of missing out on money. Now, greed, one might say, is an emotion that drives the market as well, which it is. But at the root of Greed, lies Fear.

During my first few months as a new trader, I developed an extreme fear of losing money. That idea is what's kept me in the game so long, especially as a new trader. I'd always cut my losses immediately because I didn't like losing money. Doing that has prevented huge losses and at the same time it's also prevented me from being in a stock that rebounded.


I started following a strategy that I believed in and at the same time had the patience to follow that strategy. Once I became consistently profitable, I started developing a fear of missing out on money. At that point, I lost respect for the market and it let me know.


Having the patience and discipline to follow a specific pattern that you trade is one step needed. But the kind of fear you have determines where you go. Having a healthy fear of the market is natural and should not be lost in your mind. When I started becoming very profitable in Jan and started losing my fear of the market, I got my bottom handed to me twice.


I feel I've developed the discipline to trade highly favorable trades but at the same time I need to regain my fear of the markets. I need to know that the market is the boss and if I lose respect for the market I'll fall apart. Regaining my fear of losing money is what I need to get back.


Combining a healthy fear of the market with the discipline and patience to trade your game plan I think is the next step for me to take and is also a winning combination of long term success. I'll probably miss out on a lot of money that I could of made by getting out a little early, but the idea of trying to extract every cent out of a stock, every time you trade, is very unlikely. I'm not here to pick tops and bottoms. I want the bulk of the move and be happy.

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