When someone reaches out to me for help what do you think is the first question that I ask? You guessed it, “Do you have a trading plan?” Why is that? The main reason is that a proper money management system within a trading plan can help you to manage and considerably reduce the fear involved with trading.
We face fear from many different sources, however for new traders the biggest source of fear has to be the fear of losing. This fear has many levels, starting with the simple fear of losing money, usually because a trader is using funds he can't afford lose, basically he is playing with scared money.
It goes beyond just the fear of losing money. We as humans hate to lose and in the face of a loss the fear of more losses can make us run off the tracks. The lack of a disciplined approach will often lead to inaction while facing losses, which in turn will lead to uncontrollable losses. The trader then risks digging a major hole from which it will be nearly impossible to get out. We also have to deal with the fear of a loss as it reflects on our trading skills. Those who don't understand trading will be disappointed by a loss and will dread it, as they will consider a loss a reflection on their trading skills. But it doesn't, only the way you handle your losses will reflect on your skills as a trader.
In order to help alleviate these fears the first step is to build a detailed trading plan that deals with risk management. You should establish maximum risk levels for each trade. You might establish a maximum loss per trade in terms dollars or maybe as a maximum loss as a percentage of your account or possibly some other variable. Whatever method you choose to use, the result must be measurable and and at a level that will help reduce your stress and uncertainty. The risk level must be a level that will allow you to trade with a reduced level of fear or stress. Once your plan is established you of course have to follow it. This will be easier if you believe that your plan if efficient meaning that you have tested it and you can handle the losses
established in your plan. Do this and in the long run, you'll have more winning trades than losing trades.
Basically building a plan that suits your psychology will greatly reduce your fears as a trader.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
