Are you afraid of pulling the trigger ?

[Placebo]

Fear of pulling the trigger happens with every trader mostly in the initial period of his trading career. The fear is due to any one or combinations of reasons mentioned below :

1) Lack of proven and backtested method, so a trader is not confident to take a trade.

2) Inadequate capitalisation ....trader is afraid of pulling the trigger because he cannot afford to loose the amount he risks on a trade depending on his trade quantity and distance of his stoploss point from his entry.

3) Need to preserve the profits earned to pay the monthly bills. This again is a subset of inadequate capitalisation. So after earning small amount of profits trader fears taking a risk of loosing part of this profits because he needs this money for paying his bills.

4) Noise ,newsflow during the market ,contradictory opinions of "experts"..

5) Some previous large loss which the trader has had because of not having stoplosses etc. He has also seen some of his friends suffering greatt misery beacause of trading losses.This has bearing on the current trade and trader feels he should "wait and see what happens" instead of pulling the trigger and take a trade.

The first two reasons are most important reasons and if they are addresses well, the pulling the trigger whenever the method calls for is viewed as an opportunity to make money and the fear will subside to a large extent.

Smart_trade

I can definitely relate to point no1. About close to 3 years back like most people i was buying/selling EMA Crossovers on a 5min chart. I had just completed my Post-Graduation and thought the the world owed me something. This was during the economic recession and the crash that the market had witnessed. A bad place to be in for an MBA fresher.

My was out was day-trading Nifty Derivatives using 5min crossovers. More often than not the markets were trending down and counter-trending up but i was a net buyer for the majority of the period in the derivatives market. You can only imagine what happens next. Series of small gains and then 2 huge losses which not only wiped out my gains but also took out a chunk of my initial capital. All i could think was this crossover BS sucks. The truth being told what sucked was my lack of respect towards money and risk management. Anyways that's a different issue altogether.

After close to 6-8 months of studying VSA in and out i came back with strict Rules relating to risk and position sizing and a new asset to trade. But something had changed now. My paper trades (which now i think of as complete BS) were showing me a positive result consistently and my money management had improved so i should be making money right ? I was making massive amounts of money but on paper trades. For some reason i just could not pull the trigger. What i realized was that i'm not making money paper trading at the right edge as well , rather what i'm doing is taking these VSA principles and applying them on charts during hindsight analysis and then writing down my notional profits. Although hindsight analysis is very important it had become an obsession and it took me a while to get rid of this madness. But hindsight analysis proved one thing that there is an edge here which gives entries and exits prior to EMA can even think about crossing.

Came back after 3-4 months with a sense of clarity of thought and action and decide to trade to smallest lot sizes and not begin with 4-5 lots. Finally i had the confidence to pull the trigger but i was breaking even most of the times. Breaking even or losing money did not bother me , my biggest worry of not taking the trading was taken care of. Eventually everything else took care of itself.

Good Luck And Godspeed if any of you are going through this.

Cheers

 

[sumeetsj]

I feel there are at least 2 parts in these types of issues:

1. being afraid of pulling the trigger, and

2. Being afraid after pulling the trigger.

Both of them have their own importance. One can overcome the first one, its mostly momentary.
The second one though is like a series of the first ones. Changes with every tick change in the market..

 

[sudoku1]

I feel there are at least 2 parts in these types of issues:

1. being afraid of pulling the trigger, and

2. Being afraid after pulling the trigger.

Both of them have their own importance. One can overcome the first one, its mostly momentary.
The second one though is like a series of the first ones. Changes with every tick change in the market..

in other words >

http://www.youtube.com/watch?v=1OY_tyWS3qY

 

[anuragmunjal]

hi Dan

at some stage all traders face this 'fear'...I have faced it too..
I believe tht the major reason is that 'the mind' does not let us treat all trades as 'independet'.. the mind 'naturally' treats it as a 'sequence'..therefore, if we get a few loss making trades in a row, the fear of pulling the trigger creeps in and even if we manage to pull the trigger, we may deviate frm our system and may not be able to take the trade to its logical end as the memory of the sequence of losses is still fresh in the mind. this may happen even if the account is adequately capitalized..the answer probably (as Sumosanammain pointed out) is to cut back in size at these times..

regards

 

[DanPickUp]

Hi

Here a solution to the mathematical aspect I spoke about in post #9. It is a part of MM which gives certain ideas and is called : Expectancy

Expectancy

At the heart of all trading is the simplest of all concepts—that the bottom-line results must show a positive mathematical expectation in order for the trading method to be profitable. ~Chuck Branscomb

What is expectancy in a nutshell?

A trading system can be characterized as a distribution of the R-multiples it generates. Expectancy is simply the mean or average R-multiple generated.

What does that mean?

By now you should know that in the game of trading it is much more efficient to think of the profits and losses of your trades as a ratio of the initial risk taken (R).

But let’s just go over it again briefly:

One of the real secrets of trading success is to think in terms of risk-to-reward ratios every time you take a trade. Ask yourself, before you take a trade, “What’s the risk on this trade? Is the potential reward worth the potential risk?”

So how do you determine the potential risk on a trade? Well, at the time you enter any trade, you should pre-determine some point at which you’d get out of the trade to preserve your capital. That exit point is the risk you have in the trade or your expected loss. For example, if you buy a $40 stock and you decide to get out if that stock falls to $30, then your risk is $10.

The risk you have in a trade is called R. That should be easy to remember because R is short for risk. R can represent either your risk per unit, which in the example is $10 per share, or it can represent your total risk. If you bought 100 shares of stock with a risk of $10 per share, then you would have a total risk of $1,000.

Remember to think in terms of risk-to-reward ratios. If you know that your total initial risk on a position is $1,000, then you can express all of your profits and losses as a ratio of your initial risk. For example, if you make a profit of $2,000 (2 x $1000 or $20/share), then you have a 2R profit. If you have a profit of $10,000 (10 x $1000) then you have a profit of 10R.

The same thing works on the loss side. If you have a loss of $500, then you have a 0.5R loss. If you have a loss of $2000, then you have a 2R loss.

But wait, you say, how could you have a 2R loss if your total risk was $1000? Well, perhaps you didn’t keep your word about taking a $1000 loss and you didn’t exit when you should have exited. Perhaps the market gapped down against you. Losses bigger than 1R happen all the time. Your goal as a trader (or as an investor) is to keep your losses at 1R or less. Warren Buffet, known to many as the world’s most successful investor, says the number one rule of investing is to not lose money. However, contrary to popular belief, Warren Buffet does have losses. Thus, a much better version of Buffet’s number one rule would be to keep your losses to 1R or less.

When you have a series of profits and losses expressed as risk-reward ratios, what you really have is what Van calls an R-multiple distribution. As a result, any trading system can be characterized as being an R-multiple distribution. In fact, you’ll find that thinking about trading system as R-multiple distributions really helps you understand your system and learn what you can expect from them in the future.

So what does all of this have to do with expectancy?

If you want to know more, go here : http://www.iitm.com/sm-Expectancy.htm

With that knowledge in mind, we will have an idea about what we can expect and the nagging uncertainty about that upcoming fear is solved.

Any more solutions ?

DanPickUp

 

[DanPickUp]

Hi

As for my experience, I made a mistake in the past by only analyzing my trades from the MM and TA side and not analyzing my trades and specially my self from the psychological side. This has made me for a long time being afraid to pull the trigger, as I not was clear, what psychological reason was behind that behavior.

After reading the book : Trading in the Zone from Mark Douglas (http://www.amazon.com/Trading-Zone-Confidence-Discipline-Attitude/dp/0735201447), I started to become clearer about that mistake and since then, I analyze trades and my self also from the psychological side when it becomes messy.

Thanks to all for the participation and to spot on the subject from different sides. I hope, the posts have given some help to other members here and it may started by other members the interest in the psychological part, which is attached to trading.

All the best

DanPickUp

 

[HNI]

when i start trading i thought methodology or system is the key of success.I try hard to find a system for me which suits my psychology. oho i found holly grail for me . yes at last i got it . i got it. after few weeks i found that all are not working. i am to hesitate to trigger the enter key .my commitment confidence are is so low . in short i found that from any system , tool, methodology the up most important thing is mental state of mind . you had a ability like formula one racer driver .split second decision making ability. no hesitation for push accelerator. (in our case trigger the trade) nor hesitation to pull the hand break (in our case squareoff the position ).
thanks
HNI

 

[sumosanammain]

Irrespective of MM and TA and expectancy and payoff ratios and all fancy figures...... when you go through a drawdown, the problem of trade initiation creeps in invariably. No amount of statistics will push you to take the trade.

The process of entering the trades according to your system has to become a belief system, which is NOT in conflict with what the markets are ttelling you. If you face a few losses, you will not hesitate to put the next trade, because you do not perceive the information as threatening, because of your belief system that anything can happen.

This is my understanding, gleaned from mark douglas. Damn difficult to read and understand..........

 

[Gaur_Krishna]

Nicely formulated reasons for fear.
Great post ST da :thumb:

Thanks & Regards,
Gaur_Krishna

Fear of pulling the trigger happens with every trader mostly in the initial period of his trading career. The fear is due to any one or combinations of reasons mentioned below :

1) Lack of proven and backtested method, so a trader is not confident to take a trade.

2) Inadequate capitalisation ....trader is afraid of pulling the trigger because he cannot afford to loose the amount he risks on a trade depending on his trade quantity and distance of his stoploss point from his entry.

3) Need to preserve the profits earned to pay the monthly bills. This again is a subset of inadequate capitalisation. So after earning small amount of profits trader fears taking a risk of loosing part of this profits because he needs this money for paying his bills.

4) Noise ,newsflow during the market ,contradictory opinions of "experts"..

5) Some previous large loss which the trader has had because of not having stoplosses etc. He has also seen some of his friends suffering greatt misery beacause of trading losses.This has bearing on the current trade and trader feels he should "wait and see what happens" instead of pulling the trigger and take a trade.

The first two reasons are most important reasons and if they are addresses well, the pulling the trigger whenever the method calls for is viewed as an opportunity to make money and the fear will subside to a large extent.

Smart_trade

 

[maneverfix]

I am still on learning stage, normally once my trade gets into profit I cant control urge to book profit, and I get out on paltry sums, then there comes times when market whipsaws on both side hitting SL on trade on trade reversal SL hit again, trade reversed again SL hit. Then for few days I am **** scared to punch trade.

No of times I try to remember ST's signature line, "
While amateurs go broke by taking large losses,professionals go broke by taking small profits...... William Eckhardt in New Market Wizards"

But still chicken out and take small profits, and cough up higher SLs.