Psychological Issue #2 in Trading: Fear
One of my subscribers, Vince, recently wrote to me: “Your commentary is truly
excellent. And your ‘batting average’ has been exceptional during this most awful
market that I have ever seen. Do you have any general advice that you would be
willing to offer on a very serious problem that I – and perhaps many others – am
experiencing in recent weeks? The length of this bear market – and the substantial
financial damage that it’s inflicted on me at my age (51), has seriously damaged my
investment psychology.
Consequently, while I read and believe your judgment calls, I haven’t been
able to get myself to act – to pull the trigger, to try to begin to rebuild from the
carnage – for several months. So, I guess you might say I’m suffering from the ‘deer
caught in the headlights’ syndrome. Which results in experiencing losses, and not
experiencing the gains. These violent moves in both directions, changing on a dime
without notice, with an overall 2 1/2 year huge down-move cumulative, have left
12
Price Headley
me at sea. How does one begin to work oneself out of this state of mind after what
we have been through?”
Vince is suffering from the fear of trading that, after a string of losses, many
traders experience at one time or another. The reality is that human beings tend
to do things that either maximize pleasure or minimize pain. Not pulling the
trigger on trades becomes a way for traders to minimize pain, because mentally, the
thought is that we are not causing ourselves any more damage if we do not trade.
The problem is that we then remain stuck in a state of fear until we can TRUST
our method again and start taking trades. This is why it’s so critical to have a
trading plan that is tested, one we’ll be able to stick with it.
