When it comes to trading even the most experienced traders can experience this problem at certain times but how often this happens is dependent on circumstances. Some traders get nervous due to the size of the position and potential risk which is natural because we are emotional beings and whilst we can restrict how our emotions influence our decision making. At one point or another we will still feel certain emotions but if instead every time you are faced with an opportunity to take a trade setup that meets all of your principles but you still hesitate, second guess or even worse don’t take the trade then we need to look into this further. This is what I will be breaking down in this article because whether you are brand new to trading or even a veteran trader it can happen at any point.
So why do some traders fail to pull the trigger on a trade setup even especially if all your principles are met for that particular setup? Well it depends on three separate variables confidence, trust and expectancy.
Let’s break this down even further, if you are attempting to trade the markets with no clear or defined plan or strategy then the likelihood of you executing each trade setup will be minimal. For the reason you have no confidence in the process, made even more simple you are more scared of the potential risk than the potential reward.
So how do you then gain confidence to pull the trigger? The first step is to have a clear and defined plan, process or strategy i.e. a step by step process that will lead you to only getting involved in the markets in specific conditions through using very specific criteria.
Moving forward from there what you need to do is build trust in that process in both the short term and long-term outlook. How do you then build trust? Well this ties in perfectly with expectancy because the only way you will ever fully trust to both trade it live and consistently is through knowing it will have a positive expectancy in the long-term.
When it comes to trading whatever plan or strategy you use will have a drawdown period to it and you will incur losses. There is no avoiding it, now the way in which a minority of traders remain consistently profitable is because they acknowledge this fact and accept it. However, the only way in which they actually trade through the losses is knowing the process they are using results in a positive expectancy in the long term regardless of the short-term outcome.
Being scared to take a loss is the main catalyst for why traders get cold feet when the opportunity presents itself to execute the trade. Now this is because they don’t know the long-term expectancy for their trade plan or are risking too much on one trade and they couldn’t handle a loss of that magnitude.
This is why we implement certain risk management techniques to ensure we aren’t risking too much in one trade and overexpose ourselves in the markets and secondly, so we don’t get scared to take the trade and scared of the potential outcome.
So how do we then overcome this emotion we can experience of not being able to execute a trade even when we have actual reason to do so, as some traders have very detailed trade plans and strategies that can take months to develop but when it comes time to execute that plan in the live markets they simply can’t pull the trigger…
I speak of this topic from personal experience as I wasn’t always a good trader, it was something I had to learn and learned a lot from my own mistakes. The main reason is again not having any idea for the expectancy of the process you are using. In order to gain any form of expectancy you need to find out the following variables;
· Profit – Return on investment
· Max drawdown
· Winning streak
· Losing streak
Unless you know all of these variables for your trade plan then in my opinion you are not trading with calculated risk but simply just taking risk, you are essential gambling each time you take a trade. As you don’t know what the long-term results for your plan are, either good or bad? Now when things are going good of course you will have no problem to take the trade, however the reality of trading is that you will incur losses so when that time comes and you don’t know how the big drawdown will be, how long it will last and how on average the losing streak is until you get another win then the odds are you will not take the trade setup.
So how can we fix this issue? Its actually very simple…back-test! Through back-testing your trade plan you can use your trade strategy through analysing historic price action that meets your trade plans rules of entry and principles. By then testing the plan in the past in the same conditions you plan to trade in present and into the future you can see what the performance historically and that can provide an expectancy for future performance. You can then gain that needed level of trust and confidence in knowing what happened in the past and more often than not the market repeats itself. It literally puts you in the best situation to succeed as when you are going through a losing streak you can look at your back-tested data and see that in 2018 a losing streak occurred but after taking 5 losses you then incurred 5 winning trades.
It will also give you that confidence to know that despite the short-term losses the long-term result always resulted in a positive ROI. In my recommendation as I always suggest you should back-test 5 years’ worth of historical data as you can gain an average and also see that over the past 5 years you trade plan always resulted in a ROI. This then helps at certain times when you are trading through a drawdown and hesitant to pull the trigger because the result could be a loss, you can then bypass that potential outcome as you know regardless of short-term loss you will still be in a profit by the end of it.
The second reason for why you could be hesitant to pull the trigger is experience or lack of it. Even when you have back-tested your trade plan and you have results but more importantly proof that your plan performs positively it can still be hard to take them first few trades.
Why is this? Simply because you lack the needed experience to bypass the emotions and look past the short-term outcome and still scared of what might happen if you take the trade and the result is a loss. Now there is nothing wrong with this as it is perfectly natural, as you can ask any trader if they were as confident in their trading abilities and skill sets now in comparison the beginning of their trading journey. The answer more often than not will be no, as trading involves a lot of emotions and when you are able to trade through your first year the progression in yourself and own abilities will be night and day different.
Taking your first few trades is in all honesty will be nerve wrecking because for one you don’t want to lose money and for two its brand new experience!
The emotions you will experience when trading live for the first 3 months will be brand new, as you are being presented with new situations, emotions and being tested to how disciplined you are to follow the plan. If you can get through the first 3 months of trading, then your chances of long term success dramatically increase as within that 3 month period you would have experienced different highs and lows but more importantly gone into your first drawdown.
Like everything in life, the first time you do something it is nerve wrecking because you don’t know the short-term outcome but what effects people more than the actual outcome it is how you will feel in the situation and how you will emotionally react. Now the reason for why we trade systematically by using a step by step process to how we get involved in trades allows us to eliminate our emotions to influence our decision making. By doing this we can completely bypass our emotions and concentrate on the task at hand which is to follow the plan and execute it when we have confirmation to do so.
So, whilst we can do everything in our power to ensure we can pull the trigger to a certain degree practical experience is the variable we need in the beginning. By then following a step by step process that we know will ultimately guide us to a positive outcome it ensures we get off on the right foot in our trading journey and allows us to realise that trading isn’t scary and so that we become use to process, as again in everything we do we eventually become use to the experience. What emotions were there at the beginning might still be there in 6 month’s time but not as strong as what they originally were.
I hope this article was able to give you insight to how we can overcome the fear of pulling the trigger and everything do at F.E.T is to actually help you do just this but sometimes the only way to gain true confidence it get practical experience and do it again and again! But by ensuring you are in the best position to succeed before you even take your first trade puts you in the best position for success.
Confidence is not something you find but something you develop.
Thanks for reading,