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Hi,
The impacts of fear on a trader often include:
- emotional wear and tear - a draining of energy,
- temporary loss of data acquisition/interpretation capability.
The first impact is a high price to pay - the value of any profits are
offset maybe in part by the energy loss, any losses are made worse by the
energy drain. In practice, for reasons described below, profits are
likely to be lower anyway when fear is present.
The second impact is more interesting because it can more readily provide a
motive to get past fear especially if there is a practical path we can follow.
We typically gain experience by using a learning process that uses
something like the following steps:
- accepting/interpreting data from the environment,
- sorting, collating the data into information,
- recognising patterns in the data,
- converting to theoretical knowledge (often in the form of prediction),
- testing our theoretical knowledge on the anvil of practical application.
(An insight is often a jumping over two or more of these or similar stages.)
Since fear cuts off the base building blocks - the ability to accept and/or
interpret some data from the environment, it must adversely impact our
learning process and thus reduce our knowledge and experience.
So to learn more effectively as a trader we must get past fear.
This is difficult to do when fear is invoked, but can be managed quite
effectively, slowly and steadily, when we are not in the grip of fear:
- plan for reducing fear,
- lower your trade size,
- do more research,
- identify effective trader behaviours
- change trader behaviours to become more effective,
- prepare for your worst case scenario,
- derive your risk of ruin so there are few surprises,
- do contingency planning,
- ...
- build experience without fear,
- use the opportunity to learn about markets and yourself,
- plan for increasing trade size consistent with risk of ruin calculations,
- increase trade size slowly,
- 'laugh all the way to the bank'.
Certainly beats talking about one trade in the realtraders forum - unless
of course you want to avoid the learning process.
Unconditional regards, Ric.
www.traderscalm.com
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