Trading and Fear

12 March 2006, the day which no cricket lover would like to forget. On this day, a record was made, and in second innings the record was broken. Yes, I am talking about that epic one-day international match played between Australia and South Africa. It was the 5th match of 5 match series. A decider, as both the team had won 2 matches each.

Australian captain Ricky Ponting won the toss and chose to bat. Both the team were playing without their ace fast bowler. Australia was playing without Glenn Mcgrath and South Africa without Shaun Pollock. Adam Gillchrist and Simon Katich scored fifties and gave Australia a flying start. Ricky ponting played a captain’s inning and scored 164. Michael Hussey chipped in 81runs. Australia became the first team to ever score 400 runs in a one-day international. Australia had put up a score of 434/4 in 50 overs.

South African batsmen walked in with a herculean target to achieve. This was never done in history of cricket. South Africa lost their 1st wicket for 1 and target started to look even bigger. Herschelle Gibbs walked in and scored century of 79 balls, his personal best. He went on scoring 175 off 111 balls, highest by a south African. On the other end was Graeme Smith who got out after scoring 90. Gibbs after smith, built partnership with AB De Villiers. Australia kept the pressure on proteas by taking wickets consistently, but some big hitting by Johannes Van Der Wath and Mark Boucher kept them going.

Match reached the final over of second innings. South Africa needed 7 off 6 balls. On the crease were Mark Boucher and Andrew Hall. Mark Boucher was on strike and he pushed the ball in gap for 1 run. Andrew Hall hit the ball and scored a boundary leaving 2 required of 4 balls and 2 wickets in hand. Andrew hall lost his wicket trying to hit the same shot. Score was 433-9 when Mkhaya Ntini walked in to bat. Ntini, managed to score 1 run of Bret Lee and levelled the scores. Mark Boucher scored the winning run by hitting a boundary. Final score by South Africa was 438/9 in 50 overs. South African won the match with one wicket in hand.

Did you ever think, what must have happened inside dressing room during lunch break?

Jacque Kallis, my favourite all-rounder broke the ice in sombre dressing room. He said, “Come on guys, they are 15 short, it’s a 450-wicket”

South African cricket team at interval discussed the 4 outcomes that were possible.

  1. Australia wins the match
  2. Match is tied
  3. South Africa wins the match
  4. Match is abandoned due to bad weather

Outcome no. 4 was not going to happen as it was bright sunny day and there was no such weather forecast.

Outcome no. 1 was the highest probable as this was first time in cricketing history that such huge target was to be chased.

Outcome no. 2 was something with which Australia would be sad and South Africa would be happy.

Outcome no. 3 was something which would need courage and self-analysis.

What Jacque said was after analysing the pitch. Once the team was convinced about the possible outcome, they started to believe in it. Fear was replaced with belief and led them to victory.

Now let us discuss Trading and Fear involved in it. Fear in trading can be mainly because of following reasons:

  1. Quantity of position is bigger than one can handle
  2. No faith in strategy
  3. Entered trade with hope of making profit
  4. Risk taken more than 1%

Let us discuss the above one by one

  1. Quantity of position is bigger than one can handle

What happens if you take a big bite, bigger than what you can chew. Either you have to spit it out or you will feel suffocated. Quantity bigger then your mental capacity gives birth to fear. Quantity should be increased gradually as you keep getting profitable. Infusing new capital again and again and not learning from loss making trades leads to wiping off of accounts. Fear is good in a way if it keeps you disciplined. But 1 trade of 100000 amount and second trade of 500000 amount is random and illogical.

A disciplined trader will not increase quantity till the time he has successfully refined his strategy and practised it 10000 times. Once he is profitable he increases the quantity.

A real-life example is @Sanstocktrader. He started with Rs. 50000 per trade and strict stop loss of 1%. Target was 1.2%. As he kept making profit, he increased his trade per amount to Rs. 100000 that also after full 1 year. Now its 5th year and he trade with 400000 in one trade and every trade. Not more not less. 400000 every trade he takes. It takes lot of self-confidence, self-discipline and belief to stick to your plan. That’s how you overcome fear.

  1. No faith in strategy

Some traders are into stock market just for the thrill that it offers. They love to jump from one strategy to the other. Every time they find a new strategy, they have a spark in their eyes. They believe to have found holy grail which will help them cover all the previous losses and make them multi-millionaire at jet speed, but the result is totally unexpected and opposite of it.

Till the time you don’t have faith in your strategy and you haven’t practised it 10000 times, you shall face fear as soon as you will enter the trade. In fear, you will keep adjusting stop loss and see to it that it doesn’t get hit. You may even exit the trade with small profit as earlier a profitable trade turned into loss. Later you shall regret when you came out with small profits and trade continued in your direction.

All the above situation arises because of no faith in strategy. Once you find faith in your strategy you will be ready to bear the consequences. Trading same strategy 10000 times and refining it is the only key to find faith in strategy, which will eventually replace fear with faith.

  1. Entered trade with just hope

How many of you do this? Entered the trade and then start remembering GOD. Biting nails and moving feet restlessly from edge of the chair are the other things that one does when face fear due to trade taken on basis of hope. Actually, hope and faith are very close, just that in faith you have strong belief but in hope you are not aware of the outcomes or to put it in better words, you haven’t accepted the possible outcomes.

One enters the trade on hope and the trade goes in opposite direction. First thing that the trader hope is that a bounce will come any moment and keeps adjusting stop loss. Second, he hopes that a short covering will come and his position will be in super profit. Unfortunately, the trade taken on hope turns bad to worse to hopeless. This we have seen happening a lot many times with OTM option buyers. Premium paid slowly becomes 0 and the account keeps shrinking.

Hope, no risk management, over leverage are all enemies of your account. They love to turn them to 0. Get disciplined or get out of the market.

  1. Risk taken more than 1%

Now a day’s brokerage firms are into cut-throat competition with each other. They are giving 14 times leverage on capital. People are getting lured by it and enter trading business with small capital and big dreams. Some newbie become super genius as soon as they have one or two trade in their favour. They take position using leverage and end up losing capital.

Initial profitable trades would be small quantity and must have given small profits but made the newbie super confident. Next trade is big quantity and that’s the one which takes away earlier small profits as well as the capital. Then to cover the losses, revenge trade is taken with much bigger quantity and as always happens, the account is wiped off in no time.

Next, the newbie exits from all whatsapp group, leaves telegram channel and swears that he won’t trade henceforth. He resolves that he will learn the techniques and return to markets only if he is able to find one highly successful strategy.

The newbie watches some youtube videos, reads some books and comes up with a strategy which fits his criteria of small capital required and multi-fold returns. He receives an SMS informing him about the salary being credited in his account and immediately he concludes this to be a divine intervention, a new strategy in hand and money in account. Newbie is again into the market just to find himself losing his capital for the second time.

The above story is not pointed to anyone but all. Hunt for strategy goes on and on and on but seldom do you think about risk management. 1% risk of capital is good per trade, do not take 1% risk on the leveraged amount.

If capital is 100000. Risk per trade should not exceed 1000

Leverage is for example, 10 times of capital, so leveraged capital is 1000000, 1 % of that becomes 10000, which is 10% of original capital. AVOID IT

Easy steps to overcome fear in trading:

  1. Trade with quantity whose stop loss if hits, wont pinch you
  2. Practise the strategy 10000 times to develop faith in it
  3. Avoid HOPE while trading
  4. Take trades with own capital or little leverage only
  5. Meditation helps a lot in case one feels addicted to trading

In our honest opinion, one should consider leaving trading if he has debt, responsibilities in personal life which demands mental attention, have seen losses and still does not believe in learning, wants to make quick fortune, or is in a demanding job.

Trading is a full-time business and you need to keep learning daily as things are changing fast. If trading is not primary business then one should not risk much in it and be content with whatever it gives to you and focus on gradual growth.

Would you like an engine driver of the train you are travelling through is engrossed in a trade that he has taken? What happens if he misses signals and overruns. We are not trying to demotivate you but just asking for more attention, discipline and efforts which shall eventually come to your rescue.

This Post Has 10 Comments

  1. Good one

  2. Excellent!

  3. Eye opener article for newbie trader like us.
    Thanks a lot, Sir.

  4. Eye opening article for newbie trader like us.
    Thanks a lot, Sir.

  5. Excellent article….wow

  6. Amazingly written. Awesome

  7. Nice article, will follow the rules mentioned in the article. Thank you

  8. A well-written article…

  9. One of the best i have read in recent days and i could say, many mistake i have done is mentioned too.

  10. Nice One

Leave a Reply to Deepak Cancel reply