Ask Colin

How can I overcome the fear of "pulling the trigger" when I see an entry situation?

There is a probably apocryphal tale from early last century when a young trader asked an old trader how to deal with a position that was worrying him so much that he could not sleep. The old trader told him to "sell down to the sleeping point". This essential idea can be used for buying as well. Many people make the mistake of thinking that they must buy their whole position in one lot. However, the reality is that there is nothing to stop us buying a small position at first. Then watching how it goes. If the trade moves in the right direction, we can add to it. In these days of cheap discount brokers, this is quite doable. Of course, if the trade goes bad, we can cut our losses while they are quite small. With much less at risk initially, it should be easier to "pull the trigger".

The other aspect is that some traders and investors with this problem are personality types known widely as "perfectionists". Their fear is not losses at all. It is simply fear of making a mistake. They will often lose large sums trying to prove they did not make a mistake. I try to teach them that they must realise that all trading involves losses on some trades. There is simply no way to always make profits on every transaction. They need to focus on the end of year result, rather than on each individual trade. It is the bottom line that we trade for, not our ego. If this applies to you, try to get your mind around the idea that trading and investing is making a profit on a series of trades. Most good traders struggle to get more than half their trades right. Their trick though, is to cut losses and let profits run, so that the sum of their profits for the year exceeds the sum of their losses.

Keyword: