Driven By Fear

There’s a fine line between greed and fear.  They are the most common emotions that a trade has to face.  But for me, after watch myself trade over the past years, I think I am almost always driven by fear.  I haven’t had successful trading results to begin to be greedy.  To me, greedy is wanting more after been given some.  The stock market has not given me 1 cent.

I don’t have much ambition in life.  Applying to an Ivy League school was the last minute decision after the encouragement from my brother.  When I was accepted, I wasn’t too excited; instead, I immediately started to fear if I can compete with other academic elite and be able to survive.  As it turned out, I was on Dean’s list every semester, ranked 11th in the engineering school, and graduated with a GPA of 3.92.  But the backdrop behind my college life was that of constant fear.  I was constantly afraid of failure.  Even these days I still occasionally have nightmares about having to take exams while totally unprepared.

This mental weakness can be seen in my trading style.  I have never been “all in”.  I have always “trickled in”.   A full position might take 3 entries.   If I appear to be bold in taking a big position, it’s probably due to fear-induced recklessness during while fighting a fire.

Fear of Missing Out

One of my most pronounced fears and pain is the fear of having to miss the bandwagon.  This is why it’s so tempting for me to act on a forum post or a tweet when someone posted a trade.  And once the trade has gone wrong and I really should take loss,  I would fear that the stock would later rebound and I’d be reading a gloating update from the poster/twitter. It’s funny how sometimes I’d prefer a losing trade than missing out on a trade.  This emotion pretty much trumps my normal trade management.  Bad.

The same mentality also draws me into emotional trades on gaps and on fading the momentum stocks.  This is hurt me badly.  To counter the emotion of having missed out, I would fade it.   I remember I lost a fortune shorting EBAY and the QQQ during the dot com bubble.

This has also been the major culprit of how I can amassed couple dozens of stock in my portfolio in the past.  Any names I came across on Barron’s, on CNBC, Bloomberg Business Week, other people’s blogs, etc., I would feel the urge to get a couple of shares so I don’t miss out.   The result would be a totally unmanageable portfolio.  Bad.

I need to recognize and cope with this major mental weakness but I think the best remedy is to tune out the noise by not looking at the source of temptation.  I have duly “unfollowed” a few twitters.

Fear of Losing Profit

Another major fear I have is the fear of losing profits.  I have less problem seeing my stocks getting redder than seeing my stocks getting less green.  The result is having many big losers and few small winners.  The opposite of what I should do.  The right way to trade is to have many small losers and have few BIG winners.   This is the main reason my portfolio keeps on decreasing its value.

To counter this tendency, in addition to recognizing it and try to wrestle with it, I think I need to stop looking at the chart streamers all day long.

Minimally, I need to triumph over these 2 fears in order to have a chance of success in trading.

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