Overcoming fear

[rationaldaytrader]

Thank you for all your responses. I'm going to answer all of them in this post:

Stocks generally go up, you should deploy a long only strategy and master that way before you try to learn to short.

I understand that the market has a bias for long trades (some platforms don't even allow you to short while others have limited inventories) but I feel more comfortable shorting than going long. The thing is that shorting is usually very lucrative for me until I run into that scenario where the price jumps against my direction by 30-40+ cents suddenly and I can't exit out of the trade due to this psychological fear of losing.

When you short a stock, you are in effect borrowing it. Naturally, if it runs up, your risk is now unlimited to the upside! Did you know that? A stop loss provides only a small measure of protection. Learn to trade options so that, you can trade both sides of the market safely. If you trade stocks, you should only trade from the long side and put stop losses on each trade to minimize losses. A mental stop will not work for most traders because they do not have the discipline to stick to rules and exit stops that are hit! For your sake, do not ever short another stock again! You risk blowing out your account and owing monies on top of that! Remember that stock needs to be returned to the broker! The broker will hold you liable for it above the value of your account! They will have to make good on buying it back because someone else owns those shares but, they will go after you afterwards!

I'm usually good with cutting my losses. My main problem is when the price suddenly jumps against my direction unexpectedly. I then get stuck in a thought-loop where the losses continue to increase while I rationalize to myself that I should stay in the trade because a reversal is just around the corner. As for options, I have bought both puts and calls (and they are very lucrative!) but my problem as a daytrader is that most of the gap up/down stocks I trade aren't optionable. Lastly, I agree with you about the stop. I'm going to start setting a stop-loss for all my trades starting today. I didn't do it before because the people I learned trading from cautioned me against using them because brokers exploit that information.

Consider less shares per trade and a larger stop. You have too much on the line, you go into a coma and freeze. Then try to rationalize everything you are doing. It has nothing to do with shorting stocks or going long. I have made the same mistakes hundreds of times see my journal last pieces of the puzzle Journal.

I used to trade 1000 shares (and on certain occassions upto 2000 shares) but I dropped down to 800, then 400, and now I currently trade only 500 shares. I get your point but it's difficult to make any real amount of money with less than 500 shares. If I were a swing trader than I could possibly get away with 300-400 shares. As for your journal, thanks, I'll check it out.

As soon as you even get the first gut feeling that you've made a mistake get out. Don't second guess your intuition. Keep this in mind.. The market isn't going to shut down because you aren't there to trade. You'll survive to trade another day but if you stay in you risk not having that option at all.

If you're the type that can't take losing, you're better off developing a completely transparent fail proof system. A system that completely takes the mental state out of trading.

Yeah, I know all of this on an intellectual level but when I'm down 30-40+ cents some very primitive emotions come out and prevent me from trading rationally. I agree with your point about creating a good trading system.

1. Stop trading. 2. Study your trades carefully. 3. Design a profitable trading plan. 4. Follow your trading plan.

Yeah, through analysis of my trades and habits, I've realized that I have a fear of losing along with bad habits that surface every 3-6 trades. Sometimes I go on winning streaks lasting 6-7 trades and then predictably my one big loss wipes out most, if not all, of my gains.

Before you enter, put in your stop loss first, make this a habit on every trade.
or
Hedge with options.

I really like this bit of advice, thanks.

Give yourself a big break, your mental health is not favorable to forex. Give yourself ample amount of time to think about what you repeatedly did. Don't come back to Forex unless you got a prepared solution to get better than the previous performance.

i agree. before coming back read some motivational stories and prepare yourself for the worst before entering again.

I don't trade forex; I trade NASDAQ stocks. As for taking a break, I used to do that: lose big, stop trading, read books about trading and trader psychology, and then start again. The problem with this approach is that sometimes that break last 1-2 months and I don't want to take anymore breaks. I just want to come to terms with this problem and move on.

I rarely short stocks because their indices tend to rise as membership is rotated. Indices have therefore an inherent buoyancy and when they start to rise with good momentum every member stock can be subject to a buying spree, even the dogs. You can try shorting stocks if an index is rising lazily or ranging but be ready to exit very very quickly if the index changes behaviour.

I day trade patterns like double tops so usually short selling is very profitable for me. It's just that every couple of weeks, I come across a stock that suddenly jumps against my position and causes me to become 'paralyzed' by fear of losing. But I get your reluctance to not short stocks.

 

[tommcginnis]

I consistently destroy my account every couple of months by making the same mistake. I'll short a stock

"Bingo!" Mystery solved.

But aside from that, your handle on things (posted above) seems pretty solid.

 

[smallfil]

When you are not doing well, you should set aside some time. I suggest the weekend and review your trades one by one and use a stockchart to see if you made mistakes. Chances are good you did! Write those mistakes on your journal. Makes it easy to refer to in the future if you continue to make the same mistakes. Correct those mistakes and you become a better trader overnight!

 

[murray t turtle]

I consistently destroy my account every couple of months by making the same mistake...... Whenever this happens, I can't press the button and exit out of the trade because I can't come to terms with such a relatively big loss. I keep telling myself .....................................

I use a spreadsheet to keep a track of my trades and I have a journal.....What steps can I take to overcome this psychological fear?

%%
IF you keep trading counter trend, stocks , rational DT; or even trend trading without any stops.
You will solve your own problem, because you will eventually run out of money.[My remark does not apply to people going long ETFs/strong ETFs with a plan for selling + proper money management........]

AND stop pretending ANY business can exist without any business expenses[=losses]Thanks for the question.

 

[Specterx]

I consistently destroy my account every couple of months by making the same mistake. I'll short a stock and the prices will go against my position by 30-40+ cents very quickly (my mental stop is usually 10-20 cents). Whenever this happens, I can't press the button and exit out of the trade because I can't come to terms with such a relatively big loss. I keep telling myself irrationally that the price will come down and it usally doesn't. The longer I stay in the stock, the more my losses grow, and the more 'paralyzed' I become to exit myself out of the situation.

I use a spreadsheet to keep a track of my trades and I have a journal where I document my decisions for entering/exiting a trade but I still keep making this specific mistake. What steps can I take to overcome this psychological fear?

Put in a hard stop loss on the trade and don't override it. Or to go further, use a system with a fixed stop (or max stop which can be closer based on PA, but never wider than the max) and mechanical profit target to remove the discretionary aspect of "mental stops" or exits, and the emotional roller-coaster of trying to decide what to do based on every tick of the market.

If you can't at least respect a defined max risk in the form of a hard max stop then you can't be a trader, so you just have to sack up and do it.

 

[tomorton]

Put in a hard stop loss on the trade and don't override it. Or to go further, use a system with a fixed stop (or max stop which can be closer based on PA, but never wider than the max) and mechanical profit target to remove the discretionary aspect of "mental stops" or exits, and the emotional roller-coaster of trying to decide what to do based on every tick of the market.

If you can't at least respect a defined max risk in the form of a hard max stop then you can't be a trader, so you just have to sack up and do it.

Ouch.
But, you're right.

 

[Specterx]

I didn't do it before because the people I learned trading from cautioned me against using them because brokers exploit that information.

This is complete BS. Forex bucket shops maybe but not exchange-traded instruments through regulated brokers. Look at any chart and there's no mystery at all about where clusters of stops are placed. Even if someone could actually see the stop orders and trade on that information, your small-lot order isn't going to make the slightest difference to their decisions unless you're trading very illiquid issues.

Because stops do cluster at swing levels, stopruns happen and have to be accounted for in your plan. If you are getting barely clipped out of too many trades then you need to use a wider stop or filter your entries (e.g. pass on the first signal then enter after the stoprun of that first signal).

 

[WonderBoy]

Let's get this straight:

1) You state that you "destroy my account every couple of months"
2) This is due to a short moving against you in the 40 cent range
3) You state that you are only trading 500 shares as of now.

So, 500 shares X 40 cents = $200 loss

If this is all true, please explain why do you even bother.

 

[Sprout]

I consistently destroy my account every couple of months by making the same mistake. I'll short a stock and the prices will go against my position by 30-40+ cents very quickly (my mental stop is usually 10-20 cents). Whenever this happens, I can't press the button and exit out of the trade because I can't come to terms with such a relatively big loss. I keep telling myself irrationally that the price will come down and it usally doesn't. The longer I stay in the stock, the more my losses grow, and the more 'paralyzed' I become to exit myself out of the situation.

I use a spreadsheet to keep a track of my trades and I have a journal where I document my decisions for entering/exiting a trade but I still keep making this specific mistake. What steps can I take to overcome this psychological fear?

Attempting to overcome fear keeps fear present as something to be overcome.

Focusing on building trust and confidence leads to a different timely action.

 

[CSEtrader]

I consistently destroy my account every couple of months by making the same mistake. I'll short a stock and the prices will go against my position by 30-40+ cents very quickly (my mental stop is usually 10-20 cents). Whenever this happens, I can't press the button and exit out of the trade because I can't come to terms with such a relatively big loss. I keep telling myself irrationally that the price will come down and it usally doesn't. The longer I stay in the stock, the more my losses grow, and the more 'paralyzed' I become to exit myself out of the situation.

I use a spreadsheet to keep a track of my trades and I have a journal where I document my decisions for entering/exiting a trade but I still keep making this specific mistake. What steps can I take to overcome this psychological fear?

It is not what you are using, it is about to understand , accept and adopt the process you are going through. Nothing is wrong with you, and many of us passed the same stage before we were able to create consistant profit. We all were raised to believe and to struggle to be right. So it is just one of the first steps of the trading life - to take it easy, to promptly admit that you may and can be wrong, and to liquidate your position.
Very important - train yourself on simulator account, impose to yourself daily/weekly limit of loss, and if you touch that, cut it firmly. You may help yourself with an automatic system. And, as you already was advised here - quit for some time live trading, for a day, week.
Good luck! It is just a step on the path. You certainly can and will be profitable.