How to conquer trading fear and rebuild confidence

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Fear is a crippling emotion that saps confidence and undercuts trader performance. Traders can conquer fear and re-build confidence by following a 5 step process.

Fear can fuel an emotional death spiral

We as traders have all been in the eye of the perfect storm.  A few bad trades turn into a full blown slump. Your P & L is noticeably drawing down  and  causing pain. Then, at the worst possible moment, the bottom falls out of the market. Gains for the year evaporate and now you’re in a deep hole. Your former confident self turns to Jell-O as fear begins to dominate your thoughts. You race through doomsday scenarios. You re-hash all your miss-steps and second guess yourself. You’re afraid to open your trade platform. How much worse have things gotten?   The emotions of complete exasperation and trading fear grip you. For some, the sense of hopelessness becomes over-whelming.  Fear has paralyzed you.

How a friend’s advice saved me

When I was a senior in engineering school at Florida 30 years ago, something happened that I never forgot. I had a bad case of senioritis. With a couple of good job offers in hand, my studies went on cruise control. Unfortunately, my professors were still going pedal to the metal. Suddenly I found myself hopelessly behind and hopelessly alone. Final  exams were looming and seemingly there was not enough hours in the day to even begin to make a dent in my backlog of work. From there, my mind began its downward spiral. Fear had gripped me. The fatal consequences of the situation were vast; calling home to cancel the graduation visit, calling my future employer to explain how I flunked….I was a basket case.   I whined, complained, and cried about my sad predicament to anyone who’d listen.

Luckily, my friend Beth shared her wisdom with me. After lending me her ear for an hour, she said something that has forever been with me.  She said ”Why don’t you start studying? Maybe you’ll get a C instead of an F”   She was right. It shook me out of my self-pity. I got down to business and focused on the task at hand. It was not easy, but it was doable. As I worked hard to catch up, the feeling of sheer terror subsided and I no longer felt overwhelmed. As I plowed through the backlog of work, fear gave way to confidence as each item on my “to-do” list was checked off. I passed my coursework, graduated, and off I went into the world.

Action cures Fear

Beth’s advice held a powerful axiom: Action cures fear.  Carve that in your desktop; never forget it.  Fear does not dwell for long in an active, focused mind.

Actionable  Idea: When you sense fear, act quickly. Fear grows in passive environments but cowers in the face of decisive action.

Chris, I and my trading account are in total disarray…what should I do?

A 5 step process to conquer trading fear and rebuild confidence

1. Breakdown the Fear

When the emotion of fear enters your consciousness, nip it in the bud before it turns to full blown terror.  Break the fear down into bite-sized pieces. Grab the time-honored yellow legal pad and make a list. On the left side list the things that are worrying you. It may be 3 things or 33, it does not matter. On the right side, list a couple potential activities you could do to address each item. Regardless of the fear, there is ALWAYS something you can do to address it.

2. What’s done is done; Let Go

Let go of the bad trades and the lost money. Obsessing over your past failings will do nothing but hold you back. Sure, recap and dissect those events, but do so in the spirit and mindset of improvement. Once your recap is complete and lessons learned, let go of those trades.

3. Step Aside: Clear your Account and Re-Group.

Sell everything; Start fresh. There is no shame in that. Nothing is stopping you from buying certain positions back after you’ve re-assessed the situation and the fog clears. Read Market Wizards by Jack Schwager. There are plenty of examples when a Trading Titan walked in on a Monday morning and told his assistant to liquidate everything.  If this strategy is good enough for a Market Wizard, it is good enough for you and me.

4. Re-examine your Trading Plan / Process and your execution of it

Bull markets often mask weak trading processes. It’s my guess that after a long bull run, there are more than a few traders who have let sloppy trading practices and processes creep into their program. I include myself in that group.  Tougher trading environments expose those weak processes.  When I hit a wall or become fearful, the first place I start digging into is my trading process. I usually discover complacency and operator error.

Additional reading on How to build a robust trading process HERE  

Additional reading on How to build a robust trade idea funnel HERE

5. Reduce Position Size. Trade small if at all

Trading over-sized positions creates fear for a lot of traders. If you wake up at night thinking about a stock or get nervous about its performance, it is very likely your position is too large. No one trade should be able to cripple you if it goes to zero. Reduce your position sizes; feel the trading fear dissipate.

I trade almost exclusively with options. When I re-emerge after a rough spell I reboot by trading with 1 or 2 contract position sizes. My goal is to follow my process to the letter with very little at risk. A good trade is one where I follow my process to the letter, regardless of outcome. I won’t increase my position size until I feel confident that I am back in sync following my trade plan. Try trading micro positions and notch a few wins.

After you re-connect with your process and garner a few baby wins, you should begin to feel your confidence returning.  From there, slowly add size. Keep your max position size at a prudent and at a reasonable level to prevent the terror that often goes hand in hand with trading big positions.


Fear, at some point or another, afflicts all traders. When fear comes knocking at your door, recognize it early. Tackle it head on and without procrastination by creating a list with potential corrective actions. Action truly does conquer trading fear.   It will take time and effort but you CAN conquer fear. Don’t worry, the market isn’t going anywhere. It will be there waiting for you to come back refreshed, focused, and with an airtight process to lean on.

Additional Resources

Author David Schwartz devotes a full chapter on Action cures fear in his classic book “The Magic of Thinking Big”.   Quite possibly the best way you can spend $10.71 on Amazon. Find it HERE

I hope you found the information helpful to your trading.

Happy hunting and good trading

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