This is a trader question from email.
I need a piece of advice.
When I started trading, I lost a lot of money and now have some problems to enter the market. It is some sort of mental problem. How to overcome it?
Trading will always be risky. There is no way to trade without risk. so we must learn to accept risk, and to control it.
Unfortunately beginners have the greatest chance of failure, because their knowledge is lacking and their skill is non-existent. So it is common for beginners to lose a lot of money before they gain enough knowledge about risk control and survival.
Once a trader has had major losses, there is damage to the trader’s confidence. Patterns of fear are developed, because the pain of a large loss is so severe. Excess fear causes bad behavior, because our brain is trying to avoid future pain. This can cause the trader to avoid taking trades, to get into a trade late, to get out too early, to avoid placing a stop-loss etc. There are endless ways that fear can cause bad trading.
We have to tolerate a certain amount of fear because of the risk involved. Without risk, no gain is possible, no profits can result.
So how does a fearful trader recover, and start to trade more comfortably? How does a trader regain the lost confidence? It takes time, and experience.
First, eliminate the risk. If you can trade without risk, you can monitor your progress, and build confidence as your results prove to be positive. You can do this within a demo account. Take as long as necessary. After a few months, review the results, do you have confidence in your strategy, in your trading techniques?
Once you develop some confidence, you can begin to trade using risk capital. Once again, control the risk! Start with minimal leverage, and small positions. The goal is not to make huge profits. Focus on technique and strategy. Focus on building confidence. The goal is confidence, not large profits.
After some time, you will have enough confidence to take larger positions, and to use more leverage. Always monitor your fear and stress. If you are too uncomfortable, reduce the risk! You do not want to have another mentally devastating event. The goal is survival, building confidence. Take your time, this is a long-term project, not an overnight miracle!
-Neal. (FibMaster’s Fibonacci Trading Desk)