2009-01-16: Conquer fear and gain confidence
Throughout 2008, we have seen many ups and downs in the energy market. In the midst of such an elusive and tremulous environment, it’s crucial for the trader to keep emotions in check and to stick to a set trading plan. By doing so, a long-term focus is more easily maintained and thus a more objective view of current price fluctuations can be assumed.

The psychological aspect of trading is important. A trader enters and exits positions on short notice, and is forced to take quick decisions. To deal with this a clear presence of mind is necessary. This may seem even more important as we see an increasingly volatile energy market.

Emotions may create mindtraps and lead to misjudgement and loss. Greed can lead a trader to hold on to a position too long in hopes of a higher price, even as it falls. In many of us, there seems to be an instinct to always try to do better. A trader should try to recognize this instinct if it is present, and develop trade plans based on rational business decisions.
Fear can prevent a trader from entering trades along with taking them out of positions too early. Paralyze by analyze is an interesting phenomenon in which traders get so caught up in analyzing everything about a potential trade that they never actually pull the trigger on the trade. Many traders may experience these feelings from time to time, but the best traders learn to recognize, understand and neutralize them.

No one likes losses, but as a trader, losses are part of the job. Even the best professionals will lose. The key is that they will lose less, which allows them to remain in the game both financially and psychologically. To be more concerned about avoiding big losses and less concerned about taking small losses may turn out profitably! If you can’t bear to take a small loss, you will never give yourself an opportunity to be around when a big winning trade comes along. As long as you ride favourable trends correctly, your winners are larger than your losers.

All traders feel fear at some level, but the key is how we prepare to taking on risk as a trader.
Winning traders manage their fear while losers are controlled by it.
To master fear and avoid undesirable trading behaviours, there are ways to deal with these feelings and let you get on with your trading plan.

To control emotions, traders can benefit from trading rules ahead of time. Limits, attuned to your risk-reward ratio for when to exit a trade, may be a guideline to follow, regardless of emotions. Strict trading rules and a methodical trading plan are simple steps that can help a trader overcome mindtraps.

One of the most vital parts for reaching your goals is to have a trading plan – it acts as a guide and offers a degree of protection. By sticking to a set of defined rules, you will be more likely to avoid emotional decisions that can derail your portfolio, and keep a more objective view even in the most demanding times. Knowing that your trading plan is well tested, you can trust the system to generate favourable results over time.

Whatever 2009 holds in store, armed with a reliable trading system, you will be able to meet it head on with confidence and consistency. There may be rocky periods, but with the right tools you may trade through heavy times and still be around for further winning periods. Trying to outguess the market doesn’t pay off over the long term. Implementing a strategy that is well thought out and sticking to it may help you avoid many of the common trading mistakes.