Be Modest and Realistic

Modest doubt is called the beacon of the wise.
William Shakespeare

It may be enjoyable to occasionally dream of how you'll solve all life's problems by making a few million dollars trading the markets, but deep down you know it's unlikely to happen. It's hard to make that kind of money under most market conditions and without sufficient investment capital. In the end, that kind of thinking will just get you discouraged. It is important to identify such flawed plans and make them more modest and realistic. 

In setting goals, it is important to have realistic expectations. Trying to make huge profits quickly is unrealistic; modest goals are more realistic, and thus, more satisfying. Many (especially new traders) make goals that are not realistic, nor achievable. If your expectations are unrealistic, you'll fail quickly, feel disappointed, and very possibly just give up. If for instance you have insufficient capital that cannot cover draw-downs, fees, and commissions, you are being unrealistic. If you are trading with unreliable strategies and expect to make money on a consistent basis, you are also being unrealistic. It is not only impossible to achieve unrealistic goals, it can create a great deal of stress, which itself can produce trading errors. Setting more realistic expectations eases some of the pressure and will help in building sound trading skills.

Seasoned traders emphasize that such consistently profitable trading may take several years. And it is hard to achieve. It requires dedication and effort, yet many new traders think only minimal effort is needed. For example, they may think they can trade profitably by treating trading as a hobby rather than as a serious business. They over-estimate their ability level. They over confidently think that they have skills and abilities that they do not yet have. Do not ever underestimate the tendency to be overconfident. Conquer the tendency to trade beyond your skills by cultivating a sense of healthy skepticism regarding your trading skills and your trading strategies. Be realistic about what you can actually achieve. 

In the end, it is important not to get your hopes up too high. Novice traders think they'll make more profits than they can realistically see, or they believe that when they achieve huge profits, all of their life problems will be solved. Motivating yourself by fantasizing of these potential rewards will likely fail in the end. The only way you will achieve profitability is by setting realistic goals. You must accept the fact that trading is just plain hard work. You will have to put in a heroic effort to achieve success. With enough persistence, hard work, and determination, however, you will build up the skills you need to become a consistently profitable trader.

Fear and Trading

I have learned over the years that when one's mind is made up, this diminishes fear; knowing what must be done does away with fear.
Rosa Parks

Fear is an emotion that signals impending doom. When our human psyche perceives a threat, both our psychological as well as physical assets are activated. Fear is instinctive and is related to the fight-or-flee response. It's a very basic response that animals use to survive in the wild and it's controlled by very primitive parts of the brain. When harm is perceived, a wild animal must mobilize resources and make a quick decision to either fight the opponent or flee to safety. Fear again is instinctive. If left unchecked, it can sabotage even the most foolproof trading plan. But seasoned traders rarely act on their fear. Through experience, they've learned to control it. And through practice and concerted effort, you can too, if controlling fear is an issue for you. 


There are a few key strategies you can use that will effectively control your fear. It's very difficult to control fear when you have a great deal of money on the line. That's why most successful traders tend to risk relatively small amounts of capital on any single trade, and they have clearly defined exit strategies. Putting less money on the line with each trade is one effective way to decrease fear of losing money. It is also important to trade with money you can afford to lose. If you trade with money that you need to pay basic expenses (i.e. betting the mortgage money), you will have a valid reason for fearing a loss. It will then be

difficult to fool yourself, so don't bother trying. If you can't afford to lose your stake, build up your account balance and stand aside until you can calmly put a trade on without concerning yourself with the adverse consequences of a possible loss.


Some people were taught as children to hide their fear, to pretend that they were courageous in the face of adversity. But trying to hide your fear often makes it even more difficult to control. It's better to just admit that you are afraid, and admit that there is, indeed, a good chance that you will lose money on your trade. You'll find that once you admit the possibility of loss, you'll feel much better, and control fear more easily. In his book, "Trading to Win," Dr. Ari Kiev offers a quick and sometimes effective way of controlling fear: "Acknowledge you are afraid and the feeling will pass. Refuse to acknowledge fear and it will perpetuate. So admit you are afraid and the fear will disperse."

From the PrudentTrader archives 2004