(Video: Market coach Doug Hirschhorn, PhD, advises investors on how to get over their fear of pulling the trigger.)
Have you ever watched the market move but been afraid to get in, only to find out later a trade would have made you a lot of money? If you have, then you’ve experience what’s called “fear of pulling the trigger.”
The first reason traders are afraid to pull the trigger is because the don’t trust they can control the size of the loss if the trade goes against them. The solution is simple: use stops. No trader wins on every single trade. In fact, even the best traders are right only about half the time. If you have to accept taking losses as part fo the trading game, don’t take it personally. Just book the loss and move on to the next trade.
Another reason traders fail to pull the trigger is because they don’t really know what a good trade looks like. Finding out what a good trade looks like takes a lot of practice. The trick is to experiment with smaller trades, so if the trade loses money, you don’t get freaked out. After a few weeks, you’ll get a better feel for what good trades look like and be less fearful of pulling the trigger.
Finally, traders don't pull the trigger because they’re undercapitalized or too concentrated. Traders should never have more than 25 percent of their total capital in any single position at one time. While this may limit your ability to hit home runs, you’ll also avoid game-ending strikeouts.
Remember, great trading, like great baseball, is about consistently hitting singles and doubles rather than trying to jack one out of the park.
Think better, invest smarter.