Relax And Trade Within Your Limits 

Getting started in any new profession or activity takes focus and energy and you need to ensure that you tackle the tasks with enthusiasm to your limits while you learn but whilst being realistic about the outcomes you should expect early on.

How you tackle the learning period, your goal setting and progress will be determined by your personality and natural inclinations. When we are talking about starting out as a trader, this period can be especially challenging as it is your own money you are putting at risk and managing your personality traits can be difficult.

Novice traders tend to fall into one of two camps: the fearful and the overconfident. Both of these need to address the issues they bring with them as neither profile leads to long-term success.

The fearful ones will shy away from any kind of risk, they can easily be frightened and so any inclination that the trade is going against them will get them out prematurely. They don’t allow themselves to hold out in the markets long enough to make notable profits and they won’t be able to survive in the long-term without controlling their fear.

On the other hand the overconfident novice trader is going to fall because they have the opposite problem of lack of fear. They have such self-belief and a gung-ho attitude that they don’t hesitate to put large amounts of their trading capital on an individual trade even when there is no clear sign that the trade has any greater chance of success than others. There is a chance that they will hit success early on which will only fuel their self-belief in their own abilities but ultimately they will not sustain such an approach and their capital will disappear very fast if they aren’t careful.

Overall the majority of novice and long-term traders fall in the middle of these two extremes. Being in any particular group is not so much an issue if you can acknowledge which personality type you lean towards and manage your trading accordingly.

For the person who is fearful, the benefit is that they are risk adverse and are not going to risk a large quantity of their capital on one trade based on a hunch. Their biggest challenge is break the fear factor enough that they can sit out a trade to the point where they can turn a reasonable profit. They need to be helped to overcome the panic that arises and to trust in their trading plan and execute it exactly as laid out and avoid hesitation on entry and jump out at the wrong point.

Indeed it should be noted that professional experienced traders can also have the same fear and reluctance to enter into a trade, but the difference is that they have a personal method for managing this fear. An example would be putting a trade through a broker with clear instructions of the entry price, the exit point and to place a protective stop at a set limit.

The contrast with the overconfident novice is stark. The issues are not just the opposite in terms of their lack of risk aversion but also in that they believe they have far greater skills and knowledge than they do. They believe they can ‘spot’ or ‘feel’ a winning opportunity and don’t bother with the detailed planning process but just jump, typically also putting more capital at risk than is sensible. Perhaps this was due to the fact that they started out lucky and made big gains even though they broke their rules. Their confidence is reinforced and their invincibility grows.

Some overconfident traders are even putting on a front as they feel that they cannot show their lack of confidence and reservations since everyone perceives the successful trader as bold and fearless. Or so they believe.

Whichever they are, the novice trader needs to acknowledge their lack of knowledge and skills and that self confidence required has to be built up over time. They need to learn restraint and that the essentials for successful trading are restraint, planning and executing to plan. So they need to trade small positions and use them as an opportunity to learn, to get familiar with what can occur and how to manage events. They can learn how to set up detailed trading plans and the benefit of protective stops and how to determine where to level them so that they don’t stop out the trade too early but ensure that exposure to risk is limited if the markets turn against them. In addition they should set realistic goals that can be achieved easily enough to provide encouragement to continue on the same path.

On the flip side there is a real benefit to setting some ambitious learning goals that give the trader something to strive for in terms of learning the trade of trading. One of the major errors that the novice trader makes is to over trade and therefore one of the tasks is to demonstrate that there is much to benefit from taking time out to study the markets, review the different ways to trade, learning how to plan and doing paper trading. All these elements will provide the skills to progress in a more confident and certain fashion will help attain their long-term goals. For the over-confident novice this is an opportunity to learn the ropes in a more controlled fashion but once they have gained more of the skills required, their reduced risk aversion will help them move forwards to being a confident trader.

So whether you are a nervous novice, an overconfident one or somewhere in between, the key is to recognize your inclinations and the drivers. Recognizing your limitations based on personality is always a good starting point and you ensure that it becomes possible to work to your own strengths and manage your weaknesses. Overall though, remember to relax and to trade within your own limits as that is when the profits start becoming more consistent without taking silly risks.

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