* Trader A experiences a fear of missing market moves and takes too many trades in too many stocks. He has winning trades on great ideas, but his returns are so-so, because they're watered down by overtrading;
* Trader B chronically undersizes her trades, rationalizing the low risk-taking as good risk management. In fearing to lose money, she doesn't make meaningful money on her good ideas and feels a lack of fulfillment as a result;
* Trader C has lost money recently and is afraid of going further into the hole and possibly losing his job at a hedge fund. As a result, he waits for the perfect setup, missing significant opportunity along the way.
In each case, the trader's actions are dictated by fear. In each case, yielding to that fear reinforces the very threat that prevents good trading.
When people suffer from a phobia, such as a fear of being in crowded places, how do they overcome the problem? Certainly not by staying away from people! Isolating oneself would only reinforce the phobia, as it's acting on the premise that the threat is too threatening. It's by gradually facing the fear--first in imagery, then very incrementally in actual experience--that confidence is built and threat is taken down. We build confidence--and a sense of competence--by moving out of our comfort zones and tackling the discomfort of the unfamiliar.
Here's a valuable exercise: Imagine your ideal self. Imagine what you're doing in your trading, in your personal life, in your relationships. Really create images of that ideal self; create a movie in your head. See yourself acting and interacting. See yourself physically, spiritually, socially. What does that ideal self look like? Who are you at your ideal?
Now think of all the fears that stand between you and that ideal, recognizing that every excuse for not being at our best represents a fear that we're not facing directly and consciously. Excuses are the buffers that keep us from our fears. We'll make changes tomorrow; we'll make changes when we're less busy; we'll make changes once we become profitable. We don't have to face the edges of our comfort zones when we bask in the comfort of excuses.
Once you have identified the fears keeping you from your ideal, then you approach those fears the way a phobia patient approaches his or her fears. You very gradually and steadily face your fears. You consciously refuse to take marginal trades and face the possibility of "missing a move". You consciously size a position larger and face the possibility of a larger loss. You consciously pull the trigger on a good risk and face the possibility of a further setback. In each case, you act on the premise that you are stronger than the fear.
In the end, we will either realize our ideals or we will betray them. Every ideal worth achieving lies on the other side of discomfort, the other side of fear. If you're living life fearlessly, you're living life in your comfort zone. We grow, not by banishing fear, but by making it our friend--and catalyst.
Further Reading: Fear and Trading Returns
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