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How to be Fearless in Trading?

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Imagine you’re on a treasure hunt, trying to find hidden gems that’ll make you rich. This journey is thrilling, filled with surprises, like a video game with high scores and, sometimes, game over screens. My friend, this is similar to trading.

Trading can feel scary, like playing that video game on the hardest level.

You may worry about losing your collected treasures or making wrong moves that could lead you away from the treasure. But, just like learning to play any game, trading becomes easier once you understand its rules and strategies.

roadmap to fearless trading

So, how can you play this game of trading without fear? And what steps should you take?

We’ll use a real-life story to explain it all.

During the 2008 financial crisis, while most traders saw a disaster, one man saw an opportunity. It was John Paulson, a trader who did something different.

Despite fear and confusion, Paulson bet against the crowd. He bet house prices would fall, even though everyone thought he was crazy. But his bold move paid off, and he made much money. What secrets were behind Paulson’s fearless trading, and how can you apply them to your trading journey?

Evaluate your Risk Tolerance

Step 1: Learn to Dance with Risk: Embrace Uncertainty and Thrive in Trading

In trading, fear often comes from worrying about possible risks.

Let’s think of risk as our friend, not an enemy. Just like in a game, sometimes we lose points or make mistakes. But these are all part of the learning process. We can confidently manage risk without fear when we understand that profit and loss are both parts of trading.

For example, imagine playing a game of soccer. There’s a risk that you might lose or make a wrong move. But that’s all part of the game.

You don’t stop playing because you might lose or make a mistake. Instead, you learn from your errors and improve your skills for the next game. The same applies to trading.

We need to understand that losses are as important as profits for learning and improving our trading strategies. This way, we can ‘dance’ with risk, meaning we accept and manage it without fear.

Step 2: Seek Knowledge Like a Treasure Hunt

Consider knowledge as the key to success in your trading journey. Like in a treasure hunt, the more hints you find, the easier the adventure becomes.

You can find these hints by reading books, analyzing market patterns, and staying informed about financial news. Each piece of knowledge you gain makes you one step closer to trading confidently.

For example, imagine you’re solving a complex puzzle. Each piece you find and fit correctly makes the overall picture clearer and the task less daunting.

Similarly, in trading, acquiring knowledge is crucial. Whether learning about a trading strategy or staying informed about financial news- it brings you closer to making better, more confident trading decisions.

Step 3: Craft Your Adventure Map (Trading Plan)

Just like you need a map for an adventure, you also need a trading plan for your trading journey.

A well-thought-out trading plan is like your personal adventure map. It marks your paths (when to buy and sell) and resources (how to manage your funds). This map will guide you through the ups and downs of the market, reducing the fear of making wrong moves.

For example, let’s compare this to a hiking trip.

Without a map or a plan, you could easily get lost, run out of supplies, or take dangerous routes. But with a map, you can avoid these problems because you know where you’re going, what to expect, and what to do.

Similarly, in trading, a plan helps you decide when to enter or exit trades and how to manage your money effectively. It provides structure and clarity, reducing fear and increasing confidence in trading decisions.

Step 4: Stay Calm and Clear-minded Like an Explorer in Trading

Just like an explorer stays cool in chaotic situations, a trader should keep their emotions in check.

When it comes to trading, emotions can make things feel overwhelming. Mindfulness techniques allow you to stay calm and make clear decisions without fear.

Consider a captain steering a ship through a storm. If the captain panics, the crew will likely panic too, and the ship may stumble off course. But if the captain stays calm and makes clear decisions, the crew will remain composed, and they can navigate the storm safely.

Similarly, if you let your emotions control trading, you might make rash decisions, like selling stock too soon out of fear. But if you practice mindfulness, you can stay calm, think clearly, and make better trading decisions.

Learn lesson from mistakes

Step 5: Review and Learn from Your Trading Journey

Every experience, whether positive or negative, holds valuable lessons to be learned.

After every trade, looking back and evaluating your decisions is worthwhile. Ask yourself: What worked well? Where did things get wrong? This self-reflection can help you improve and become more confident in your trading decisions.

Think about it like playing a video game. After each level, you look back at your performance.

You analyze which strategies worked, which didn’t, and what you could do differently next time. You learn from your mistakes and successes, which helps you perform better in the next levels.

The same goes for trading. By reviewing your trades, you can learn from them, adjust your strategies, and make better trading decisions in the future.

Step 6: Begin with Small Steps for Big Wins

As every successful explorer starts with short journeys, you should begin your trading adventure with small, manageable trades. As you become more confident and experienced, you can move on to larger, more challenging trades.

Let’s consider learning to drive a car.

You don’t start by driving on a busy highway. Instead, you begin in a quiet, less crowded place to get comfortable with the basics. Once you’ve gained confidence, you start driving in more complex situations.

Similarly, in trading, start with smaller investments and simple strategies. As you gain more experience and confidence, gradually move on to bigger investments and more complex trading strategies.

Paulson’s boldness during the financial crisis was not a blind bet but a well-calculated move.

He embraced risk, accumulated knowledge, followed a plan, managed his emotions, learned from his experiences, and started small. That’s the roadmap to fearless trading.

To summarize, fearless trading is not about avoiding dangers or ignoring risks.

It’s about understanding and embracing them, creating a reliable plan, keeping emotions in check, learning continuously, and starting small. It’s an adventure where fear transforms into courage, uncertainty into bold decisions, and losses into lessons.

So, now is the time to begin your journey to becoming a fearless trader.

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About the Author

Divesh Jotwani is a Full-time trader in the Indian stock market. He has spent over 20+ years researching and discovering WD Gann's methods and applying them day in and out markets.