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Unformatted text preview: Ask the Doc: Overcoming Market Panic Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com Note: On 8/2005, a version of this article appeared in the Investing Online Newsletter published in Australia and available at www.sharetradingeducation.com . When I was a beginning trader, I naively believed that a 100-share trade was no different from a 10,000 share one, since both could be executed with the same entries, exits, and money management. What I failed to appreciate is that the risk of any trade or investment affects our ability to evaluate it calmly, rationally, and objectively. A head of a brokerage firm, which offered free simulated trading to new traders, once told me that 80% of the traders made money in the (very realistic) simulations, but only 20% were successful once they traded real money. The difference, he observed, was the emotional impact of having actual money on the line. In this same vein, a reader asks the Doc: When I was younger and fitter I played soccer. My skills were okay, but I tended to panic when I possessed the ball and heard the opposition hurtling towards me. Unfortunately I've carried this kink in my think over into my share trading. I love trading. I've been learning and applying in earnest for the past year and have managed to overcome several barriers. However, three times I have panicked during a broad market sell off and sold out as I watched my paper profits disappear. The latest example was yesterday. I'd struck a purple patch recently and the paper profits were looking very healthy. However, my positions began retracing without hitting my stops and those paper profits disappeared like sand slipping through my fingers....
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- Three '09