There is a phenomenon going on that I’ve never seen in my 17 years of trading: EXTREME FEAR. What makes it so strange to me is that it exists with people who are both in the market AND out of the market. I’ll give you two examples:

EXAMPLE #1 – I speak to many potential investors. It amazes me how many people have been in 80-90% cash for the past 3-5 years. They’ve missed out on such a strong run in the market. When I ask them what would it take for them to get back in, they freeze up and can’t answer. These are people who are NOT in the market, and they are horrified of getting in.

EXAMPLE #2 – Today is May 22, 2013. The general market declined by less than 1% (0.82% to be exact) and my phone has been blowing up with panic by people who are IN the market!!! My trading friends are either calling or texting me with serious worry, and even a few stories of mini “blow-ups” today. I’ve never seen anything like this in my 17 year career! God help these people when (not if) we get a serious correction.

I have discussed this topic on my weekend show and on Twitter recently, and I get TONS of responses as to what has created this fear. Some reasons include: lack of trust in the market, the market is rigged, high frequency trading, it’s not healthy for the market to keep going up like this, and we’re doomed as soon as Bernanke hints that quantitative easing will slow down.

Whatever the reason doesn’t matter. The bigger question comes down to figuring out how to overcome your fears because fear is unhealthy to your general livelihood. If you find yourself fearful, you might need to ask yourself a few questions: Maybe the market isn’t for you? Maybe you need to reduce your leverage? Maybe you need to reduce your position size to deal with the volatility? Maybe you need to get better entries and stop chasing extended stocks? Maybe you need to stop watching 1-minute charts tick by tick? Maybe you need to view your trading as a business, and not gamble so much?

Whatever the reason, one thing I can guarantee is that you’ll never be successful at trading if you are doing it with scared money or too emotional with your approach. I do everything possible during the trading day to keep a level head and a strong state of mind. As a trader, you must find a way to do this or else you will be trading too much on emotion and increase your chances of making bad decisions.

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