The fear can be defined as the unkind state of emotion caused because of some kind of anticipation of danger like situation which may lead toward the emotions of anxiety, depression, or dreadfulness. In simple words, fear is the anticipation that something bad is going to happen if we act in a certain way that in turn causes us to avoid to act in that way or to anticipate the bad consequences. If we have to act in that way that led us to fear then we act with extreme alertness and focus so that we can try our best to avoid bad circumstances that may change our life in a negative way. In a fearful situation, we always have two paths, either to fight with the situation or run away from the situation. If we talk about fears in trading that at some level, all traders feel fear of entering the trade because of the unpredictable environment and circumstances in the trading world and the potential to lose all the capital or the bear loses that may affect the financial life in the negative way.
All traders have to face fear. We cannot get rid of fears in trading but it is the traders’ mindset that differentiate the successful traders from the fearful ones. On the basis of fear, there are two kinds of traders. First who are controlled by their fears in trading that eventually make them to take decisions based on anxiety or emotions. These traders always feel panic in the market which destroy their decision-making ability. Second those traders who control their fear factor. They anticipate the fear and make decision based on high alertness, focus and concentration.
Fear is not our enemy if controlled properly. To become a profitable trader, it is always essential to use fears in trading in our favor to get the benefits rather than running away from the situation. We have to realize that how we utilize the different faces of fear that can impact our trading behavior in a positive or negative way. We cannot fully avoid the fear because it is always in our subconscious mind. But when we learned to control the fear it not only improves our trading behavior but also improves trading performance and profitability.
In the trading world, we categorize the fear into three types
1. Fear of losing a trade
2. Fear of missing an opportunity to have a profitable trade
3. Fear of being wrong
1. Fear of Losing a Trade
In trading, we win some and we lose some, it’s a part of the game. But when we lose over a certain period of time or when we lose a number of trades in a row, we become scared. As a consequence, we started using the tight stop losses so that we can lose minimum capital. But due to such tight stop losses we lose more trades instead of winning them because we do not give the price enough room to breathe or hover to finally run into our favor. Fear of losing in fact leads us to losing in reality. When traders enter into a trade, the price normally have some pull backs, which increase the panic in fearful traders and they exit the trader too early to avoid themselves from the heavy losses. But just like small but consistent profits can earn you a fortune, similarly, small but consistent losses can wipe out all of your trading capital. It is called death by thousand cuts. The basic principle is to avoid the large losses not the small ones. If you keep on cutting your small losses then eventually you will miss the large move that happened after pull over. So, it is vital to keep a balance and set your stop loss accordingly. Do not set it to tight that even small fluctuation can get you out of the good trade and do not set it too far that in case of loss, it can wipe out your account. Trade your stop loss on the basis of logic not fear. The anticipation of returning the price in your favor to minimize the loss or exiting the trade on breakeven can also lead to more losses in the trade.
If you are facing the fear of loss and that is stopping you from executing the trade then there is a chance that you are focusing on the results rather than your trading plan. This is turn will make you doubtful about your trading plan and strategies which further leads you away from entering into trade on the basis of your trading plan.
To avoid from this factor, either do trade on a demo account for some times or if you are trading with the real account then keep your position size small. Through this way, a small fluctuation in price will not make your fearful as it is not going to have any major impact on your trading capital. Trading small position size will help you to trade based on logic and your trading system rather than emotions or fear. Take the losses based on your trading system as cost of doing business or cost of experience or education in the real trading environment. Through this way, you will build the trust on your trading system and can enter and exit the trade without any hesitation and with full decisiveness.
2. Fear of Missing a Profitable Trading Opportunity
Among fears in trading, the fear of missing out an opportunity is dangerous because in this situation the trader can enter into trade at any price without thinking any downside effects. He is very optimistic about the trade and think as this trade is going to make him the fortune. He is very exited about it and think that it has no downside potential. At the end, when the trade is not working as he expected, he has to suffer a loss that may lead to revenge trading as well. If you want to get profitable in trading then you have to eliminate the excitements and emotions from the trading setup and purely trade on the basis of set rules. Fear of missing out an opportunity leads the trader toward over trading that should be strictly avoided. Wait for the right opportunity to come based on your trading system. Have patience and self-control otherwise you will harm your capital and trading career. It is not about the quantity of trades that matters but quality of trades matters. You should only focus on the best setups and ignore the rest ones. Do not afraid of trading too little but instead be afraid of trading too much. Opportunities will come and go, if you lose one there will be another in the corner. After all losing an opportunity is better than losing the capital.
3. Fear of Being Wrong
The traders who focus on being right every time than making money are the egoist one in the market. Market do not care, who you are, where you come from, are you excited or angry, are you scientist or mathematicians. It has its own working and market is always right. No person can win all the trades and be right every time he enters into the trades. Use the trading career for making money not satisfying your ego. To prove oneself right, traders may exit the profitable trade too early or wait for the losing trade to exit on breakeven. In the first case, he may miss the huge profit and in the second case he may has to suffer huge losses because his ego does not allow him to exit the trade on a loss when it was small and bearable. Exiting a trade on a loss damages the ego traders’ self-image and hurt their perfection.
Trading is based on probabilities and there will be profits as well as loses in the market. embrace the loses whole heartedly and consider is as cost of doing business. It does not mean that you are wrong. The ultimate goal is to be positive on the longer run. You cannot be profitable on a daily or hourly basis. Learn from your mistakes instead denying them and build a constructive plan for trading.
Controlling Your Fears in Trading
When you make your trading plan, make sure that all of your emotions along with fears in trading are considered. As a trader, it is your job to control all kind of emotions in trading and trade based on logic and as per trading plan. Learn from your mistakes and develop self-confidence on your trading setup and self-control on your trading emotions. It is ok to lose some and win some if the final result is income.
Profitable traders not only overcome their internal fears but also use them to develop the more precise trading system. They don’t allow their fears to become the destructive forces, instead they use them in a constructive manner to be more focused and concentrated in the execution of trades. s