FEARS IN TRADING
1. Fear of Loss:
Some traders do not accept in
trading, as in many other professions that there is an element of risk, i.e. risk
of losing your job etc.
This fear of losing before you even
enter a trade puts the trader on the back foot and consumes their thoughts with
negativity. By having this mindset you have already increased your chance of
failure, and will trade with a lack of confidence and certainty. As a result
you may exit trades too quickly/soon, or not enter trades at all, due to the
fear of losing.
Even once you have entered a trade, after
mustering enough confidence, you are likely to have entered at a stage that is
too late. As in trading, speed of execution/entry is a big part of trading
successfully.
2. Fear of Missing Out:
This fear is the opposite of the
first fear, in that the trader feels compelled to trade whether he has a high
conviction on trade or not, but purely on the basis of not wanting to miss out.
These types of trades lead to entering trades or chasing trades purely to get
in, with little thought or consideration given to whether the trade is any good
or not, and the likelihood is the trade is one with a low probability of
success. As, the factors encouraging you to enter the trade are not based on
calculated decisions or market conditions, but because of your fear of missing
out.
As a result, these types of trades
can cause you to overtrade, and enter poor trades, which can be highly
detrimental to your trading account and your longevity as a trader.
3. Fear of Letting a Profit Turn into
a Loss:
This fear is one that will affect
your profitability in each trade, as it will cause you to doubt the true
potential of your trade. By worrying whether your profit will turn into a loss
cause, you focus on the negative factors in the trade, and do not trust the
risk parameters you have set previously. Having this doubt every time you trade
will limit the amount of profit you take out of a trade.
In turn this could lead to you not
taking out any profits from good trades, but still getting caught on the bad
trades, and as a result being detrimental to your trading account. Therefore, trusting
the risk parameters you set yourself, before you enter trades and looking at
the market conditions before/during and on exiting trades should be your main focus,
not the fear of turning profits into losses.
4.
Fear of Being Wrong:
This fear may not seem like a major
concern, but in time can lead to negatively impacting your trades and trade
profitability. As by expecting that every trade or trading period will be a
winner, may lead to a false sense of security and could lead to entering trades
purely because you think you cannot be wrong, and not basing it on the true
considerations you should look at before entering a trade.
The fear of not being wrong leads to
a sense of perfectionism, which in turn could lead to a false sense of security
and assurity, and finally leads to the trader believing they are right and the
market is wrong. This is one of the worst mistakes a trader can make, as the
market is always right! It is the trader’s job to be flexible and exploit the
market moves, whatever the direction.
In Conclusion:
What we have seen is that ‘Fear’ can
be the route to a traders failure, and by just being aware of the potential
impacts, will prepare you to successfully trade the markets. The fear factor
when looked at with the above factors can hinder a trader’s ability, but at the
same time it can be a great motivator. Due to the fact that it makes us human, and
can lead to us exiting bad trades and avoiding volatile and uncertain market
conditions at the same time.Therefore, the key is to be aware of
the pitfalls of trading with fear, but be conscious of the fact that it can
also be your saviour.
by ERKUT OZER
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