The 3 Fears in Trading

There are 3 basic fears in trading that keep traders from getting to where they want to go, from reaching their trading goals.

1) The Fear of Loss

No one like to lose but we can’t fear it. When you are focused on losing you will only create that result on some level either consciously or subconsciously. Whatever you focus on becomes your reality and if you focus on losses it’s going to be tough to become a winning trader. Henry Ford said “If you think can or you think you can’t……YOU’RE RIGHT!” If you go in to trading with the “Fear of loss” you have the mindset that what you are doing is not going to work. Remember we trade on probabilities, so we know right up front we are not going to win on every trade. We will have losses. Our methods define for us what is a reasonable expectation of winning and of losing and our money management will guide us in making sure we end up green for the day, week, or month.

What are the signs of Fear of Loss?

Passing on valid setups is the number one sign. We have all done this. A perfectly good setup appears and we talk ourselves right out of it if we ever had any intention of taking it. Going a little deeper, it will show up as late entries, bad fills, or placing your orders just outside the possibility of being filled (we have all done this). You get a sigh of relief after the moment of entry passes and the trade moves in the desired direction. Whew! Glad that was over and I did not have to click the mouse. We have all felt this before too. These are tell tale signs of fear of loss.

2) Fear of Missing a Move

This is a big one. It is probably responsible for more losses than anything else. I am not sure what is worse, taking a trade and being stopped out or missing a move that seems to go forever. We seem to always miss the 10 point moves and get those one or 2 point moves no problem. Fear of missing move fuels impatience, it fuels impulse trading. Impulse trading is taking trades outside your defined method. Fear of missing a move will get you to do things you never thought possible, after you are stopped out. When that happens blinding clarity takes over and you can’t believe what you just did. That’s when the reality sets in that you just broke all your rules and paid for it. All of this because you did not make it “OK” to miss a move. If you miss one trade, another will come along. There isn’t just one trade per day but we somehow adopt that mindset that it’s THIS trade or we have missed the day.

What are the signs of fear of missing a move?

Early on entry. You get too aggressive on your entry and almost always take heat on your positions. Seemingly always underwater the moment you click the mouse. Chasing the market. Almost as bad because both will take heat most of the time. Just you as soon as you click the mouse, ┬áthe market pulls back. You thought it was going to keep on going, but it did not and once again, major heat on your position. Impatience and lack of discipline are also signs of “Fear of missing a move”. You just can’t wait. You can’t help yourself. You have to click that mouse because it’s do or die now or never. I can tell you first hand, this does not work.

3) Fear of being wrong

We are taught from an early age, especially in school, that it’s not OK to be wrong. Being right is rewarded. Being right gets the “prize”. Being right gets the good grades. Being right makes everyone proud. The only problem is….in trading…there is no right or wrong. There is only “Works”, or “Doesn’t Work”. Trading is a gray area. It’s about navigating a sea of uncertainty and also remembering it’s a game or probabilities. Right and wrong have no place in trading.

How do you know if you have a fear of being wrong?. Here’s the acid test. If you are trading on a simulator and you still don’t take the trade, you have a fear of being wrong. On sim you can’t lose a dime, there’s no risk, but still you don’t take the trades. That is the classic sign. If you suffer from this there’s also a high probability that you are a perfectionist. Another trait which has no place in trading. This one needs to be dealt with and quickly otherwise you will not last long trading. Fear of being wrong and having to be right (the perfectionist) will cripple your trading and you will be paralyzed with this fear because you will never know if this trade, right now, is going to be a winner.

What can you do?

Most of us have all 3 fears at any given time. No one likes to be wrong. No one likes to lose. And no one likes to miss a big move. What we have to do is replace that fear with trust in our methods and our ability to follow our rules. Rules help to mitigate our fears. Spending time going over charts for an hour or so a few times per week and creating our own statistical data base based on your methods. Seeing what your win % is. Seeing how far your average trade goes. Seeing how much heat a position takes on average over the course of say 50 trades. This is how you build trust. With trust comes confidence. With confidence the fears will begin to subside.

When the next trade comes up, say to yourself “I have 80% winners, each trade goes at least 2 points on average, and we take about 3 ticks heat on most positions before going to profits”…..then just take the trade and the fear will melt away.

Good Trading……JC