Overcoming Fear in Forex Trading
The Oxford Dictionary defines fear as “an unpleasant emotion caused by the anticipation of danger which leads to feelings of dread, anxiety and apprehension”. Fear is about the expectation that something detrimental could happen and constitutes a crucial physiological and cognitive mechanism functioning to aid our survival by causing us to either anticipate or avoid potentially dangerous situations.
To become a successful trader, all we need to fear our ally, to harness it and flow with it in order to reap the benefits such a survival mechanism has to offer. It is essential that, traders need to understand how the different facets of fear can influence trading behavior in a negative or positive manner. In fact, Fear is unavoidable and is processed partly on a subconscious level but when fully understood, then it can help you improve your trading performance.
Fear can be broken down into three different categories. Such as:
- Fear of Loss
- Fear of missing good trades
- Fear of being wrong
Fear of Loss
Trading is like any other business in that losses are a part of the business, but losing over and over again can lead to psychological scarring that can paralyze and fill the trader with dread when approaching the trading table. Mark Douglas explains this matter in his classic book “The Disciplined Trader”. Trades often pull-back after entry which causes the fearful trader to panic and exit with a small loss to prevent a larger loss. Usually, a series of small losing trades will eventually empty the account.
When you can trust yourself to execute your trading plan without exception and when you can enter and exit the market with decisiveness and without hesitation. It is the time then you can consider going live.
Fear of missing good trades
Fear of missing “good” trades can be dangerous because it will often cause the trader to join the market at any price. Even the excitement and euphoria can overrule the trading plan with little thought to potential downside risk. And this fear of missing out on trading opportunities is something you will have to eliminate if you want to become a successful trader. Because if you don’t then it will cause you to over-trade.
Fear of being wrong
Focusing on being right rather than making money comes from the trader’s ego. In fact, it is the ego that equates the trader’s net worth with their self-worth which leads to profits being taken too quickly or to exit at break-even. Investment or trading throws up many issues regarding one’s relationship to money. However, an internal conflict with making money or needing to be perfect can make it difficult to exit a trade at a loss because it damages your self-image of perfection. Even if you may have grown up feeling guilty about having money so you subconsciously find a way to give it back to the market. Typically, to avoid self-sabotage the ego has to stop protecting these versions of the self.
Understanding and controlling your fear in the market
Your trading plan must account for the emotions you are likely to experience while you are making your trades, particularly those related to fear or psychology. As a trader you must move from a fearful and apprehensive mindset to one of confidence. You to maintain a proper mindset which enables you to learn from your mistakes. Keep in mind that, you have to believe in your ability to make more money than your losses which will make it easier to continue to place trades after a string of losing positions.
And a successful forex trading is about overcoming the major fears you face as you trade, gaining confidence in your trading method and even more confidence in yourself. While the different manifestations of fear can be understood the trader is well-equipped to turn fear from a destructive force into one of our most vital assets when operating in the market