Fear in trading

Fear is a primary natural emotion that we have when faced with risky or threatening situations; it is a defence mechanism that our brain has to warn us of the danger. Fear cannot be lost, but it can be faced and replaced by another feeling, ideally by security and confidence (without falling into overconfidence, which can also lead to mistakes). This is how to overcome the fear of investing in the stock market. Successful traders approach their results in an emotionally neutral way. Results should not affect you, whether they are positive or negative.

Many people find it very difficult to move from a demo account to a live account, because when their money is at stake they may suffer from anxiety, fear and distress. That is why to overcome the fear of trading in real, we must educate ourselves, train ourselves, experience many operations in the demo and have a system of rules. Precisely because in the markets there are no rules. Nobody will tell you (ideally) when to buy, when to sell, where to put your money, which company to trade with. So, without clear self-imposed rules, in a real market fear is usually the first to appear. And it can lead to serious mistakes.

If you practice on demo, when you move to your real account, remember everything you have learned and trust yourself and your system (entry times, exit times, stops, targets, etc). Also always keep learning, although being trained will not eliminate fear, it will minimise it and you will feel more confident. Little by little the fear will disappear and when the fear disappears, so do the possibilities of making mistakes.

4 Fears of trading

1) Fear of winning

Although it may seem illogical, many people have a “fear of winning”. It is very common when they see opportunities that were not taken advantage of, then they reproach why they did not enter into that operation, that it was clear and was not taken advantage of, that when it will happen again, etc. Fear is not a good advisor, and the fear of winning makes a trader doubt himself, therefore it is necessary to identify it every time it appears in order to be able to control it. Otherwise, it will always be a limiting factor in our life as traders.

2) Fear of triggering the entry order

The fear of entering a trade at the time of triggering the order is very common and often has to do with the size of the trade and therefore the money at risk.

Many aspire to make between $500 to $1,000 per day. The question is whether we are psychologically prepared for something like that, because to earn that amount per day you have to invest a lot of money, and therefore be prepared to lose a lot. If you know how much money you are putting in, you know what you stand to lose, and if that money is a large figure or too large for you, it can paralyse your mind from pulling the trigger and entering that trade.

The size of the trade not only has to be proportional to your capital, it also has to be proportional to your ability to manage your nerves and fear. As well as being part of money management, it is also related to each person’s ability to withstand losses. You should increase your risk per trade little by little, for example you can start with 1, 2 or less than 10 option contracts, then 15 to 20, etc. Or in forex, you can start with micro-lots, then mini-lots and finally lots.

By mastering this, the fear in trading will be drastically reduced and you will be able to enter each trade with much more peace of mind.

Finally, it is important to be realistic. We have said that many aspire to earn between u$s500 to u$s1.000 daily as an example, and that is not something realistic, not in a literal sense of money that of course can be achieved, but in the way of thinking: thinking in terms of profits in terms of a fixed number, is not realistic and leads us to have false expectations about trading. We must think in terms of probabilities, because when we accept that we have no control over what will happen in the market, we are on the right track, because we will only care about what we can control: ourselves. This is why thinking about making $500 a day is unrealistic, because one day you may make $500 a day, another day you may make more, and other days less, and yet if you thought about probabilities you will have your peace of mind intact, and you will not be looking to fill that $500 a day. There will even be days when you will lose.

3) Fear of the unknown

We all have a fear of the unknown, it is in our nature, and in trading we never know what the price will do in the future. Therefore, we must always deal with the unknown in this profession and not knowing what will happen after entering is a very common fear, which sometimes paralyses many people and prevents them from entering the market as mentioned above. This is why it is so important to have a trading system with clear rules, because without a system you will be more afraid because you would be entering without any rules, randomly.