Fear – A Traders Greatest Enemy?

One of our regular subscribers James asked me to do a piece on fear and I’m happy to oblige due to James’s continued  feedback and support of this blog.  Thanks James.

Fear – A Traders Greatest Enemy?

Well is it? A Traders greatest enemy? If you find yourself nodding your head in agreement then congratulations, you are not alone.  All humans suffer from fear in many forms only traders tend to experience it more frequently and viscerally than most humans.  It’s nothing to be ashamed of, only to be aware of and prepared to work through as part of your journey toward trading mastery. 

Personally I’ve always felt that there was only one true emotion in Trading, namely Fear.  I always described Greed (the other oft mentioned emotion) as merely the ‘fear of missing out’.

What I wanted you the reader to gain from this article was 1) an understanding that fear is prevalent to everyone trading the markets. 2) an understanding of how it affects Traders and 3) what are some simple things you can do to help you over come your fears.

Firstly a definition of fear and for the purpose of this article I an happy to use a simple definition from T.Harv Ecker namely the  definition of fear is “the anticipation of pain”.

So how does Fear affect us as traders?  Simply put there are 3 “action blocks” to mission success:

• 1. Overanalysis (Analysis Paralysis) which leads to
• 2. Self-doubt (experienced as fear) which leads to
• 3. Hesitation (experienced as missed opportunity and then anger)

This  anger then leads us towards jumping blindly into the next opportunity that raises it head….and what do you know? That was probably a far worse set-up then the first one and we end up losing money on that trade which leaves us feeling even worse.  This is precisely how revenge trading occurs and is never pretty…or profitable.

So what can we do to help ourselves?

Firstly lets start with awareness. As Robin Scharma states “Awareness precedes choice precedes results.”  So if you remember we defined fear as “the anticipation of pain”.

Since anticipation is based in the future and the future only exists in our imagination, fear does not exist in reality. It only lives in our head!

 You and you alone create your fears and give them power. That also means you can take away their power.  However that means it will take some effort on your part.  I’m afraid there are no magic beans or potions I can sell you to give you the confidence to break your fears.  The only way to break your fear of something is go out and do it.  I will cover more on that in a future article.

One trading thing you can do is to have an immensly simple trade plan and then follow it till it’s ingrained in your consciousness.  The simpler the better. I’m a big fan of the KISS principle when it comes to trading  The less working parts you have to go wrong or to create analysis paralysis the better. Remember it is this analysis paralysis that create the self-doubt which you experience as fear.  You break that circle by having a simple well worked trade plan that you can execute flawlessly time and time again.

Along with a simple trade plan is a committment to trading within your risk parameters.  This is where nano or micro accounts come into their own.  You can trade your plan till it’s part of your consciousness without having to bet the farm.  If your losses are making you angry, there’s a good chance that you’re over leveraging yourself.  Give it a rest.  Trade small, learn from your trades and allow your confidence to build.

I hope this article has provided food for thought and if you take one thing away then perhaps you could look at your present trading plan.  Does it engender confidence or make it too easy to be fearful when trading the markets?  As always good luck and good trading.

Trade well

FXTrader Paul