The emotions of fear and greed have driven the markets since the very concept of a marketplace was conceived. But these emotions do not have to have an adverse effect on our trading performance, if we know how to deal with them.
In this article I shall discuss ways to help you will overcome fear in trading so that you can let go and transform your trading into a peaceful activity- once and for all.
Remove your emotional attachment to money and the result of your trade
Rationalise. Some strategies win some of the time, others most of the time…but no single strategy can win the whole time. Accept this. But if you are trading with positive reward to risk (3:1) then there’s every reason you should be at peace with the world. After all, what is the worst possible thing that can happen if you lose? You forfeit 1% of your account’s value. But if, on the flip side, your trade hits target then you stand to gain a lot more than is at stake.
Celebrate staying out as an opportunity to preserve your capital
Many traders – particularly market newcomers – fret and get anxious if they are not in the market and “in on the action” and therefore not making money. Typically they will therefore place a trade out of boredom, frustration or even anger in the hope of making some money – anything to be “in the game”. Except, instead they lose money because they have unwittingly taken a sub-standard setup or, indeed, a setup that doesn’t even exist!
A simple solution to this paradigm is to reframe staying out of the market as a great opportunity to preserve capital. If you have not seen a set-up that looks obvious, then it probably does not exist!
Crippled by the fear of failure
Face it, nobody likes losing. Not only is losing to the markets representative of a financial hit but also an emotional one too. Sound familiar? Have you ever found yourself staying out of the market even though you know, deep down, that the trade set-up actually meets your strategy’s rules for entry?
It may be that you’ve endured a few losses and you just can’t handle the pain of taking one more. It may even by that, on the flipside, you’ve had a great flurry of winning trades and you just do not want this party to end! So you avoid trading a picture perfect set-up in case it is a loss…even though you know that it does, in fact, meet the rules.
Remember that ignoring trade set-ups which tick all the boxes is self-sabotage. You will have taken yourself out of your strategy’s flow of opportunity. After all, any strategy’s overall success is determined from the net sum of all trades you place. But you do have to be in it to win it!
If you trade a profitable rule-based strategy with a positive reward/risk profile and keep the risk small for every trade you place, there really isn’t much that much can go wrong. You keep trading peaceful and remain at ease, safe in the knowledge that you have an edge which is well and truly steeped in your favour. Having an awareness of how to deal with psychological pitfalls along the way will stand you head-and-shoulders above most.