We all experience the natural human emotion of fear. Yet, fear comes in many forms and is evoked by numerous external and internal factors. As a trader, it is crucial to be able to differentiate between what type of fear you are feeling and why you are feeling that fear.
Finding out what fears you suffer from most and the root cause of those fears will be a massive aid in maneuvering the emotional rollercoaster the markets often are.
Traders suffer from a lot of different types of fears and often over-generalize them into one word: greed. Traders tend to attribute all forms of fear to greed. Yet there are far more factors that evoke fear in traders than just greed. Status, trust, confidence, and pride are only some of the possible reasons to fear a poor trading performance.
We’re social animals who are in constant need of acceptance from our community, and many of our fears arise therefrom. Our greed is likely less at cause for our fears than is the need for us not to appear as failures to our peers, remember this when reflecting upon the root cause of your fears.
The four different trading fears are fear of missing out, fear of losing money, fear of being wrong, and fear of leaving money on the table. Let's get into how to tackle them all.
Fear of missing out (FOMO) is the most well-known fear that traders suffer from. FOMO is the idea that you shouldn’t miss any opportunities in the market. A common manifestation of this fear may be that you see the price break out at a certain point and instantly make an entry, even though this entry does not at all abide by your trading plan.
Something to remind yourself of when experiencing FOMO is the goal of trading. Trading isn’t and should never be thought of as a get-rich-quick scheme. In fact, it is quite the opposite, a long laborious process of working hard in order to become sustainably profitable over time. This process can often take years, realize and remember this in order not to blow up your account on constant poor and rushed entries.
Finally, realize that there will always be more opportunities. Don’t think you have to take this trade now because it’s a ‘once-in-a-lifetime opportunity’, more than often it is not. The market isn’t going anywhere, it was around before you were born and will be here long after you pass.
Symptoms of this fear include: A incessant want to enter positions, a feeling of self-loathing when not having entered a trade that sprang up, or the arising of self-doubt when other traders seem to be more profitable.
As your daily PNL goes down, you begin to feel the losses and believe have negative self-talk. Losing isn’t fun, and it is the antithesis of the reason we are trading in the first place. You may often see other traders celebrate their wins while you sit sulking in your losses, a central cause for self-doubt. Fear of losing is common in such a competitive environment.
Engraining within yourself that losing is part of the game and even the best traders do it all the time (although they tend not to show it) is the solution to this fear.
Often you also do not want to lose money due to the social repercussions this can have. Your family and loved ones may already be doubting the legitimacy of trading as a career, so losing money would only confirm their ideas and make you a failure. The idea of letting both yourself and your family down is often an extensive cause for the fear of losing money.
Symptoms of this fear include: Placing stops too close to entry price, constantly adjusting your trade management plan while in a position, or not being able to take your eyes off the price ticker,
You may place a few bad trades in a row and start to believe there must be something fundamentally flawed with you or your trading plan. These constant losses can be a big blow to your self-esteem. Just like all other humans, you don’t want to be wrong and make mistakes.
Yet, you have to realize that being wrong and making mistakes is part of the job, even the best traders are wrong all the time. You’re going to be wrong A LOT, and you’re going to make A LOT of mistakes, the key is in learning to make mistakes well, and learn from them efficiently. Embrace being wrong, evaluate why you were wrong, and move on to the next opportunity. Constantly attempting to not make mistakes will only increase the chances you make mistakes by not executing trades according to your trading plan.
We are all wrong about things all the time, all throughout life. Realize you are often wrong and admit to your flawed judgment in any subject that may arise. Practice admitting you are wrong and evaluating why you were wrong in order to overcome this fear.
Symptoms of this fear include Reluctance to place a trade even though it abides by your trading plan, waiting out a move even though you believe it’s going to go in your direction, or thoughts like “Of course it’s going to move without me.
This fear stems from the idea of perfection. You are constantly on the lookout for your trades not to retrace back into less profitable positions or maybe even scared of having all your profits be taken from you. This may cause you to take profits early and not follow your trading plan. You think “any amount of profit is better than a loss”. And although a loss does often bother traders more than a small profit, seeing a trade you exited run another 20% also imapcts your mental game.
Sometimes you can’t squeeze the maximum profits out of a trade. Leaving a trade early or late shouldn’t be something to be angry about. Just reflect on why you exited the trade where you did and see how your exit strategy can be better executed in the future. Any profit is indeed often better than a loss, but make sure you polish up your exit strategy to get the most out of your trades. By having a good exit strategy it will be easy to avoid the fear of leaving money on the table in the future.
Symptoms of this fear include: Constantly tracing stops too close to price and being stopped out, profit-taking anxiety when a position is profitable, or feelings of regret when you didn’t take profit at the peak.
To avoid these fears more consistently there are a few key principles you will want to remember:
A question to continuously ask yourself regarding all of these fears is where they really stem from. You are likely more afraid of having to admit your losses to friends and family who already doubt the legitimacy of trading than of actually losing the cash you are using.
Remember that no trader is perfect, the idea that the best traders are always right is something you have to get out of your head. If you want to know more about what it's like being a trader, here is an article describing everything you have to know about being a trader.
In conclusion, overcoming these fears and finding their root causes is a long and self-exposing process. None of us will likely ever be completely fearless, we will all have bouts of fearful impulses, but knowing what you suffer from and attempting to manage it puts you one step ahead of your former self.
When finding out which fears you most suffer from, attempt to expose the root cause of the fear, it often is not merely a symptom of greed. Humans are complex beings that have many stimuli that influence our actions. As a trader understanding what the biggest emotion-provoking factors are for you is a determining factor for your trading success.