If we are looking at things from an evolutionary point, the instinctive response from fear comes from way back then, resulting in either a ‘fight or flight’ response. We all know the feeling. Our adrenal glands secrete the hormone adrenalin, causing our heartbeat and breathing to increase, preparing us to overcome the potential ‘dangerous’ situation we may be in. In those situations the emotional state of fear is our best friend. In the Forex Market fear might lead to completely different outcome.
Fear is an emotion induced by a perceived threat which causes entities to quickly pull far away from it and usually hide. It is a basic survival mechanism occurring in response to a specific stimulus, such as pain or the threat of danger. In short, fear is the ability to recognize danger leading to an urge to confront it or flee from it (also known as the fight-or-flight response) but in extreme cases of fear (horror and terror) a freeze or paralysis response is possible.As we all know, our best friend can sometimes become our worst enemy. Fear is not always our best friend when it comes to trading. Successful traders are always in control of their emotions, allowing them to keep fear at bay. Others might allow themselves to be controlled by fear without even knowing it, causing anxiety and indecision to ruin their trading potential. Executing, holding and exiting trades become a complete nightmare! Successful traders take advantage of the adrenalin rush, using the increase concentration and awareness when entering trades. Unfortunately the inexperienced trader lets the adrenalin rush get the best him, leading to stupid mistakes caused by impaired judgement.
In this article we will discuss how successful traders make fear their ally, harnessing it to reap the benefits it has to offer. We need understand how ‘fear’ can influence our trading behavior in a positive or negative way. Fear cannot always be completely avoided, but when controlled, it can make a huge difference in your overall trading performance.
FEAR IN THE FOREX MARKET* Fear of missing trading opportunities
* Fear of making wrong choices
* Fear of possible loss
FEAR OF MISSING TRADING OPPORTUNITIESFor the majority of traders this is almost just as bad or in some cases worse than losing a trade! This also refers to the lack of patience and discipline which is covered in the series of articles titled Habits of Successful Forex Traders. This lack of patience and discipline is extremely dangerous and can contribute to fear of possible loss. Due to the above mentioned factor traders’ move or even fail use a stop loss so as to keep themselves in a trade because they “know its about to go”. Just the thought of missing out on a potential trade causes fear to kick in, leading to rushed and impaired trading decisions. What they do not realize is this leads to an even bigger loss of capital as an end result.
How can your, at least in part eliminate some fear? The bottom line is you have to have a plan. In order to have a trade plan you must first have a trading strategy you feel comfortable with. Unfortunately most traders just strategy to strategy never giving any one system a fair chance. To reduce fear first find and learn a trading strategy that you believe in. Second develop a trading plan you can stick to! Following these two tips will benefit you greatly when it comes to managing your fear of missing trades.
FEAR OF MAKING WRONG CHOICESThe fear of making the wrong choices is closely correlated with the fear of loss. A wrong trading decision normally leads to a loss. Right? In theory that does not always have to be the case. Every trader should have a trading plan set out. I cannot stress that enough! When I refer to a trading plan I’m talking about a physical, as well as emotional plan.
Making the wrong trading choices give you as a trader the opportunity to learn and improve from mistakes. We cannot always be right, and we will never be perfect. In fact even when you do everything according to plan you will still have losing trades. As a trader you need to accept that fact and learn to see the positive from it. Sometimes wrong choices can lead to profits. Do you feel angry at yourself when that happens? I’m sure you don’t.
You should not base success on winning trades only, rather on the learning process and progress in the right direction. So don’t fear making the wrong decision as you will never eliminate them completely. Rather be resolved to learn from each mistaken and become a better trader because of it. Remember, success as a trader is just as much mental as it is anything else.
FEAR OF POSSIBLE LOSSA successful trader treats trading as a business. Just like any other business, losses are a part of the game. The fear of loss is arguably the biggest culprit when it comes to fear in the markets. Something that we need to understand and be aware of: “The biggest and most successful hedge funds sometimes have quarterly losses.” Yes you read correct. If the best and brightest financial minds in the world have losses, should we really fear suffering losses?
Losses leave us feeling like failures. Our ego feels bruised, and no one likes being wrong. We are only human and it is in our nature to feel like that. Accepting the loss and learning from it is what makes the difference. The sooner you accept that no matter what, there will be losses in trading, the sooner you will learn to deal with it and not allow it to affect your trading.
Like any other fear we have discussed, the fear of losing a trade can be minimized by having a clear entry criteria. With a clear strategy to follow you can put your trust in the strategy and know that sticking to the rules over the course of time results in success. If you lack a clear trade plan then you shouldn’t wonder why you always question your decision to enter a trade. Consistency is the key to success in this market, and you simply cannot be consistent without solid rules for every situation you might face.
THE FINAL WORDAs explained in previous articles, emotions like fear and greed can make or break a trader. Knowing yourself and how knowing how you as a trader deal with these emotions is what makes the difference. A good trader never makes the same mistakes over and over! They learn from it, and if necessary make the change. If you have been losing for months or years its time to make a change. You cannot expect to repeat the same actions and get different results!
A positive mind set has positive results. Believe in yourself and avoid letting fear control your trading decisions. Although fear will always be present, it does not have to be a negative thing when you are in control of it. You can begin controlling your fear with a solid trade plan based on a time tested trading strategy. Check out our advanced bank trading course and start learning to track the one thing that actually matters, the banks! The bottom line is you either understand how the banks manipulate the market or you will be the victim of it.
