Fear plays a significant role in trading, whether you're aware of it or not. Fear determines whether you win or lose. Therefore, it's important for your future success to be able to manage your fear. To be able to work with it, it's important to know what different fears exist. Once we've identified them, we can work with them to achieve the following goal: trading without fear.
Why it's important to be aware of fears
If you understand how fears determine and influence your current trading, you'll also be able to guess what extent a change in this area could bring. Our long experience in this area shows that the factor of fear is neglected in numerous instances. But it's precisely in this area that a good deal of fail in their process because they don't give it enough attention. If you delve more into the psychology of trading, you'll quickly realize that almost every decision in trading can be explained or justified in some way by fear.
What fears exist in trading?
1. Fear of being wrong
This fear is particularly common among people who are too perfectionist. They add 100 indicators to the chart to get the perfect entry point. The entry never comes. The fear of being wrong determines the approach. Here too, traders' false expectations are the reason. Trading is never perfect. It's exclusively about probabilities that are never perfect and never 100% correct. It's exclusively about positive expectations over a larger number of repetitions. If you can't overcome this problem, trading isn't for you. Accept that you will lose. Think in probabilities.
Furthermore, this isn't about your ego. You're not better if you win a trade. You're not worse if you lose a trade. The following idea helps: as technical traders, we have a measurable niche. This means that we operate successfully over a larger number of trades. These technical patterns mean that we depend on others. Do you buy the dip in an uptrend? Now you depend on others to do the same. This means that you're always dependent on larger and stronger market participants who consciously move the markets.
Do you still feel so important? If we really understand that anything can happen at any time because someone in another part of the world presses a button, we can remove our ego from the equation. If this signal doesn't work over 20 trades, you still don't have a niche.
2. Fear of losing
How many times have you had an idea for a trade that you then discarded? Later you realize that it would have worked wonderfully. You're annoyed. We all know this feeling.
So, why do we have the fear of being wrong in the first place? The answer is relatively simple: you expect too much from a trade. Having a niche in the market means that you're successful over a series of trades. It doesn't mean that you win the next trade for sure! This is a fundamental difference that distinguishes beginners and successful traders. It's always about probabilities.
Imagine that you bet on something in a casino and have a certain probability. You don't expect anything from this one bet! It's luck whether this result belongs to the winners or losers. You must therefore understand 100% that you can't expect anything from a trade, and aren't allowed to expect anything. You can only expect something if you execute this trade exactly 10–20 times. So if you really believe this, why should you still have the fear of being wrong? There's no reason. If you still don't have a niche at this point or don't even know what a niche is, then you haven't done the necessary work yet. You need to learn all the necessary skills first.
3. Fear of missing out (FOMO)
The markets are like a big fair. Fun invitations to win wave everywhere. We have, as rarely in life, the opportunity to participate in almost all opportunities. A simple mouse click, and we're part of an enticing offer. The more irrational we become when such an opportunity arises in the stock market. We absolutely want to be part of the next big thing and not miss it (again). Does this situation sound familiar to you? If so, that was the fear of missing out. In English, this fear is also called fear of missing out (abbreviated: FOMO).
Therefore, you should definitely have a trading plan. It should state what you're allowed to trade when and how. You must have determined these variables beforehand in backtesting. It doesn't make sense to trade something that you don't yet know is really successful over a larger number of trades. Anything else you do would be just gambling. Successful traders know their probabilities for each trade. Yes, even then, they don't know if this trade will work. Therefore, they use risk management to be really successful in the long term. Trade only your niche! Of course, you have it in your power to work on further niches and test your ideas.
4. Fear of a winner turning into a loser
This fear is the reason why most unsuccessful traders have large losses and small winners. They're in the trade and feel the fear of losing money. Instead of getting stopped out, they hope for a turnaround and hold on to their losers. Now they're finally in a trade that's positive for them (winner trade) and have the opportunity to trail the stop loss to maximize the profit. But since they just lost and now fear that the same thing will happen again, they take the small profit and miss the opportunity to really recover the loss.
One thing is important here: your trading plan. Your trading plan should state exactly when, how, and where you realize profits. If you follow your plan, you're doing everything right. Of course, there can always be gaps in the plan, where some situations just haven't occurred yet and therefore aren't in the plan. That, of course, makes things difficult in the situation, as there are simply factual problems. But that's exactly why you should know how to solve such problems yourself, how to define rules yourself, and follow them. Most adaptive systems allow this. You only have a problem if you're trading a fixed system that you bought from someone and are just following. There, you usually don't have the option to adjust something like that. That's why you should avoid this mistake right from the start and stay away from these fixed systems and choose an adaptive system instead.
What you should know about fears in trading now
In summary, fears play a significant role in trading. Everyone who has ever traded will have encountered each of these four fears presented. That's why it's all the more important to keep these fears in check, to work with them - and not against them. You'll never be able to set aside these fears completely. Therefore, it's important to be able to identify them at that moment and know how they affect us.
A trading plan that includes all conceivable situations at best can help us deal better with fears in trading. But even the best trading plan can have gaps. Therefore, we can't avoid never completely turning off our minds and having them ready as a backup.