Overcoming Fear

Apr 27, 2009: 10:54 PM CST

While some traders are more likely to fall victim to greed (“How much could I make?!”), others have experienced loss in the market to the point where all they can see is the fear and anxiety (“How much could I lose?” or “How much could the market take away from me?”).

Let’s look at some resources to help us cope with these fears.

I recommend beginning with Price Headley’s article “The Four Fears of Trading” which lists and explains each type of fear – it’s more than just being afraid to lose money.  Headley lists the fears as the following:

  1. Fear of Losing Money
  2. Fear of Missing Out (on a Move)
  3. Fear of Letting a Profit Turn into a Loss
  4. Fear of Being Wrong (or not being right)

Furthermore, I compiled a page of helpful resources and articles on the Blogsite that lists additional resources from various authors.

When we’re in a trade that we expect to be right and make money, but the price begins moving against us, we quickly feel the fear or anxiety.  We might have a stop-loss placed, but as price heads to that level, we may feel intense anxiety.  Worse, if we don’t have a stop-loss, we may develop the “Deer in the Headlights” syndrome where we freeze up, unable to take action as price moves quickly against us and the loss increases.

However, fear goes beyond “Losing Money.”  It can cause us to jump into a price move, ‘afraid’ that we’re missing out on the move.  It can also cause us to exit a trade far too early (before it hits our profit target) under the “fear” of leaving money on the table (or specifically, “Letting a profit turn into a loss”).  To overcome it, we’ll hit the exit button on a trade that is showing a small profit when if we had more confidence and executed our plan, we would have gained a larger profit.

When we feel the fear, we might take sudden steps to overcome it, whether that results in jumping out of, or into a trade.  It’s critical not to let the fear lead to unhealthy behaviors, habits, or harmful coping mechanisms such as alcohol abuse.

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