Fear is something that the human mind senses when there is a potential danger in an environment. In today’s article, we will understand how we can overcome the fear that arises due to various reasons when we trade.
Whenever there is uncertainty, there is fear. For example, in trading, there is always uncertainty about what can happen next in the market, so whenever there is uncertainty, fear arises, and due to that fear, traders may not be able to perform efficiently in the market.
As we discussed earlier, trading is a game of uncertainty, and when there is uncertainty, there is fear. The biggest fear traders face while trading is the fear of losing money, and because of fear, many new traders commit a lot of mistakes. In my opinion, the entire trading business is based on two human emotions, and those are greed & fear.
Without fear & greed, there is no transaction between two traders. So, whenever you trade, there are always different types of fears arising in your mind, like what if my stop-loss gets hit or what if the market goes sideways and so on…
The wise question that you can ask yourself here is how to control those fears rather than asking how to stop getting fearful while trading because fear is a natural human emotion that will surely arise when there is uncertainty in an environment. Trading is a type of business where you face uncertainty every second, so you must learn to control your fears to trade effectively in the market.
The most effective way to control fear while trading is risk management, and there is no better way to control your fear than managing your risk of capital. Fear arises due to uncertainty, and when you eliminate uncertainty by pre-defining your losses, trading becomes much easier. At every point in time, you should know how much risk you are taking to become comfortable psychologically.
Also, in a winning trade, traders face different fears when they try to hold their winning trades for a long time. When you hold your winning trades, your mind constantly tells you to book profit immediately due to fear of losing profit. Here one important point to understand is one of the basic principles of profitable trading is to hold your winning trades long and cut down your losses early. So, if you are cutting your losses short and not holding your winning trades properly, then, in that case, on a monthly basis, you may end up at break-even or at some profit instead of becoming a profitable trader.
So, holding winning trades long is the most important part of trading, and in order to avoid fear arising while holding your winning trade, always have an exit strategy to secure your profits. That exit strategy can be anything like closing below 9 EMA or 18 EMA (If you have taken a long position) or anything based on your comfort and analysis. By having a trailing stop-loss or exit strategy, you always secure your profits and, at the same time, you don’t limit your profit potential due to fear of losing your profits.
Generally, profitable traders are good risk managers first. But some risks in the trading business can’t be avoided. For example, if there is any technical issue at the exchange, then, in that case, you can’t do anything. Also, one more example of such a type of risk is brokers’ failure.
If you are trading and your broker gets some technical difficulties while executing your orders, then in that case also, if you have any backup account through which you can take counter positions, then it’s well & good; otherwise, you can’t do much about it. Generally, these types of incidents don’t occur often, but there is always a possibility that can not be denied, and when there is a risk, there is fear!
So, these are the different types of fears traders face while trading. One major key takeaway from this article would be fear is a natural emotion that arises due to uncertainty or risk but how well you eliminate fear while managing your risk defines your profitability.
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