Trading Fears – the Problem…
So you’ve got yourself some trading software, you’ve studied the markets and absorbed all the information you can find on the web.
You may even be aware of a couple of consistent behaviours in the markets…
But when you sit down to an afternoons racing you find you just keep throwing money at the wall!
Or even worse; you consistently make some money in the markets, but as soon as you increase stakes it goes to shit!
What’s that all about? Trading fears are the number one killer of profits for any trader at one point or another.
Like all great solutions, it starts with understanding the problem. I’ve spent huge amounts of time looking at various trading fears, and it always falls under four main headings. I’ll give you some background info and a few tips for straightening them thoughts out below:
Trading Fears: Missing Out
Missing out is probably the worst of all trading fears. It’s the one that trips people up time and again, especially starting out. The reason it’s the worst is because so many don’t even realise it’s a problem! I’ve found this problem is usually at its worst when you correctly predicted a price movement, didn’t open a position, and then it happened.
Every time a trend is formed thee is mixed opinion amongst those trading the market. As the move develops, those that were sceptical become converts due to the fear of missing out. The real key to big profits is to already be on before this happens.
That feeling of missing out often links in with greed, it’s just part of human nature unfortunately. But when you think about it, its a rather dangerous thing to be doing. In fact its the direct against the principles of what we’re trying to do!
By jumping on to a trade through fear of missing out is like saying, “I’ll take this position at any price”. Where’s the value in that?
Also, by taking that kind of attitude you’re pretty much blind-folding yourself against any potential liability. Again the exact opposite to what we’ve set out to do!
Don’t feel disheartened on reading this if it’s exactly what you do. It’s something everyone will have done at one time or another, myself included. It is something you can’t continue to ignore though (if you’re to succeed). Here’s a few bullets that should help keep you on the straight and narrow, keeping them on a post-it near by when trading is advisable…
- Be self-aware – You may want to find ways to monitor your own thoughts while in the markets. Jotting a quick line about each trade after its complete is something I’ve done before. It’s hard to ignore when your last few entries were ‘got over-excited and jumped on a trend late’ or ‘made a mistake as didn’t want to miss out’.
- Remember a missed opportunity cost nothing – Repeat it to yourself every time it happens if needs be! A missed opportunity is missed, it’s not a loss. You’d rather just miss out, right?
- Missing a predicted move is a good thing – Missing out on a move you actually predicted would happen is amongst the most painful feelings. Probably because you feel a bit stupid… but it’s also one of the most ridiculous feelings when you think about it. After all, you predicted the move would happen! So why the hell are you beating yourself up?!
Trading Fears: Losing
We’re all here to make money. So losing in general is always going to be a bit of a worry.
Before you get stuck into any market, you’ll need some kind of edge. Something that puts you ahead, a strategy. Everything happens for a reason so knowing them reasons is often the best place to start.
However, just about every strategy has some kind of downside. As I’ve said previously it’s not just a case of winning every time, losses are to be expected!
The fear of losing often results in hesitation to both enter and exit trades. The best way I know to overcome this fear is to have information, lots of it. If you’re extremely confident in your approach and understanding of the markets that horrible feeling slowly drifts away. Without the trading fears mentioned, trading becomes pretty much what you expected when you first come across it.
It’s all a matter of perception when it comes to losing money. If you view it as this painful experience that shouldn’t happen when in the markets, then that anxious feeling is never far away. That very feeling will cause you to make bad decisions.
Even the best traders make losses, the difference is they make far less. Why? because they look at it differently, try to program yourself to think like this…
- Losses should happen – They’re part of the game. No strategy can win every time, and if it does, it won’t last forever. Losses should be accepted and learnt from, rather than effect you and forgotten.
- Losses are an ‘expense’ – Looking at trading like its your business is something I’ve heard elsewhere. It’s a healthier way of looking at things, losses are just the expenses on route. You need them to function, you have to be in it to win it as it were.
- Losses happen to everyone – It’s easy to become infatuated with profits when reading around. To the point where most don’t even see the losses on the Pro’s results sheets. Next time you do, have a look for the losses to. It happens to everyone.
Article: Horse Racing Trading Strategies
Trading Fears: Making Wrong Decisions
From very young every one learns it’s not good to make a wrong decision. Sometimes it’s more disastrous than others, but for this reasoning we build up this bad feeling around ‘being wrong’. In trading it can really cloud judgement, which is less than ideal.
To make matters harder it’s fair to say; those interested in trading are often successful people.
I don’t necessarily just mean financially, but the type of people it attracts are ‘doers’. People who are actively looking for improvement and challenges. People who know what success tastes like, who have had experiences with it in the past.
To trade successfully you’ll be best off forgetting all that, something that’s not always easy to do. If you’re making the right decisions then this could be one of the trading fears that hits you hard. The harder you find it to accept mistakes, the harder trading becomes.
Remember, it’s part of the game.
The idea is to win more often than you lose, not to win all the time. While that may appear possible when looking at Pro’s results there is often a hidden story to each outcome. For example; I may manage a whole days racing without a loss in one race – but that doesn’t mean I didn’t lose ticks while trading that race, it’s just a case of making more than lost.
Keep these points in mind when tackling this fear…
- Remember nobody is perfect – Things change, sometimes when you have a trade open, all you can do is work around them. Even the pro’s suffer losses. I certainly do.
- Forget past successes – If you’ve been highly successful in other areas of life that’s great. You’ll probably have the determination it requires, but you need to forget about them and start from scratch.
- Remove targets – Goal setting is great, but by having no expectations and targets things often get easier. When starting out this is extremely important, if you don’t have a target profit then you can’t be upset when you’re not getting close to it. Look at the bigger picture, profits will accelerate when you’ve overcome your trading fears.
Trading Fears: Letting A Profit Turn Into A Loss
“let profits run and cut losses short” – Easier said than done. The reality is, most do the opposite. But it doesn’t take a rocket scientist to realise that won’t work.
So many feel the urge to lock in a profit, making sure they feel like a winner in the process. And of course can’t accept it when it goes against them, like a rabbit in the headlights… we’ve all been there. Until of course the financial pain becomes so great leave the trade, probably enhancing our fear of losing.
Much like the other trading fears mentioned the way around this fear is to do directly the opposite to human nature. Decide in advance when and why you will exit a trade. Exiting a trade because you got 5 ticks is simply not good enough. Just like exiting because you are in profit is not good enough.
Exiting a trade because the situation has changed or because the market is not behaving as expected is a far better reason. That’s the same for both a good or bad trade, sometimes a longer term trade will bounce against you at the start. Admittedly it experience is of great benefit in this area, but having a good logical idea why you’re getting out is most important.
If anything I’d urge you to exit bad trades early, but not profitable ones. Like I mentioned above, having some kind of edge you can trust will make things a hell of a lot easier.
Avoid letting profits turn into losses and remember…
- Exit for a logical reason – Not to make yourself ‘feel like a winner’. It’s only disappointing when the move carries on for another 10 ticks, leaving you feeling like you missed out.
- Decide in advance – Before the trade is even on, have an idea as to why you will exit. Not an emotional one.
- Get out of the headlights – This particular fear directly relates to swing trading in particular. Don’t get caught up in the emotion of having a trade open – like a rabbit in the headlights. Win or lose, keep an eye on the bigger picture.
Trading Fears: Final Thought…
Trading fears hit hard in paced markets. Horse racing and Tennis markets seem to blind-side new traders more than most. Purely because of the volatility and speed at which things develop.
The biggest tip I can give to anyone participating in the markets is to Monitor your feelings. This applies to all 4 trading fears.
Being extremely mindful of how you feel, and the potential fear that could present itself is half the battle. The majority of the time, doing that alone will put you in the position to avoid mistakes. It can be just as beneficial for your bank roll as winning.
Remembering that fear alone will warp your perception is important, when was the last time you made a good decision while in an irrational state?
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Hey Caan, great post. I would say that one is one of the most important of them all. In my first weeks trading, I developed quite a feeling for a market (ofcourse after reading your guide and going through vids) but the major problem was all those 4 fears as you described. It is easy to know what to do, but hell of a lot harder to actually do it. your mind can play some nasty tricks with you, making you feel like a total as***** looking back at what you did.
One thing I would add to this post;
Self awareness is ofcourse the key, but the thing that helped me most was recording my trading and analysing it the next morning. Only then I saw WTF was I doing. Seeing my mistakes as a video being played infront of me really opened my eyes;
– there were times where you simply think to yourself: “Dont you dare closing that one you scared **** xP”
Good post with lots of information to take on board. I was pleased with myself today. I opened a trade and the price went against me. I waited a minute or two for things to change but they didn’t. Then I could hear your comment about “staring into the headlights”. I decided to take a loss and start afresh in a better price range. I might have only made about £1.20 on the trade but I’m sure what I learnt from the situation is worth far more in the long term. Keep the posts coming Caan there really useful and helpful.
Excellent and honest post Caan, every new trader should add this blog post to their notes and re-read often.
A very helpful post Cann, looking forward to reading your trading guide
Something that’s helping me with Forex (exactly the same trading errors occur as pre race trading) is to rate each trade by what I learned from it, win or lose.
Some of my worst losses (nothing major as have my money & risk management in place) have scored really high on the learning barometer.
This helps the brain to see something positive from a loss. It’s made huge difference to my state of mind
Ed I think you may have forgotten the rest of your message!