4 Common Fears in Trading (And How You Can Overcome Them)

by Andrew McGuinness     Jul 16, 2019

Every trader, no matter how experienced or inexperienced, faces the same fears. Traders may get better at dealing with these fears and channeling them more positively, but getting rid of the fear for good? That’s something that no one can do.

The truth is, trading is a terrifying thing, and fear is a fundamental part of the profession. And this fear increases and decreases based on how much a trade is worth: the more weight on a certain trade, the more fear that trade will generate in response to certain parameters. Experience can help you understand your fears and control them, but even the most veteran of traders sometimes fall victim to emotionally-charged reactions, resulting in mistakes and errors that can cost them thousands.

Understanding the fears that come with trading is the first step towards conquering these fears. There is no better way to resist fear than to know that it is fear when it is happening. Here are the four most common fears in trading, and how you can overcome them:

1) The Fear of Profits Becoming Losses

Trading 101 teaches that we need to cut losses short and let profits run. However, some traders do almost the complete reverse: they pick up profits too quick and let losses run wild. This is because of a certain flaw in the psychology of anxious traders: when they see a trade starting to turn a profit, they know that all they have to do is snatch it up and they will feel like they have made a successful trade.

But the desire for “wins” is more important to these traders than the actual value of their win. They end up selling a profitable trade too soon, costing them much more money in what they could have had, had they waited and stood a little more resolute. It’s all about overcoming the anxiety: don’t let your desire for successful trades overcome the monetary gain from letting healthy trades continue to run.

2) “FOMO”

FOMO, or the fear of missing out, is as relevant in trading as it is in every other cultural trend. FOMO happens when a runaway boom seems to be out of control, and everyone with a dollar in their pocket is ready to climb on board, regardless of the price point. Let’s make this clear: following a trend isn’t automatically a bad choice.

However, doing it for the sake of FOMO is irresponsible trading. Investments should be placed in assets that you are knowledgeable about and that you can confidently say you understand. If FOMO is the only thing driving your trade, you are better off not making it.

3) The Fear of Mistakes

When making a trade, we often ask ourselves: is this a mistake? This can make us hesitant, and hesitation can lead to mistakes in our strategies. Instead of listening to our research and our confidence, we fail to pull the trigger because we fear that we have missed or overlooked something.

This is known as analysis paralysis—you become paralyzed in analyzing the market, but never sum up the courage to become part of it. By the time you do drive yourself to the point of action, it may already be too late.

4) The Fear of Being Wrong

The fear of being wrong is similar to the fear of mistakes, with a key difference: we value our rightness over our monetary success. After you have experienced a few successes in trading, you may start to develop an ego. This ego will lead you towards making trades or not making trades based on irrational factors that can skew your judgment. Even though you know what the right choice should be, your previous opinions and thoughts end up dictating what you actually end up doing.

Instead of making the trade that can make you the most money, you make the trade that best protects your ego. The fear of being wrong is strong in experienced traders who don’t need the money as much as newcomers, but if it is left unrestrained, it can end up losing you everything.

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