FEAR OF LOSING A TRADE AND THE IMPACT ON TRADERS!
The fear of losing a trade can be very debilitating and can actually cause you to lose money or in the extreme lose your account which of course no one wants to do, but why does this come about after all you have had extensive trading and possibly traded large sized trades on your dummy account with increasing confidence as you learn from errors and refine your trading techniques and strategies.
The main issue is linked to the fact that at least 80% of trading is linked to human behaviour including fear. Within my trading journey I have experienced two distinct fears, these are; Fear Of Missing Out (FOMO) and Fear Of Losing A Trade. These fears are very real but thankfully can be overcome and once recognised and dealt with you can become more successful in your trading. So how can these be controlled and ultimately overcome? Let’s take these one at a time.
FOMO – this arrives from the fear that you are missing an opportunity to make money from a perceived market move or price change. Often this leads to trade entry based on emotion and not through technical and fundamental analysis which can lead to stress during the live position and potentially loss. The first thing to note is that the markets are open both 24/7 expect from Friday 10 PM to Sunday 5 PM (EST) and Christmas Day. Therefore there is ample opportunity to place trades in a systematic manner using the strategy that you have developed and no need to rush in. After all the saying ‘fools rush in where angels fear to tread’ is a simple truth that applies to this situation. Another way of looking at this is that if the price does not come to you then why go to it? All you are doing is decreasing the probability of a winning trade as you veer away from your analysis. In phycology terms, this is difficult as we all want to be active in our work and in increasing our account, and therefore it is counter-intuitive to ‘do nothing and wait for the market. Nevertheless, this is what we must do in order to grow your account. Personally speaking, I can go two or three days without an order being filled, and then later that week two trades get filled pretty much together. So the main thing to take from this is to try and relax and wait for the price to come to you. This gives you a greater probability of making successful winning trades and actually decreases your stress levels whilst in trade execution as you have executed from a point of analysis and not from instinct or frustration.
Fear of Losing
How this fear is exhibited through closing trades due to stress levels becoming too high to deal with and the result is to close the trade which if left alone may have presented a winning opportunity, so why do we do this? The simple answer is that the human ‘flight or flight’ or acute stress syndrome response has not evolved much from since humans had to hunt animals for food which could kill and also and probably more common humans and in the main men had to be involved in bloody battles at close quarter and therefore under these examples this response was possibly quite welcome and helpful. However within trading it is not that helpful as being in a trade will not kill us and together with risk and money management, the loss can be accepted. In order to deal with this fear I propose the following process steps:
- Money management – by placing your stops at reasonable levels and either moving the stop up, taking some profit, or some other mechanism you can reduce your risk of total loss for that trade.
- Employ a risk management structure – that suits you as an individual. For instance, the total risk of trade on my account is less than 1% of the trade account and when placed in this context then the risk of losing your account is minimal.
- Acceptance of loss – in trading losing trades are a necessary risk of this activity. I am yet to meet any trader that has a 100% win record over a sustained period. This is why we place stops. This is an important point as when we enter a trade we are making an investment decision and as part of that risk we are placing a certain amount of pips as risk be that 20, 40 or whatever stop or contingency that we decide. So why would we place more risk of not having a winning trade by closing the position prior to the stop being hit? It makes no sense from a practical not investment view. Having said this there are unnecessary risks within trading that are to be avoided and entry through FOMO is only one example, there are numerous others that you should remove from your trading as you deepen your understanding and develop discipline and your strategy.
- Remember why you are doing this – we all have differing reasons for entering trading. Mine is financial freedom and being able not to relay on corporations for my salary. I remind myself of this every day before I trade. Remember most people who work in a corporation will get paid routinely even if they are not doing a particularly good job, but in trading, you have to bring you’re a Game every day as no one is handing out salaries. So what can we do to help particularly? I have found the following helpful.
- Sleep – we all know sleep is important and by resting properly we are not bringing fatigue into the trading day.
- Meditation – prior to getting to the computer I like to find a quiet space for ten minutes and meditate through what I want to achieve in life, remind myself why I am trading and visualise a successful trading day. The latter element I learnt when I started diving and it helped me enormously and maybe it may help you.
- Analysis – within Platinum Trading Academy you have had excellent training and have access to both the trading floor and the algo, take time to understand how price has moved overnight and also and more importantly take time to understand the fundamental picture as this will assist in identifying possible BUY or SELL areas in the algo.
- Keep the trade size to a level that you are comfortable with, you don’t have to trade at 1% you can trade less and sometimes trading too large a size can lead to pressure and errors. This is not a sprint, it is a marathon.
- Keeping up – markets move during the time you will be trading and keeping up with both scheduled events and sporadic inputs will allow you to determine whether your morning analysis requires modification.
- Acceptance – you will lose trades, these will lessen as you become more confident in your strategy.
- Confidence – have confidence in your trading and allow your trade to run. You have made this investment decision based on analysis and leveraging the skills that you have honed through your training so have the confidence to fully execute and ignore the fear or flight response. After all, no one is putting a battle axe through your head!!
The Platinum Formula:
Perfect Fundamentals + Perfect Technical Analysis + Perfect Logic + Perfect Risk Management = Perfect Trade
THE PLATINUM WAY
At Platinum Trading Academy, United Kingdom, we teach all individuals from different walks of life to become a full-time trader or create a secondary revenue stream by trading part-time. We trade in an Institutional Way by letting the market come to us and being patient. Using Platinum’s Trading system you can take many Pips out of the market. We can ensure using this style of trading your trading will make a turnaround as you will become much more consistent.
If you want to trade like the professionals do, making consistently profitable returns from your trading, get in touch with us and we will demonstrate live exactly how we approach the markets.
Hopefully, you have enjoyed today’s article. Thanks for reading!
Have a fantastic day!
Live from the Platinum Trading Floor.