It’s estimated – and rightly so I think – that the root cause of about 9 out of 10 losing trades can be traced back to one of four basic fears that cripple one’s ability to be a consistently winning trader: fear of making a bad decision, fear of losing money, fear of missing an opportunity, and fear of leaving money on the table. These four basic fears are something that all successful traders have to confront and overcome in order to BE successful traders.
As I’ve said before, fear is crippling and disastrous for successful trading. It paralyzes you, and it skews your perception, totally taking away your ability to rationally analyze the market and trade profitably. Therefore, overcoming, getting past these four basic trading fears is both an essential and a huge (since they lead to about 9 out of 10 trading mistakes) step toward becoming a successful, consistently profitable trader.
So, let’s simply go through and look at each of these fears, one by one, and address the question of how to overcome them.
Fear of Making a Bad Decision
None of us ever likes to be wrong in our choices. We like to think of ourselves as capable of making good, solid, rational decisions and choices. Plus, we’re embarrassed by other people seeing us be wrong (as I was just the other day when I tweeted that I was buying Gbp/Usd at 1.6800…right before it promptly dropped down to about 1.6770, making a new low on the day). Finally, being wrong in trading means losing money, and it’s very deeply ingrained in all of us to absolutely hate losing money (more about this when we discuss the second main fear).
But here’s the thing – part of being a successful trader involves taking risks, taking the chance of being wrong.
Therefore, if we can’t overcome our aversion to ever risk being wrong, we simply cannot become consistently successful traders. So how do we do that? – Simply by recognizing the reality of trading, namely that it necessarily involves taking risks, and that some of those risks are not going to work out. Winning trading necessarily includes some losing trades. We have to fix it firmly and clearly in our minds that successful trading means risking being wrong, and that, in fact, if we aren’t willing to risk being wrong, we will never be consistently profitable traders – because our fear of being wrong will make us miss out on taking winning trades.
Fear of Losing Money
This one is very similar to the first, but still stands on its own as a huge stumbling block in the way of becoming a successful trader. Winning traders are risk-takers. But the average person never wants to risk losing a penny – they want that guaranteed 1% annual return on their bank savings account – and losing money upsets them terribly, totally throws them for a loop. This is another basic, primal, ingrained fear that one has to overcome in order to become a winning trader. And again, it’s simply a matter of recognizing the realities of trading, of seeing clearly what successful trading looks like. Successful trading, consistently profitable trading, looks like a record of making a lot of money through winning trades AND losing some money on losing trades. Those losing trades are simply part of trading. Therefore, if you aren’t willing to have losing trades, you don’t have the willingness to be a winning trader. Simple as that.
Just realize the fact that you are going to lose some money on some losing trades – but also realize that losing that money is just an essential part of making a lot more money. The only road to big, consistent profits passes through some small losses.
Fear of Missing an Opportunity
The fear of missing out often manifests itself in the form of one of the classic trading mistakes – “chasing the market” – and also often follows from one of the first two fears, fear of being wrong, fear of losing money. We’re looking at a market, thinking from logical analysis that we should buy, but our fear of being wrong or losing money prevents us from doing the right thing – taking the trade – and so we don’t buy. Then, all of a sudden the market starts shooting to the upside, moving up 10 or 15 pips or more in perhaps less than a minute. In a panicked fear of missing out on “the big move” (due to our initial fear of being wrong), we jump into the market when it’s already run up 20 or 30 pips…only to have that turn out to be the short term top, and then see the market roll almost all the way back down to its initial take-off point. Our fear of missing out has caused us to take a disastrous trade, one that is now a significant loss.
What will save us from this mistake? Only the coolly rational mindset of a winning trader, which realizes two things: One, you aren’t going to catch every opportunity that comes along – the simple fact is that you are sometimes going to miss out…but Two, there are always more opportunities rolling round all the time in the forex markets, and you don’t need to catch them all in order to be a winning trader. And finally, chasing a market very, very rarely ever works out profitably. It is one risk that is not worth taking as a trader. 99 times out of 100, it will cost you money – so don’t do it.
Fear of Leaving Money on the Table
“Pigs get slaughtered” is a classic trading axiom. Greed will kill your trading profits. Winning traders are perfectly happy with making a nice profit, and not bothered by the fact that they could possibly have squeezed 10 or 15 more pips out of a trade. You’re simply not going to buy the absolute bottom and sell the absolute top. So just recognize that as a fact of trading life, and stop trying to do it – it just doesn’t happen. What does usually happen is that trying to push for that extra 10 pips at the absolute top costs you 10 or 20 pips that you could have had if you’d simply cashed in earlier.
Again, it’s all about recognizing and accepting the simple realities of trading. One of those realities is that even the very best trading is still always going to leave some money on the table.
But instead of focusing on that, be happy that you were able to grab some money off the table. Instead of being upset that you didn’t buy lower or sell higher, be happy that you did buy low enough to be able to sell out nicely higher and thus make money. As long as you turn an overall profit, you’ve done your job as a trader.
There are some basic fears ingrained in all of us that we have to actively work to overcome in order to be winning traders. These basic fears – the fears of being wrong, losing money, missing something, and leaving money on the table – can cripple our ability to practice overall profitable trading. To overcome them, we have to put forth the necessary effort to learn to think like a trader. Force the proper trading mindset into your brain. Plaster trading axioms that reinforce a winning trader mindset all over your house or office, to continually remind you to think like a trader, to recognize and accept the realities and truths of winning trading.
You have to risk being wrong in order to be profitably right. Trading involves risking your opinion being proven wrong.
Losing trades are part of winning trading. You should just accept them as part of the game, and not let fear of losing money prevent you from making money.
Don’t take trades based on fear of missing out – there are always plenty of new opportunities for profitable trades, so there’s no point in chasing a market that already made its move.
Don’t be greedy. Be thankful that you were able to grab some money off the table, and don’t begrudge the fact that you left some money on the table.
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