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Jan 27

The Impact Of Fear

Fear is probably one of the most crippling emotions a trader can have.

It has the ability to over-ride our in-built fight or flight reflex, and paralyse us like a deer in the headlights. This frozen, paralysed state is probably the most harmful state a trader can find themselves in, because rather than panicking out of a trade that is going against them, they just sit there. Frozen. All the while, the market is merrily taking their account and giving it to someone else.

The problem is that once that kind of paralytic fear has its hooks in a trader it tends to make itself right at home, and rather than limiting its fun to when a trade is going against us, it infiltrates all our trading actions.

All of a sudden, we can’t place a trade. We can see it there, clear as day – but our fingers won’t move. The paralysis has spread and our fear won’t allow us to trade.

After my post on optimism a few weeks ago, I got quite a few emails from traders who were facing this very problem. They were finding it incredibly hard to be optimistic about their trading, because all they had received from the market was negative feedback – and in some cases quite excruciating negative feedback.

They had learned all they needed to know about risk management, but still couldn’t bring themselves to post a trade despite the fact they had the all the knowledge they required to trade safely. Somehow, that trigger wouldn’t pull.

After getting smashed by the market, that pain hangs around. It doesn’t just disappear. Losing a large wad of cash hurts us in ways that extend way beyond our bank account; it also causes a direct hit on our confidence and causes us to question our ability to make money in the markets. But more than that, it makes us terrified that it could happen all over again.

Fear swings our perspective away from tradings money-making potential, and focusses it firmly on the money-losing potential.

This actually isn’t such a bad thing, but like all areas of life a balance is needed. The pendulum has swung from one extreme to the other, when where it really needs to be is in the middle.

Unfortunately getting that pendulum to sit squarely in the middle is tricky.

Often after a hefty loss, a trader will go on an education spree to fix the problem, and while further education is often beneficial, it’s also superficial. Mostly, it will tell you how to cap your losses which is great, but it will do nothing to actually get rid of the insidious fear that now resides just beneath your skin.

No amount of theory will enable you to trade fear-free – that is up to you, and you alone. But happily, there are some practical steps you can take to work your way through the emotional mess and get back to placing trades from a productive and healthy frame of mind without being crippled by fear.

1. Be Honest

If you’re too busy trying to protect your ego, you’ll never get rid of the fear. It will cause you to quit, because you’d rather blame something external than admit you made a mistake. The thing is, if something external caused your fear, there is every chance it will do so again – which means your fear is justified, and here to stay.

2. Journal your thoughts.

Here she goes again, banging on about journalling… :) You betcha! Writing stuff down is honestly one of the best ways I know to clarify what’s actually going on underneath the swirling whirlpool of feelings that can cloud our thinking.

Just write. Even if you don’t know specifically what the problem is, just write that you don’t know, but keep writing!! Keeping a steady flow of words coming onto the page means that once your protective, superficial thoughts are down – the “I don’t know’s”, the “it’s not a big deal’s” and all the other ego-protecting crap – once that’s out of the way the true, more authentic ideas have a chance to make their way out.

Once you confront what’s actually bothering you, you are in a position to recognise and deal with each problem/emotion as they arise in your trading.

3. Develop a process that allows you to see ALL the possibilities of a trade.

I have a mini-mantra that I tell myself when I place a trade. “You never know what’s just around the corner – anything can happen.”

This statement allows me to recognise that my trade might be a loser, but it could also be the trade of a lifetime. So many times when I was testing my method I came across a trade that I was hesitant to enter, only to have it rip through resistance and go on to be an outrageous winner. It confirmed to me that my opinion means nothing, and anything can happen. Not only can anything happen, we need to be prepared for anything to happen.

That means we need to be equally as prepared for a winner as a loser, both in our trading system and also in our head.

If you are equally prepared for your trade to be a winner as you are for it to be a loser, you’re one step closer to having a more healthy balance to your trading.

If you’re having trouble pulling the trigger because you’re terrified of losing any more money, implementing these things can help. But it’s not instant – it’s an ongoing process to achieving a healthier, more balanced way of thinking.
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