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In this article we talk about the most important skill in trading: trading without fear.
If you understand how fear determines and influences your current trading, you will also be able to guess the extent to which a change in this area could bring about. From my own experience of over 7 years I can only confirm that this factor is neglected. Too many decisions are simply not correct and too much probability an offshoot of fear.
The work on this topic is by Mark Douglas, who has also published two books. I can only warmly recommend these to everyone.
The 4 fears in trading at a glance:
- The fear of being wrong.
- The fear of losing.
- The fear of missing a trade.
- The fear of letting a winner become a loser.
1.the fear of being wrong
This fear is particularly common among people who are too perfectionist. You add 100 indicators to the chart to find the perfect moment. The entry never occurs. The fear of being wrong determines their approach. Again, false expectations of the traders are the reason. Trading is never perfect. It is all about probabilities that are never perfect and never 100%. It is all about positive expectations over a larger number of repetitions. If you can’t overcome this problem, trading is not for you.
Accept that you will lose. Think in probabilities.
Furthermore, this is not about your ego. You are no better when you win a trade. You’re no worse when you lose a trade. The following idea helps here:
As technical traders, we do have a measurable niche. This means that we operate successfully over a larger number of trades. These technical patterns mean that we are dependent on others. For example, do you buy the setback in an uptrend? You are now dependent on others to do the same.
You are always dependent on bigger and stronger market participants who consciously move the markets. Do you still feel so important? If we really understand that anything can happen at any time because a person presses a button somewhere on the part, we can take our ego out of the equation.
If this signal doesn’t work over 20 trades, you still don’t have a niche.
2.the fear of losing
How many times did you have an idea for a trade, but then rejected it? Later you will see that it worked out wonderfully. You are angry. We all know this feeling.
So why are we afraid of being wrong in the first place? The answer is relatively simple: you expect too much from a trade. Having a niche in the market means that you are successful over a series of trades. It does not mean that you will win the next trade for sure!
This is a fundamental difference that distinguishes beginners from successful traders. It is all about probabilities. Your signal is 70% likely?
Imagine that you bet on something in the casino and have a certain probability. You expect nothing from this one bet! It is luck whether exactly this result belongs to the winners or losers.
So you must understand 100% that you cannot and should not expect anything from a trade. You can only expect something if you perform this trade exactly 10-20 times. So if you really believe this, then why should you continue to be afraid of being wrong. There is no reason.
If you don’t have a niche at this point, or don’t even know what a niche is, then you haven’t done the necessary work yet. First of all you have to learn all the necessary skills.
3.the fear to miss a trade
Fear of missing out = Fomo
The markets are like a big fair. Fun invitations beckon everywhere. We have, as seldom in life, the opportunity to participate. A simple mouse click and we are part of a tempting offer.
Therefore you should definitely have a trading plan. This should state what you are allowed to trade when and how. You must have determined these variables in the backtesting beforehand. It doesn’t make sense to trade something that you don’t know you will be successful over a large number of trades. All you would then do is gamble. Successful traders know their probabilities with every trade. Yes, even then they don’t know if this trade will work. Therefore they use risk management to be able to be really successful in the long run.
Trade only your niche! Of course it is up to you to work on further niches and test your ideas.
4.the fear of turning a winner into a loser
This fear is the reason why most unsuccessful traders have big losses and small winners. They are in trade and feel the fear of losing money. Instead of being stopped out, they hope for the trend reversal and hold on to their losers. Now they are finally in a winning trade and have the opportunity to trail the stoploss to maximize their profit. But since they have just lost and are now afraid that the same thing will happen again, they take the small profit with them and thus miss the opportunity to really make up for the loss.
There is only one thing that is important: Your trading plan. Your trading plan should state exactly when, how and where you will realize profits. If you follow your plan, you do everything right. Of course, there can always be gaps in the plan, which makes it difficult, because there are simply factual problems. This is exactly the reason why you should always work with professionals.
With the right preparation and the right mentors, you can avoid many of the fears with your trading plan. In addition, with this knowledge you can now review every decision. So can the decision (entry, exit, etc.) be traced back to one of the four fears, or did you act solely according to your plan?