Enemy Number One Fear – Part 2

Today’s post is a continuation of previous article where we discussed psychological aspects of trading. Most of the psychological difficulties in trading occur due to our emotions. In this 2 part series of articles, the emotion we want focus on is fear.

Fear certainly has its value in life. For example, a sense of fear could kick in as a warning of imminent danger and therefore could help protect us. In the market place, many traders do act and trade in/with fear. The question is why?

What imminent danger does a trader face? What causes that fear?

The questions are important because the best traders apparently trade with very little or almost no stress and fear. In that case, what do those traders know more and do differently?

A trader will have one of the following profiles:

–          Consistently profitable without fear –> a this trader belongs to the top of the field

–          Not profitable without fear –> another element is blocking your trading… maybe a different emotion or risk management / trading strategies

–          Not profitable with fear –> the focus of today’s article

If you do feel fear in your trading, then the best advice I can go give you is to find out why.

What is your underlying reason for fear in trading? The answer to that question will be the solution for improving your trading.

For those traders that might want some inspiration and guidance what the reason could be, here is a list of possible reasons:

–          Insufficient knowledge of the market, trading

–          Insufficient experience in applying the knowledge

–          Improper risk management

–          Money management rules which do not fit your trading style

–          Fear of a new trade & fear making a mistake again

–          Dwelling about past mistakes and are paralyzed in their decision making capabilities

–          Not enjoying the act of trading and not treating it as intellectual challenge/game

–          Any other reason a trader might regard as the cause of fear

Mind you though that discovering why you fear something and what you actually fear is not an easy task. In my opinion fear most often has a deeper root cause as well; even if the points above are part to blame. Why? Fear is imbedded in the subconscious mind. Accessing, interpreting, and understanding that inner mechanism of the brain is very important, yet difficult to achieve.

According to Bill Williams in this book Trading Chaos, fear often stems from deeper beliefs about what is good or bad, about making profit, and the mechanics of the market. These beliefs are developed in our past due to our experiences and culture and are the corner stone and building blocks for the way we view the market. This belief system however can run contrary to the nature of the market and therefore hinder success.

Another deeper reason for fear is the self-protection mechanism embedded in our subconscious, which was explained to me by the trader Albert Labos. Survival is the strongest and the highest overriding goal in our system and the subconscious mind bears the ultimate responsibility for that. This defense of ourselves by the subconscious mind is very powerful and complex and is extremely difficult to regulate by the conscious mind. Freeing ones self of these emotional chains to enable a clear mental state while trading is one of the most difficult of tasks a trader can imagine.

Let us now make some generalizations and compare some of the characteristics of traders with fear versus traders with confidence.

Characteristics of a confident versus fearful trader

The views of the confident trader and fearful traders differ. Of course not all traders with fear will have all fears. Some traders will not recognize they have fear. Some traders will share many similarities; others will only have a few in common. It is up to the trader to judge which characteristics are better and can be improved. In general though, we can see the following distinction between traders with fear and traders with confidence.

Trader with Fear Trader with Confidence 
They like trading sometimes They (almost) always love trading
They use the market to prove they are right à they seek to confirmation of what is right, and care less of what can be improved They love to be wrong à only then do they know what elements they are doing wrong and what needs to be changed
They act in fear and have phases of over confidence or insecurity They are fearless, but not overconfident or reckless
Their focus is on being correct and having a high win% Their main focus is on the return %, not on the win %
They fear the market and view it as a dangerous place. They fear their trades, their losses, their evaluations They know there is nothing to fear from the market à the market speaks, they listen.
Their main goal is money à trading is a means to an end Their main goal is trading à they enjoy the act of trading in its own right
They treat trading as a test and not as a game or something that is fun to do They approach trading as a game and an activity which is fun
They challenge the market and not themselves They challenge themselves and not the market
They might not be prepared with proper testing, no strategies or proper strategies, no or incorrect risk and money management They have everything very well prepared and their game plan is crystal clear
They might not have a risk limit or they might exceed that limit They know when to risk more or less depending on the market conditions, but they never risk more than allowed
They view the market as confusing and directionless They view the market as a place where price chooses the path of least resistance
They are impatient and absent minded They are patient yet alert
They might freeze in their decision making capacity as the fear and stress paralyzes their ability to evaluate new information They are always open and responsive towards new information and are able to (re)evaluate their trading situation without stress
They will get (very) emotional with every loss or win. They will get mad at the market. Their emotional balance is (always) maintained. They accept their wins and their losses.
They see the market as a beast, which is ready to take their money at any point They view the market place as a natural outcome of the psychology of all the traders in the market
They do not review their trade, they do not evaluate their trading day, they do not review their evaluation plan and points They review every trade, they evaluate every day, they review their evaluations
They do not learn from trading mistakes in the past They make sure they learn from their mistakes


Most successful people are successful because they actually enjoy the activity they are performing in its own right, without the financial benefit.  Studies always show that people learn a lot quicker when they enjoy something without any external benefit compared to the people who learn something with the purpose of gaining a benefit (source: Jim Kwik, Kwik learning).

To do list

I made a to-do list for anyone who wants to improve themselves. It would be awesome if you would let us know if you are using it and whether it is helping or not.

Here is that to-do list:

a)      Analyze what can be different and then change what is needed and implement it

b)      Take small steps every day

c)       Set targets based on SMART (specific, measureable, achievable, realistic, timely)

d)      Take concrete steps to accomplish goals

e)      Re-evaluate along the way

f)       Learn from your mistakes, remember the lessons

g)      But don’t dwell on your mistakes when trading

h)      Execute without fear and with patience

i)        Keep positive thinking

j)        Motivate yourself by setting yourself a huge important goal you want to fulfill by succeeding in trading

k)      Realize that you are in control of you risk, your trades, your strategy, your actions

l)        Realize that you are not in control or responsible of the market behavior

m)    Take responsibility for that without blaming the market

n)      Approach trading as a game

o)      Learn trading for the pleasure of the activity, not for the benefit of the rewards

p)      And above all, have fun while doing this and trading.

If you implement this day by day, week in and week out, then one day your mind set will change. You will shed of the “hope of becoming a good trader” and actually become a good trader.

I will finish this article with words from another Winners Edge contributor Sophia: “only after the necessary preparedness can you truly embrace your fear of losing. The market is what it is, and if approached with the respect it deserves, it will likely reciprocate, and you will realize success. Be like a child. The market does speak…we only have to listen.”

With those final wise words, I wish you Good Trading and a great Friday and weekend!

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