The Hidden Variable in Your Trading Success

Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ”I froze just as I was about to pull the trigger” ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?

All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.

Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety.

Fear will never disappear. Yes, maybe some days you feel more ‘in the zone’ and fear is less of an issue, but most days you’re probably not in the zone; and on those days the fear is unavoidable. Most likely, those are the days when you have your largest losses. The question is, what are YOU going to do to work with the fear? If you cannot eliminate fear, you must learn to work with it, use it to your advantage. Emotions are a form of self-communication; you need to learn what the message is (e.g. If this trade loses I won’t succeed as a trader) in order to begin to learn how to control your actions in response to the fear and anxiety. Your performance will not change until you learn to manage yourself differently when experiencing fear and anxiety.

6 thoughts on “The Hidden Variable in Your Trading Success”

  1. Yes, fear and greed are the main enemies for the stock market traders. In fact these are the enemies for all the traders, whether they are stock market traders or not. But in case of stock market traders, these two enemies play their role very effectively and ultimately they lead to losses to general traders in most of the cases.

    As Dr. Akash Patel said, both these fear and greed are the inbuilt mechanism of mind, it is not possible to get 100% control over these two enemies. But with discipline and firm determination one can get control over them to some extent by following disciplinary rules and regular practice. If spirituality is joined with this practice of rules following, it becomes easy for anyone to win.
    Spirituality :
    – enhances our self confidence for whatever actions we take,
    – makes us fearless to some extent.
    – helps us in learning from our mistakes by keeping our ego at lower and lower level.
    – makes us accept the results of actions with smiling face whatever may be.
    – inspires us to follow pre determined disciplinary rules. (great care to be kept while drafting rules)
    -encourages our trust and faith on Almightly.
    (Bhagawad Gita of Lord Krishna helps in this case 100%)

    Yes its a long journey, but with due practice one can get the desired results to some extent. And why one should expect 100% winnings….? The results are to be left to Almighty only. Whatever He gives, one should accept, the only thing is that he should not change his path. And the winning of this “some extent” is enough for any general trader to get good and satisfactory returns. Patience pays in this case too.

  2. Guys, every body has his quota of trials and tribulations in the trading market. You cant escape it.It is inevitable and with experience, practice and better trading knowledge one tends to exercise some sort of control on his emotions. I too underwent all this in last 3 years of active FnO trading .But now only feeling slightly in self control which has improved my return ratio in my trades. So keep trying…….You will succeed

  3. This is good, but looks like the article is incomplete. Request you to elaborate on strategies as to how to deal with it and be profitable.

    e.g. to control greed and fear, I employ the selling OTM options strategy. This way I am able to control my greed (as I know that now my profit is limited) and try to work on managing my fear by putting stop loss.

    However, many times, either is SL is too strict (and I feel frustrated at myself for keeping a strict SL) or at other times (like in the recent fall) it took away my way out OTM shorts.

    Would be of great help if you could suggest some solution to this.


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