Fear of Losing in Trading

By | July 8, 2021

How do you feel when the trade you made went against you and you need to incur loss. The first thought an amateur trader will have is “This was not supposed to happen!”. There was no way it could work against you.

The fear of losing when making a trade often has several consequences. Fear of loss tends to make a timer hesitant to execute his or her trading strategy. This can often lead to an inability to pull the trigger on new entries as well as on new exits.

As a Trader you know that you need to be decisive in taking action when your strategy dictates a new entry or exit, so when fear of loss holds you back from taking action, you also lose confidence in your ability to execute your trading strategy. This causes a lack of trust in the strategy, or more importantly, in your own ability to execute future signals.

For example, if you doubt you will actually be able to exit your position when your strategy tells you to get out, then as a self-preservation mechanism, you will also choose not to get into a new trade. Thus begins analysis paralysis, where you are merely looking at new trades but not getting the proper reinforcement to pull the trigger. In fact, the reinforcement is negative and actually pulls you away from making a move.

Looking deeper at why a trader cannot pull the trigger, a lack of confidence causes the trader to believe that by not trading, he is moving away from potential pain as opposed to moving toward future gain.

No one likes losses, but the reality is, of course, that even the best professionals will lose. The key is that they will lose much less, which allows them to remain in the game, both financially and psychologically. The longer you can remain in the trading game with a sound timing strategy, the more likely you will start to experience a better run of trades that will take you out of any temporary trading slumps.

When you’re having trouble pulling the trigger, realize that you are worrying too much about results and are not focused on your execution process.

By following a strategy that unemotionally tells you when to enter and exit the market, you can avoid the pitfalls caused by fear.

Wealthy traders learned long ago that unemotional (non-discretionary) trading strategies prevent losses during emotional times in the market. They know the strategies work, so they put aside their fears and make the trades.

And remember, you must be able to take a loss. Consider them a part of trading. If you cannot, you will not be around for the big gains because you will be on the sidelines guarding your capital against that potential loss.

Remember that good trading strategies are designed to guard against big losses. Every trade you take has the potential to become a loss, so get used to this reality and take every buy and sell signal. That way, when the next big trend starts, you will be onboard and profit from it.

After you have booked loss comes the most testing time for trader:Ideally a  trader Should feel relieved, but Instead, most of traders feel remorseful and sad.This trade was supposed to work out and now you’re stuck.Instead of thinking about the next trade your head is not in a good place, you worry that any further trading will have the same negative outcome.  Your mind is completely twisted.  How can you ever make a trade when you are NOW convinced that next one won’t be a winner?

But the fear of being wrong is a natural defensive response to emotional pain.  Along the spectrum of fear and greed we often find ourselves too fearful and worry about the future. We are programmed from childhood of being Right, If we are not right we are punished and told if you are wrong you are nothing. Now this kind of upbringing from childhood plays a big spoilsport for trader, and if they lose a trade they never have let it go attitude and concentrate on next trade. This is one of the main reason why so many traders are losers in trading.

Nobody likes to be wrong but picking stocks, commodities, futures or options can be as much a guessing game. However, armed with good information, knowledge and tools we can cut down the odds of being wrong (doing your research and homework certainly helps).  But, with all the preparation a trade may still move against you! How do we reconcile this?

As a trader, I expect to be wrong – a lot, I’m okay with that.Infact it took me several years to master this art. In fact, I could lose 30-50% of the time and not even be too concerned.  Why?  Because losses are part of the game, and I accept it.  I will have my share of winners and losers, but  being right or wrong is not the main operative.  My winners may far outweigh the losers, and it only takes a big fat win to turn around your emotions – but you have to willing to take the next trade!

As a trader you will have time when the pressure was so high that you will  break your own risk management rules, trying to force a win or positive outcome.  We know how that ended, right?  Thankfully, I’ve changed my behavior and remain humble.  Being wrong is far different than being reckless.  Recognize that in order to win in trading you need to take some risk, each trade a separate event.

The more trades you take the higher probability that one will go awry.  It is simple math, when the outcome is binary (in this case, right or wrong).  I have never met anyone who has presented a perfect trading record to me over a sustained period of time (not even from a paper trading account).    Trading is not a game of perfect, and while we strive to be right we must accept that a correct outcome is not 100% guaranteed.  But don’t let it stop you – keep trading!  More importantly, LEARN from the trade, and learn about yourself in the process.

Leave a Reply