Perhaps, in the Forex world, this emotion is number one in terms of influence on traders’ decisions and therefore on their trading performance. However, being afraid is not a sentence. You can learn to cope with it and even use it to your advantage. Let's take a closer look at how fear can affect you and what to do about it.
The Impact Of Fear
A right trading mindset is an essential feature of a successful Forex trader. Even if you have a potentially profitable trading strategy, a detailed plan, and an established trading routine, you still won’t linger in trading if emotions affect your financial decisions. Unfortunately, there is no way to prepare in advance for real trading and fully control your feelings. You cannot know in advance what you will encounter. You will have to learn to cope with emotions already in the process of trading.
Most likely, you will face fear. This emotion manifests itself in traders in many ways and has several reasons:
- Fear of failure. Such situations can also be called a lack of confidence. The trader is desperately afraid to make the wrong decision. This can occur both at the opening and closing of a trade. Many novice traders miss out on really promising trading setups because of fear of failure and don’t open potentially successful trades. Sometimes fear binds the traders so much that they are afraid to get out of a clearly losing position.
- Fear of losing your money. Often, this type of fear arises right after a losing position or a losing streak. Traders begin to think that their trading strategy and plan failed them. They may also begin to doubt their abilities and knowledge. This leads to self-doubt and, as a result, to abandoning Forex. Also, this type of fear accompanies those traders who bet all their money on the line. Especially if they invested funds they cannot afford to lose.
- Fear of losing profits. The consequences of this type of fear are similar to greed. When a trader is afraid of losing profits, he holds unprofitable positions for too long, hoping that the market will turn in his direction. Also, this fear provokes opening trades on unconfirmed signals, ignoring the trading plan. And this leads to overtrading and unavoidable losses. Some traders who are afraid of losing profits refuse to close daily trades that are currently positive. As a result, at night, when the trader doesn’t monitor the charts the market can reverse causing even greater losses. Moreover, this type of fear makes some traders ignore the benefits of working with a Take Profit. Afraid of losing precious points, they don’t set the required level and lose money when the transaction turns against them in their absence.
How To Deal With Fear
You can deal with fear just like with any other emotion on Forex:
- Develop a good trading plan with a detailed description of how to enter and exit a trade and clearly follow it.
- Build a risk management system and use it for each transaction.
- Don’t risk too much in each trade to experience less anxiety.
- Invest exclusively those funds that you can afford to lose.
- Use Stop Loss and Take Profit to control the closing of transactions in your absence or during sudden market jumps.
- Keep a trading journal and analyze your emotions in different trading situations in order to learn how to control them.
- Get enough sleep and take a break from Forex after a losing streak to restore your strength and emotional state.
How To Use Your Fear
This may sound strange but you can replace some forms of fear with others. For example, if you are scared of losing profits and therefore don’t close a clearly losing trade then you should try switching to fear of loss. That is, instead of hoping for a market reversal, you should be afraid to lose a lot of money.
In addition, fear of loss can save you from reckless decisions. Always keep in mind that an unconfirmed trading signal may be false. Use several options to confirm a trading setup before entering into a transaction.
But in simple terms, for successful trading, you need to learn how to follow your trading plan. This will help minimize fear, like any other emotion, and increase your chances of winning.