Fear can come in many different forms and any type of fear in trading can be very destructive to your trading results.
The fear I am talking about is psychological fear and not the useful form of fear when we are in a life threatening situation although the sensations and responses can be the same.
When we experience fear due to a life threatening situation the automatic responses can be the well known fight or flight.
When applied to trading these responses are not really desirable.
The trading equivalent of fight could be sticking to your trade with determination and not transacting a stop loss or taking flight when in a losing position and hold on to a position in hope that it will turn around.
In dealing with psychological fear Napoleon Hill in his classic book "Think and Grow Rich" covers some of the major types of fear which can influence us.
The six basic fears which Hill mentions are Fear of poverty, fear of criticism, fear of ill health, fear of loss of love, fear of old age and fear of death.
I just want to briefly cover the main ones I feel apply to trading and how it can be removed.
The main fears which apply to trading are the fear of poverty and fear of criticism.
What might be some more applicable terminology in relation to trading would be fear of losses and fear of being wrong.
Another fear which is very closely connected with both these fears which is very well known is the fear of failure.
Hill states that fears are nothing more than a state of mind.
If Fear is just a state of mind how is it created? When we are talking about psychological fear then worry and doubt would be the precursor to fear.
If we were to look at the sequence we would have doubt => worry => fear.
We can see from this that if we deal with the doubt we can stop this chain reaction in its tracks.
Taking this a step further we can see that doubt is usually the result of a situation where there is uncertainty or the outcome is unknown.
Worry then arises when we imagine an undesirable outcome from an event and fear is when this worry spirals out of control.
Let's now look at some steps we can take at various stages of this chain reaction.
Remove the Uncertainty Although we can never totally remove uncertainty from trading as it is a game of probabilities and you can never predict the outcome of a trade with 100% accuracy you can take some major steps to having some certainty on a larger scale view.
You can do this by back testing your trading system to then have an understanding of the long term results of your system.
Just looking at a very basic parameter which can come from back testing of the win percent or the reliability of your system we can see that if you have a 60% win rate you still can't predict the next trade with great accuracy as it is either a win or loss however as you deal with larger numbers and take a larger scale view you can see that you will get quite close to the 60%.
Be Decisive Napoleon Hill's solution to doubt or fear is a clear decision.
Part of being decisive is to accept the outcome no matter what happens.
This then helps remove any attachment to the outcome and removes the tendency of worry to spiral out of control.
If you have difficulty accepting either outcome from taking a trade then I propose that you shouldn't be taking the trade.
Being decisive and taking action is one of the best cures for fear.
You can do this in two steps.
First work out exactly what it is that you are afraid of then determine what kind of action you can take to conquer your fear.
Then as the Nike ads state "Just Do It".
Be decisive and take action immediately as any hesitation will only allow the fear to balloon out of control.
Watch Your Thoughts As discussed previously worry is caused by imagining an undesirable event happening.
This could either be replaying a past event in the future or creating a new undesirable event in the future.
Either way we are dealing with an event which doesn't exist now and only exists in our mind when we create it.
We need to be the ever vigilant observer and monitor our thoughts and when we start imagining the undesirable event then mentally flash a big red stop sign or wrong way go back sign and switch your focus to the outcome you do want to happen.
If you implement the above steps you will see an improvement in how you feel in your trading and the amount of fear you experience.
The fear I am talking about is psychological fear and not the useful form of fear when we are in a life threatening situation although the sensations and responses can be the same.
When we experience fear due to a life threatening situation the automatic responses can be the well known fight or flight.
When applied to trading these responses are not really desirable.
The trading equivalent of fight could be sticking to your trade with determination and not transacting a stop loss or taking flight when in a losing position and hold on to a position in hope that it will turn around.
In dealing with psychological fear Napoleon Hill in his classic book "Think and Grow Rich" covers some of the major types of fear which can influence us.
The six basic fears which Hill mentions are Fear of poverty, fear of criticism, fear of ill health, fear of loss of love, fear of old age and fear of death.
I just want to briefly cover the main ones I feel apply to trading and how it can be removed.
The main fears which apply to trading are the fear of poverty and fear of criticism.
What might be some more applicable terminology in relation to trading would be fear of losses and fear of being wrong.
Another fear which is very closely connected with both these fears which is very well known is the fear of failure.
Hill states that fears are nothing more than a state of mind.
If Fear is just a state of mind how is it created? When we are talking about psychological fear then worry and doubt would be the precursor to fear.
If we were to look at the sequence we would have doubt => worry => fear.
We can see from this that if we deal with the doubt we can stop this chain reaction in its tracks.
Taking this a step further we can see that doubt is usually the result of a situation where there is uncertainty or the outcome is unknown.
Worry then arises when we imagine an undesirable outcome from an event and fear is when this worry spirals out of control.
Let's now look at some steps we can take at various stages of this chain reaction.
Remove the Uncertainty Although we can never totally remove uncertainty from trading as it is a game of probabilities and you can never predict the outcome of a trade with 100% accuracy you can take some major steps to having some certainty on a larger scale view.
You can do this by back testing your trading system to then have an understanding of the long term results of your system.
Just looking at a very basic parameter which can come from back testing of the win percent or the reliability of your system we can see that if you have a 60% win rate you still can't predict the next trade with great accuracy as it is either a win or loss however as you deal with larger numbers and take a larger scale view you can see that you will get quite close to the 60%.
Be Decisive Napoleon Hill's solution to doubt or fear is a clear decision.
Part of being decisive is to accept the outcome no matter what happens.
This then helps remove any attachment to the outcome and removes the tendency of worry to spiral out of control.
If you have difficulty accepting either outcome from taking a trade then I propose that you shouldn't be taking the trade.
Being decisive and taking action is one of the best cures for fear.
You can do this in two steps.
First work out exactly what it is that you are afraid of then determine what kind of action you can take to conquer your fear.
Then as the Nike ads state "Just Do It".
Be decisive and take action immediately as any hesitation will only allow the fear to balloon out of control.
Watch Your Thoughts As discussed previously worry is caused by imagining an undesirable event happening.
This could either be replaying a past event in the future or creating a new undesirable event in the future.
Either way we are dealing with an event which doesn't exist now and only exists in our mind when we create it.
We need to be the ever vigilant observer and monitor our thoughts and when we start imagining the undesirable event then mentally flash a big red stop sign or wrong way go back sign and switch your focus to the outcome you do want to happen.
If you implement the above steps you will see an improvement in how you feel in your trading and the amount of fear you experience.
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