Fear is perhaps the most significant emotion for traders. There are three types of fear that arise when trading, and you would encounter them at one point or another. So, let's have a look at each one of them.
FEAR OF MISSING OUT (FOMO)
One of the most common attributes traders can have is fear of missing out. For whatever reason should you miss your trading setup, simply let it go. Many traders think they have more control over the market than they really do. This belief often leads traders to chase the market further and break their trading rules. The real fear is that they will come to ‘regret’ this later. Successful traders, on the other hand, realize that it is not possible to catch all moves in the market.
The next time you’re faced with a move that you missed, remember that trading is all about risk management and strategy. Successful traders understand that profits are simply a by-product of good risk management. If you learn to analyze the market risks, you will be less affected by the random price movements.
Trading is a psychological game, so you must first master your emotions, within constantly changing market conditions. Remember, there will always be more opportunities right around the corner.
FEAR OF LOSING MONEY
A lot of traders start their trading journey with this fear of losing money, and it continues to stay all throughout. However, traders should keep in mind that losing, just as much as winning, is an integral part of trading. In fact, if you don’t learn how to lose you will never make consistent money as a trader.
So…How do we overcome the fear of losing money?
Instead of being fearful of losses, you must have the courage to accept and embrace the inevitable losses along the way.
While it is true that you can’t control the market, you still have a complete control over the risk management of every trade you execute via stop losses and position sizing. These risk management tools can help you control your losses while aiming for rewards. So instead of being fearful, you should feel confident that you can predetermine how much to risk per trade.
FEAR OF BEING WRONG
Many traders out there focus too much on being proven right in their analysis, as opposed to believing that anything can happen in the market. The desire to focus on being right instead of making profit is motivated by the individual's ego, and to be a successful trader, you must let go of the ego.
In other words, focus on doing what is right, not on being right. Do your research, have your own strategy, and stick to it.
It’s important to understand that losing is part of the trading game. Look at trading as game of probability where you win over a series of trades and not on individual trade basis.
Finally, you must enter each trade with the mindset of “I have placed my trade, I have no control of the outcome, but I can control my losses”.
Knowing how to control emotions of fear and hopes while trading is the key to successful trading. Self-discipline is the fundamental building block of any trader's decision-making process and the one thing that allows you to gain confidence in your trading strategy, and over time, become a successful trader.