Trading Psychology – FEAR

Forex trading is a highly emotional event in which a variety of psychological factors come into play. One of the emotions that hinder traders from achieving success in forex trading is fear.

Learning to control the emotion of fear and developing the right attitude to mistakes and loss, is the key to successful foreign currency trading.

Why Fear?

Fear is a natural instinct for protection against hurt or loss. It is usually born out of negative experience. Where there is no possibility of hurt or loss there is no fear.

As trading involves high probability of losing money, fear is in plentiful supply. This can be reduced by proper education and training. Just as well trained pilots are not afraid to fly an aeroplane despite the risks, good trading training reduces fear and gives the trader confidence that they will make money from the markets.

Most of those who trade without proper training are destined to fail. To avoid the fear and pain of failure, get good education.

Mistakes can be good for you

Trading is not a natural undertaking and we have no basic instincts to guide us. Like babies, we must learn everything from scratch. Unfortunately, all learning processes involve making mistakes which result in loss, shame or pain.

Sometimes mistakes are inconsequential but on occasion they set in motion a sequence of events that can become disastrous. A simple mistake causing a small loss on a trade can cause a trader to think of “getting back” their money by jumping into a trade without proper analysis only to end up making a bigger loss.

It is impossible to trade without making mistakes. If not understood in a mature way mistakes can be felt as personal failure. The important thing to know is that making mistakes are just opportunities to learn. The more you learn, the better you become in your trading.

Be a good loser

The fact of trading is that you will lose on some trades. This comes with the territory. Therefore let not fear of losing stop you from trading.

As losing can be painful, it easily undermines logic, consistency and confidence. You start doubting your trading system, start over-analysing trade set ups and hesitating or even failing to put on trades which clearly meet your trading criteria.

Proper attitude to loss therefore separates successful traders from all others. Mistakes should be taken as valuable sign posts for corrective behaviour. Learn from them and increase your profits.

Discipline dissipates fear

The basic law for success in trading the markets is to develop and stick to a trading system. The system should be a mechanical framework which can pick high probability trades, identify risk vs reward, entry, stop and exit points.

The greatest challenge many traders face is to consistently follow their trading system. The fact is that it is only those that develop the discipline to follow their trading system who are able to produce consistently good results over time.

The best way to acquire discipline and consistency is by developing a regular pattern in your trading style. Once a profitable trading system has been developed or acquired, repeating that trading pattern over and over again will give you confidence and reduce trading errors.

Any system is as good as its implementation. Develop the discipline and you will soon see consistent profitability in your trading results.

In conclusion, a fearful trader is a losing trader. Getting good education and training is the weapon of choice in fighting fear. Let all mistakes you make in trading be sign posts for corrective behaviour and always take the opportunity to learn from them.

The right attitude to mistakes and loss is the distinguishing features between successful and mediocre traders.

Source by Hastings T Chikuse

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