Is it normal to be afraid when trading?
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Trading is an activity that exacerbates emotions. Among these emotions, the fear of losing is often cited by novice traders. This fear can be paralysing and often leads to bad decisions. There are solutions to counter this fear, but you first have to understand its origin.
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The problem (apart from a lack of training in trading practice) is that not everyone is cut out to take a significant risk. Each person has a level of risk aversion. As we can see in portfolio management, there are several risk profiles (prudent, balanced, dynamic). It is the same for trading. For this reason, even a trader with the skills and money to make a living from trading may not be able to carry out this activity on a full-time basis, as there is always the fear of losing.
Generally speaking, if you feel enormous pressure because of the possibility of losing your money when trading, it is because you have invested too much. Set yourself a limit of 10% of your savings and don’t exceed that in your trading, this is more than enough, especially if you train yourself in trading!
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This lack of self-confidence can also come from the fact that you do not have a precise trading strategy, that you trade based on feelings. People need to be structured, supervised in what they do, and this is essential in trading. Without strategy, you will get lost, you will no longer know what to do, you will gradually doubt yourself and, each time you open a position, you will generate fear.
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The problem is that most novice traders question their trading strategy as soon as they lose a single trade. Hindsight on their strategy is not enough to have complete confidence. As a result, with each trade, they doubt the outcome of the trade, of their strategy and this generates fear. That's why we always advise you to test your trading strategy on a demo account for at least one month, it allows you to gain a minimum of confidence in your strategy.
Confidence in your strategy is acquired over time but also from the start. If you determine your own strategy, if you understand the mechanisms that give you signals, if these mechanisms seem logical and relevant to you, you will have more confidence in your strategy and therefore less fear. Defining a trading strategy takes time and a lot of work, but it is necessary to succeed in the financial markets.
On the other hand, if you use someone else's strategy, you find that your confidence stops at the slightest losing trade. Effectively, you do not necessarily understand the mechanisms of opening a position and this is what makes you doubt it in phases of loss. For this reason, each trader must have their own trading strategy.
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The fear of losing can therefore come from abusive use of leverage. The greater the leverage, the greater the risk. You have to take leverage into account for each position and also the global leverage on all your positions! All your trades could go the wrong way.
If possible, do not use leverage on your positions, especially if you are a novice trader.
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Losing a trade doesn't mean that you were wrong, it just means that the market didn't agree with you. It's totally different. Technical analysis is based on probabilities, and it talks about probability, it talks about the percentage of chance that the opposite scenario occurs.
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From the moment you try to avoid taking your losses, you have already lost. Taking a loss should not be seen as a failure but as an optimization of your account's performance. Negotiating a losing trade well has the same impact on overall performance as a winning trade at the end of the month.
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If you cut your trades too quickly when they are winning, it has a significant impact on your performance. You can't be a winner in the long run. You must let your gains run and be able to take your losses quickly (see trading rules).
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The only way to regain confidence is to return to a demo account. If you have trades in progress, cut everything, take your losses rather than risk losing all your capital.
Fear is always due either to a lack of trading knowledge or to taking too high a risk (leverage or amount of capital invested). In the case of insufficient training, it is quite normal to be afraid. This fear can be overcome by training but also by developing your own trading strategy. A strategy is used to structure your trading and make your decision-making rational (based on accurate signals).
Each trader has a different level of risk aversion. You must take this into account so that you are not overwhelmed by fear. If your risk management is appropriate, you will gradually gain confidence in your strategy and fear will fade over time to disappear completely. Trading that wins is trading without emotions!
Where does the fear of losing in trading come from?
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Too much invested capital
: If you invest too much of your savings in trading, the pressure can be difficult to bear. No one can afford to lose a large part of their savings, it is your future that is at stake. However, this is a mistake made by many individuals who are lured by tempting advertisements, by a charismatic salesman or by various crooks of all kinds. In each case, it is the lure of profit that drives us to deposit more and more.The problem (apart from a lack of training in trading practice) is that not everyone is cut out to take a significant risk. Each person has a level of risk aversion. As we can see in portfolio management, there are several risk profiles (prudent, balanced, dynamic). It is the same for trading. For this reason, even a trader with the skills and money to make a living from trading may not be able to carry out this activity on a full-time basis, as there is always the fear of losing.
Generally speaking, if you feel enormous pressure because of the possibility of losing your money when trading, it is because you have invested too much. Set yourself a limit of 10% of your savings and don’t exceed that in your trading, this is more than enough, especially if you train yourself in trading!
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Lack of self-confidence
: The fear of losing can also come from a lack of confidence in your ability to generate profits. If you are not sure about yourself, it means that your training is not finished. It is only natural to be afraid when you start trading. It's like any other activity, you go into the unknown, and you don't know if you can do it or not. With time and experience, this fear disappears. It is force of habit that tends to reduce fear.This lack of self-confidence can also come from the fact that you do not have a precise trading strategy, that you trade based on feelings. People need to be structured, supervised in what they do, and this is essential in trading. Without strategy, you will get lost, you will no longer know what to do, you will gradually doubt yourself and, each time you open a position, you will generate fear.
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Lack of confidence in your trading strategy
: A trading strategy is your guide. Experienced traders follow it to the letter, even after a series of losing trades or a week of negative trades. Why? For the simple reason that they have confidence in their strategy. This confidence has been built up over time, as they see the positive results generated over the long term.The problem is that most novice traders question their trading strategy as soon as they lose a single trade. Hindsight on their strategy is not enough to have complete confidence. As a result, with each trade, they doubt the outcome of the trade, of their strategy and this generates fear. That's why we always advise you to test your trading strategy on a demo account for at least one month, it allows you to gain a minimum of confidence in your strategy.
Confidence in your strategy is acquired over time but also from the start. If you determine your own strategy, if you understand the mechanisms that give you signals, if these mechanisms seem logical and relevant to you, you will have more confidence in your strategy and therefore less fear. Defining a trading strategy takes time and a lot of work, but it is necessary to succeed in the financial markets.
On the other hand, if you use someone else's strategy, you find that your confidence stops at the slightest losing trade. Effectively, you do not necessarily understand the mechanisms of opening a position and this is what makes you doubt it in phases of loss. For this reason, each trader must have their own trading strategy.
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Risk too high
: If you risk too much of your capital on every trade, this inevitably leads to the fear of losing. Losing all your capital is difficult to accept, but losing 5 or 10% on a trade is just as hard!The fear of losing can therefore come from abusive use of leverage. The greater the leverage, the greater the risk. You have to take leverage into account for each position and also the global leverage on all your positions! All your trades could go the wrong way.
If possible, do not use leverage on your positions, especially if you are a novice trader.
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The fear of making mistakes
: No one likes to be wrong, but in the financial markets, it is the market that decides. You can do the same analysis as everyone else, it does not guarantee the success of your trade. Novice traders often find it difficult to realize this. They see a losing trade as personal failure, as an error in their analysis. No, the mistake is believing that we can win all these trades. Losing trades are part of trading, accept that fact.Losing a trade doesn't mean that you were wrong, it just means that the market didn't agree with you. It's totally different. Technical analysis is based on probabilities, and it talks about probability, it talks about the percentage of chance that the opposite scenario occurs.
The negative effects of fear on a trader
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Poor loss management
: The fear of losing can lead you to moving a stop loss (or not using one at all) to avoid taking your loss. A latent loss is still a loss. The fear of losing is due to a refusal to accept losses. As long as you don't accept losing, you can't win in the financial markets.From the moment you try to avoid taking your losses, you have already lost. Taking a loss should not be seen as a failure but as an optimization of your account's performance. Negotiating a losing trade well has the same impact on overall performance as a winning trade at the end of the month.
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Poor earnings management
: The fear of losing also leads to prematurely cutting positions to protect gains. A position should only be cut if you see technical or fundamental signs of movement exhaustion or if your objective is achieved. If you cut manually for other reasons, it is fear that dictates your actions.If you cut your trades too quickly when they are winning, it has a significant impact on your performance. You can't be a winner in the long run. You must let your gains run and be able to take your losses quickly (see trading rules).
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Paralysis
: In some cases, fear can literally block the trader. Either he is in position and no longer touches anything, or he is unable to open a new position. If you have come to this point, it is probably because your risk is too high or you trade with too much of your savings.The only way to regain confidence is to return to a demo account. If you have trades in progress, cut everything, take your losses rather than risk losing all your capital.
Conclusion
Fear is always due either to a lack of trading knowledge or to taking too high a risk (leverage or amount of capital invested). In the case of insufficient training, it is quite normal to be afraid. This fear can be overcome by training but also by developing your own trading strategy. A strategy is used to structure your trading and make your decision-making rational (based on accurate signals).
Each trader has a different level of risk aversion. You must take this into account so that you are not overwhelmed by fear. If your risk management is appropriate, you will gradually gain confidence in your strategy and fear will fade over time to disappear completely. Trading that wins is trading without emotions!
