4 Trading Fears

Apurva Sheth
Psychology is one of the basic components of technical analysis along with mathematics and geometry. Psychology is a subject that best helps us understand human nature and emotions. It helps us to know why people feel, think and act the way they do. One of the main reason why technical analysis works is that human nature and emotions remain the same irrespective of era one is in. People were greedy and fearful even a hundred years back as much as they are now.

Greed and Fear are the two most common emotions that you will come across while trading. Amongst the two fear is the strongest emotion. Fear is an emotion that will dominate most of your trading. Contrary to what most people think being fearful is not bad always. After all without a fear of loss one would become reckless in trading which can lead to disastrous consequences. It is only out of this fear of losing more than one can afford to lose that traders develop risk management systems and techniques to contain their losses. So fear is not bad always. But the fears which I am going to talk about today will generally lead to 95% of your trading errors.

Over the weekend I read a book 'Trading in the Zone' by Mark Douglas.  Mark is one of the pioneers to write about trading psychology. Trading is a highly competitive field and it throws up challenges almost on a daily basis. Most of these challenges are psychological than anything else. This books speaks about the challenges and ways to deal with them. One such problem which Mark has identified is trading fear. He believes that 95% of all trading errors crops up from these 4 trading fears. Let's have a look at each one of them.

1. Being Wrong

This is one of the biggest fear that a trader comes across. The primary purpose of trading is to make money. And while doing this one will make money on some trades and lose money on others. This is quite natural. However many traders fail to accept this phenomenon. They simply couldn't pull the trigger if they feel that there is a slightest possibility of the trade not going their way. The fear of being wrong can simply immobilize you. It can cause you to freeze physically. How many times has this happened with you that you were very confident about a trade but couldn't take any action on it? And eventually this stock would move exactly the way you had thought of initially.
2. Losing Money

Apparently the top two trading fears are also the top two fears that a normal person faces in regular life. Nobody likes to be wrong. And nobody wants to lose money either. Apparently trading is a field where we come across our life's biggest fears on a day to day basis. Each and every single trade we do has the potential to set us up against our worse fears. Every trade you do has an uncertain outcome. Uncertainty automatically leads to the fear of being wrong or losing money. Until and unless you learn to embrace the possibility of an uncertain outcome you will never be confident about your trades. The fear of losing money will affect your ability to be objective and act without hesitation.
3. Missing Out

The fear of missing out a move is one of the most common fears seen after a trend has picked up momentum. This fear normally leads you to enter into a trade not on its own merits but purely on the basis of not wanting to miss out. The trader just feels compelled to trade irrespective of his conviction in the idea. How many times have you felt the urged to trade just because your neighbor, friend or a relative spoke to you about his last trade and how he made money in it?  
4. Leaving money on the table

This is a fear that even seasoned traders face. Once a trade is in a favourable position you would repeatedly get the urge to book profits earlier than you had initially thought of. The fear of leaving money on the table works exactly opposite to a golden rule of trading which states to cut your losses short and let your profits run. On the contrary what normally happens is that one would book his profits too early and let the losers run.

Have you come across any of these 4 fears while trading? Share your views in the Club or share your comments here.

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6 Responses to "4 Trading Fears"
07 Aug, 2015
Sir, the article is perfectly correct and need to also suggest how to overcome these fears. Secondly it is also difficult for the investor to know when to come out of it, unless we have something like trailing loss, I am also confused to put sl values, the broker can take advantage of this value being known, and some time the investor misses the ball.Like 
01 Aug, 2015
Hi Apurva........... absolutely appreciate your articles related to the various aspects of trading.... including this one on Fear..... but would have liked it even more if you could have also spelt the remedies to over come the emotions of greed and fear. Thanks and best regards.Like 
01 Aug, 2015
Yes, Apurva. I admit that I have come across all the four fears you mention. However, it seems that the first two aren't unlike each other. In the market, being wrong is almost equivalent to losing money / money-making opportunity.Like 
31 Jul, 2015
True and well said. As long as one trades on some one else money it is easy to manage the trade like all professionals. when they start trading on their own all the above factors will applyLike 
30 Jul, 2015
H absolutely right..I hv faced these 4 fears while trading..but decing on tgts is itself a difficult task...Like 
29 Jul, 2015
sir,your article trading fear is 100% correct.but how wa can rectify Not only trading fears ,but all the problem of fear is problem our mothers fear while we are in a fotus stage. when fear arrives in our mind,Our mind work s bi-polar way that's why entire market oscillates For my personal point of view all Intechnical anasis are failed because of all individual minds are working in own way. .RegardsLike 
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