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Overcoming Fear: What Leads To Losses In Trading

Everybody makes mistakes sometimes - that's absolutely normal. Mistakes are especially common at the beginning of the professional journey. But the problem is not about them, but about how we assess these mistakes and whether we can find and eliminate the causes in time. One of the most common causes of mistakes is fear. The decisions we make, giving in to this feeling, make us break the rules of our own trading system and strategy. So what is this fear based on, how it affects us, and what to do to cope with it? Let`s try to figure it out.

Fear Of Loss

One of the fears that lead to erroneous trading decisions is the fear of loss. It is related to it when we exit profitable trades too early when we are afraid that the market will unexpectedly reverse and we will not only be left without profit but will also make a loss. Or we are afraid to enter the market by the system signal. Our subconsciousness suddenly interferes with our precise behavioral algorithm. It starts treacherously whispering that there is something wrong with this trade and we will lose money if we open this very position.

Or maybe we still open the trade, but too late, at an unprofitable price. This, too, happens against the background of fear of loss. We want to get as much as possible confirmation of the correctness of our decision from various technical indicators or news sources. But while we're looking for them, time passes and the perfect moment is lost.

Fear Of Missing Out (FOMO)

Another big fear that affects our trading decisions is the fear of missing out on profitable earning opportunities. Unlike the fear of losing, this fear causes us to open a trade too early, without waiting for the trading system's signal. At such times, we focus on the possible profit rather than the actual market situation.

Or we see that there is no signal from the trading system and we do not need to enter the market, but at that moment we bump into the opinion of some "expert" or a message on a traders' forum saying that everyone is opening positions in this asset. The herd instinct kicks in, and as a result, we find ourselves in a position that brings losses right after it is opened. Then we begin to blame ourselves, to be angry, and there is a desire to redeem ourselves, to open a new position to win back the loss. As a result, this leads to unnecessary fuss and even more losses.

What Can You Do About That?

If you find yourself in one of these situations, try not to become overwhelmed by your fears, but instead focus your attention on the specific market facts. Trades should be opened based on facts, not expectations. The fact is that the trading system proceeds from what is currently happening in the market, and the brain thinks about what might be, and draws different pictures. As a result, there is a conflict, and you do what your subconscious mind tells you to do.

Many traders describe their fear as a premonition of "some future events, the occurrence of which seems most likely". This phenomenon is called anxiety, and in itself, it is quite natural for us. It is the feeling of anxiety that keeps us from walking down a dark alley at night because we might get mugged. And we don't swim in the open ocean because we might be attacked by a shark. Sometimes we are even afraid to fly a plane because it might crash.

Act Upon Facts, Not Fear

There are two sides to every coin, and what keeps us safe can get in the way at the same time. When we focus on what hypothetically could happen and what our fear tells us to do, we ignore the probability with which these negative events could occur. The likelihood of a shark attacking a human being in the ocean is extremely low. Moreover - statistically speaking, our risk of being attacked by a cow is significantly higher than by a shark. If we focus on the facts, we get a completely different, safer, picture of reality.

This is not to say that we should ignore fear completely. It is there to protect us, and when the risk is too high, it is better to listen to your fear. For example, one may stop flying small planes because statistics show that it is quite dangerous. But They still trade stocks because there are strategies whose effectiveness is confirmed by statistics.

Try to focus while trading on what is currently happening on the price chart, not what your imagination is drawing. Act on concrete facts and develop a trading strategy that has a positive mathematical expectation. Move from fear to facts.


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