How to Deal With Fear in Trading

When you first learnt about the potential of trading, hearing lot of  rags to rich story, a normal person do get tempted and  probably venture towards trading.

But then, just before you started  trading, you heard stories of traders losing fortune and the Stock Market Scams of Harshad Mehtha, Ketan Parek and Satyam Scam . You probably heard of the large percentage of loss-makers and than fear sets in should we trade or not. Are market manipulated by the FII”s and Operators.

If you eventually managed to overcome that initial fear and traded, then you probably have to battle other fears each and every day. A common scenario is where you enter a trade on the prediction that it will go in a particular direction.

For example You took a trade in morning its making money for you as per your trading plan.After 1 hour trade achieves your intital target but it keep going up and up as per your plan.Then halfway into the trade, it starts losing. All of a sudden, your 10K gain of a few minutes ago has been reduced by 3K and sliding further downward.

If you give in to fear at this point, you will exit the trade to save the gains you had already made. Then a few minutes after you exit the trade, imagine seeing the gains returning and the trade closing just as you had initially predicted it would with 20K gain. Now that is how fear can ruin your trading and drain you psychologically.

There are various ways you can deal with fear and be a successful trader. Let me discuss few of them

1. Over Analysis of Trade.

One common mistake that most traders do is what is known as profit-counting. You enter a trade and sit at your work station staring at the computer screen watching the price-chart action of your trade.The problem with this is that when prices start moving in a direction different from what you had predicted, most traders tend to panic. This leads to illogical decisions such as exiting the trade early.

To avoid this, you should learn to simply walk away from your trades. Make your analysis, confidently enter your trades, set your stop loss and take profit levels, and simply walk away from that computer. More you analysis your trade more confusion will be created by your mind and which will lead to unnecessary panic.If you have taken a positional trade do not track trade every 5 mins, To make big money you need to give your trade time.

 

2.Do Not Trade To Be In the Market

One common mistake especially prevalent with traders is that most feel the urge to simply enter a trade just to be in the market.

They feel that no minute should be wasted and every moment presents an opportunity for lucrative trade. While this is true to some point, it does not make sense to enter trades only to lose money. You should only enter trades that you have confidence in.

The best way to overcome this strong urge to always be in a trade is to have a trading plan. That means you cannot just enter a trade if it does not fulfill the requirements set in your strategy. Before entering any trade, ask yourself two questions:

1. Does the trade fall within the set guidelines of your trading strategy?
2. Have you carefully conducted your analysis and have compelling reasons to believe the trade will be profitable?

Once you have convincingly answered yes to these questions, then you will have less fear of losing your investment in the trade.

3. Trade 2-3 Instruments in starting

Always try to trade in not more than 3 instruments at a time.

Once you have adequate experience and have mastered trading 3 instruments you can add on another and take just as much time practicing on it and mastering it before adding a fourth.One thing every  trader needs to understand is that every instrument is unique and each instrument  differently to market forces.

 

4. Do Not Hesitate

Trading is very much like a boxing match. Sometimes you have to just guard your face and watch your opponents action, but the moment you see your opportunity, you have to act right there and then without hesitation otherwise you will get knocked out.

You should not rush into trades, just do your analysis and wait for the opportune moment. However, when that moment presents itself, enter the trade without delay.Losing time in contemplation will see you losing precious moments and maybe by the time you finally make your decision, the price action may have turned in the opposite direction.

What about you? How have you learnt to overcome fear in trading? Enter your comments below to assist another trader struggling with this dangerous habit. We would love to hear your comments.