Fear of Loss in Trading

Some traders do not like to be wrong; in fact, from an ego perspective, none of us really like to be wrong. If you interpret a losing trade as being wrong, then you are going to naturally not want to incur any losing trades; and again, this can best be achieved by not trading, or by being very cautious and hesitant. But it is, itself, in error; and merely deals out loss pre-emptively, by denying
you prudent, profitable trades. Traders who are afraid of losing will often enough actually create interference that prevents them from pulling the trigger. Fear as an emotion enables us to withdraw – in the case of trading, to not trade; to withdraw from the markets.

How are you creating your fear of loss?

Is it from taking excessive risk and aiming to trade positions that are above your threshold and propensity for loss?

From a self-protection perspective, by not trading you are saving yourself from the pain of loss. If you reduce your trading size and take less risk, you may find that your ability to actually
execute improves dramatically.

In fact, I would say in the majority of cases I have come across where traders are having challenges pulling the trigger, excessive risk-taking is one of the core causes. Consider your sizing in relation
to your own threshold for loss, your trading account, and, where appropriate, your personal wealth.

I remember one of my students who took my Psychology course a seminar on improving trading strategy execution and one of the key points was trading appropriate size and managing risk so that you are free to execute.

One of the people who attended that seminar emailed me a few days later to say how, after months of getting frustrated and annoyed about not pulling the trigger on their trades, they had made a significant breakthrough with their trade execution.

What had changed?
They had reduced their trading size to the minimum – reduced the level of stress and fear that had been keeping them out of the market – and were now free to execute without hesitation.

You could also be afraid of loss simply by dint of hating to lose, regardless of the amount. This shows that, as a trader, you have not embraced one of the fundamental facts of trading life; that losses are a natural part of the trading cycle. No one likes to lose, but unless you deeply and truly accept its statistical inevitability then there will always be interference in your trading, and you will
not achieve your full trading potential.