I’m sure you’ve heard that the two main emotions that enter into trading are fear and greed. Today we will discuss about Fear of Losing. Many Traders i have interacted with have one common question why i am unable to ride my trade to the fullest. In the ongoing rally in World Markets many traders have missed just because of this fear.
How to overcome your fear of losing
Overcoming that fear, and finding acceptance with loss, can be done with a shift in perspective, but getting there will take time and practice.
Experienced traders accept that losses are a cost of trading.
If you struggle with a fear of losing,
- You may be trading larger position size than your account would allow.
- You are trading which is under capitalized.
There are five possible outcomes to any trade:
- Large loss,
- Small loss,
- Break-even,
- Small win
- Large win.
When you eliminate the large losses by using stops properly, we expect the small losses and small wins to cancel each other out, leaving you only large wins. Sounds easy enough, right?
Why Traders Exit Trades Too Early
The first is that they have watched a trade go profitable, say Rs 2000. Then, as the Trade pulls back to where the trade is only up Rs 500, the trader will often be afraid of missing out on any profit at all so they will quickly exit the trade.
Guess what probably happens next?
The trade very often goes to their profit target without them along for the ride. That fear of losing caused them to miss out on profits.
The Second reason for exiting trades early is not being in the right state of mind. That basically means that the reasoning behind you going into trading in the first place is to ‘get rich fast’ which never happens. Your mindset influences your habits and your habits are essentially what make or break you in the market. Slow and steady wins are what you’re aiming at here.
The Third reason for exiting trades early is ‘Recency Bias’, which means that people are much more influenced and affected by something that happened recently than by any other older experiences. So in the case with trading, if you have had a series of unsuccessful trades, you will then be much more cautious and nervous in your next trade, which will lead to a premature exit. Suppose your last trade has Hit a TSL so trader will want to book profit as soon as he/she sees profit.
Trading Mind is wired for 2 things we need to be concentrate about
a. To Associate
b. To avoid pain
So Our Mind want to always associate with outcome of last trade and it want to aviod pain of losing a profitable trade.
If you consistently exit your winning trades too early out of fear of losing profit, guess what happens to your big wins? They don’t exist, that’s what! You might not be losing money as a trader with this strategy, but your probably aren’t making good money either. New traders often quit because they just aren’t making enough to continue to trade. So we need to fix this problem.
The Solution to Exiting Trades Too Early
There are two things that I recommend in class to help with this issue. The first is to trade in the direction of the trend.
- You can use a trendline, moving averages(20 DMA or 5 EMA),Trading with the trend definitely helps the big wins happen.
- Stop staring at your screen when you are in a trade! If your plan was to be in this trade for a couple of days, yet you are watching the one minute chart, you are doing it wrong! If watching every couple of tick go against you makes you fearful of losing profits, step away from the screen for a couple of hours at a time so you won’t be tempted to exit a winner too early. The Psychology Of Speculation