Trading Fears - Losing money, Missing Out, Being Wrong

In my experience there are 3 fears of trading all traders experience at one point in their careers:

1. Fear of Losing Money
2. Fear of Missing Out
3. Fear of Being Wrong

From my own trading I contend with the 'Missing Out' more than any other fear. Of course I still have fears of 'Losing Money' and 'Being Wrong' but I believe that with experience I will conquer all 3 of the fears and be the trader I want to become.

Mark Douglas has beautifully written in his book 'Trading in the Zone' that there are 5 Fundamental Truths in Trading:

1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

If you are able to accept these 5 facts then you are on your way to becoming the trader you want to be - FEARLESS.

Now you may be wondering on the steps I have taken to help me achieve my ultimate goal of eliminating the 3 Fears. I have incorporated rules and guidelines in my trading plan which will help me achieve this goal, they are simple steps but you must never under estimate the power of simplicity.

The Fear of Losing Money - I have set aside some capital for my trading. Of this capital I only risk 1% on any one trade and I set myself a loss of 4% per week before I stop for the week. Just by using this simple money management technique I would have to have 6months of consecutive losses to lose the whole sum of my capital. By looking at my capital in this point of view helps me to maintain focus on my trading and not on losing money as I have a trading strategy that give me positive results over the long run. More importantly I beleive in my strategy with lots of backtesting and prevoius results.

The key to conquering this fear is by setting aside some capital that you are honestly able to accept to lose. This is something only you can decide and only you can set.

Fear of Missing Out - You cannot catch every move and you cannot trade every minute of every day. This is a fact! If you can accept this then you have ultimately accepted that you will miss trades. To be successful in trading you must have a strategy. This strategy gives you an edge in your trading, this strategy identifies when you enter trades, manage stops and manage exits.

I have a strategy that I know in the long-run will return me more winners than losers. This strategy is a trend following strategy. So I WILL miss all the counter trend moves, this is something I have to accept. Yet for my trading w/e 8th Jan I traded the USDJPY against the short term trend. Yes I found myself breaking my own rules, which has left me dissapointed. I was scared on missing the move. I have taken this on board and have said to myself that I will not break this rule again. My motivation to help me get on the path to eliminate this fear is by looking at my weekly results; if I had traded my rules I would have been up 3.65% rather than only 2.2% for the week.

Fear of Being Wrong - If you believe that anything can happen in the market then you conquer this fear. Every time you decide to buy or sell you have essentially tossed your coin (which is weighted to a positive expectancy as your strategy gives you an edge) and all you can do now is wait for you targets to be hit or your stop loss to be hit. No-one, yes n0-one, has a 100% win ratio in trading. You have to remember that this is a zero-sum game. If you have a winning trade then someone else has had a losing trade.

I find this the easiest fear to contend with. I actually do not fear being wrong. To really accept this you must embrace the 5 fundamental truths of trading on a deeper level. By just acknowledging one of the above truths you can start eliminating the fear of being wrong.

Happy Trading
http://www.tradefxlive.co.uk

I absolutely agree, and we all go through them. Your money management is very smart - I like the 1% and 4% - but the big thing is being willing to accept a loss at that 1% or 4%. Many people are willing to take larger losses, yet jump out as soon as they have a small profit. I've seen students take hundreds in a loss and close out as soon as they have $20 profit. When you don't accept the pre-determined stop loss and get out, you can wipe out weeks of profits...

I also agree on the missed trades fear. My coach taught me that it's better to miss a good trade then get in on a bad one...

A lot of traders fail is because they do not have good money management. The most I can accept is 1:1 ratio. For me, I'll take small profits if the market condition is not trending. If it's trending, I'll still take small profits for some lots but leave the rest of the remaining lots to run.

Although Forex can be started with small capital, but when they trade using just 1% of the account, they see that the returns are so small and they will tend to trade with bigger size. That's many traders' pitfalls.

If one's strategy is to take a lot of small losses and from time to time to have one win bigger than all losses, missing a few good trades means that is impossible to recover the drawdown.
This is another mantra without value, as a good trade can mean something else for every trader. And it creates useless problems as the profitability of a trade can't be known in advance.

Great post!

It's interesting how people differ, though. I'm an innate perfectionist, and being wrong is definitely the biggest fear for me. Demo trades make me just as nervous as (small) live trades. I feel a great sense of relief every time price reaches a profit target, and I'm able to close it out. If a trade that I believe was an A+ setup turns out to be a loss, then (probably irrational) doubts about whether my 'edge' is real start to creep in, regardless of whether it's demo or live. That's huge to me, because it would mean that if I have no edge after 3 years of dedicated study, then I'm no closer to my goal of being a profitable trader than when I first began. And I begin to question whether it will ever be possible for me to do so.

I agree with you about the way to conquer the fear of losing money. I mentally write off my entire account before I begin: I view it as an up-front payment toward furthering my forex education.

Re position sizes and amount at risk, I think that everybody has a personal 'threshold' for tolerance (which is probably the result, at least in part, of their financial situation, and appetite for risk), beyond which they make irrational trading decisions. For example, for me personally, I can watch a live trade go $50 against me completely impassively, but if the floating loss became $500, I'd start to feel some real anxiety. Hence I know that my personal threshold lies somewhere between those values.

Fear and greed are not necessarily enemies. Unlike most people who apparently hold on to losing trades too long, fear of greater loss makes me want to close out some trades even before my stoploss gets hit. For those who believe that 'letting profits run' provides some kind of statistical edge, greed is their best friend. And for those who believe in the maxim 'never let a winning trade become a loss', the fear that drives one to close the trade before it hits the red is a helpful emotion.

I hadn't thought much about the fear of missing out. There will always be another opportunity tomorrow. I read somewhere that it's better missing out on a winning trade than being caught up in a losing one. My emotions would agree, but my intellect sees another possible angle: that the missed winner would have added to my annual bottom line, offsetting some of the losses along the way. That's a good reason why it's important, even for me as a largely discretionary trader, to have a clear and objective entry strategy.

I believe it's likewise important to have a strategy for exits, even if it doesn't deliver much of a statistical edge. I read somewhere that, without such a plan, traders tend to exit positions out of either fear or boredom. That rings very true with my own personality. I like to set targets (both upside and downside) before I enter a trade, when my thinking is at its most objective. As the cliche says: plan the trade, and trade the plan.

But of course I can speak only for myself. Everybody is different.

I forgot another big fear.

The fear of failing! This really is another one to crack. You have to take the plunge and give yourself the life you think you deserve.

'Nothing ventured, nothing gained'

I agree you must have a strategy to take profits. I use 1:1 for half my size and 2:1 for a quarter and the final quarter I try to squeeze as much as I can by trailing dips/emas and have a fixed 80ish point target, which ever comes first

Successful trading, as in total trade domination, has everything in the world to do with taking full advantage with #1 and #3 in your fellow traders.

As I have found, fear and anxiety in trading is a symptom of a lack of knowledge. The more knowledge you acquire, the better you'll do and the more cool headed you'll be.

The traders who are out there making a killing week in and week out are not walking around with their stomachs in a knot. They take trades they know will win. Many of you will disagree with me about a trader actually knowing he can win.."It's just a game of probabilities," you'll say, but the market can't do whatever it wants. It's full of scared people who are always predictable. Scared people always do the same thing..Heck, careful- prudent people are just as easy to pick off. Trading is a zero sum game..If you can identify who's in, who's out, and how much is on the line, you can trade with absolute confidence. You can use a stop loss it you want, but if you can identify the variables I shared, your account will be growing so fast you won't mind the tiny losses here and there.

Scotty B

It should be required to have read Trading in the Zone before being allowed to open a Forex Account.

I assume things are going well.

As I have found, fear and anxiety in trading is a symptom of a lack of knowledge. The more knowledge you acquire, the better you'll do and the more cool headed you'll be.
Excellent, Scotty! I agree that knowledge is the key.

Trading is a zero sum game..If you can identify who's in, who's out, and how much is on the line, you can trade with absolute confidence.
So the question is: how to identify who's in and how much, at any given point? Can this be ascertained from mere price charts (guessing where stoplosses etc might be placed, around key S/R areas, for example), or does one need the 'insider info' that Darkstar alludes to here ("What you need? A prime broker currenex/ebs account, IFR, Oanda open interest, some friends on the inside of a large bank or brokerage,....")?

Very insightful post. As a new trader of six months I find myself battling those fears daily. Fears, that through perseverance I shall over come. Thus creating in me, my true Trader.


Now where are me Worry Beads?! ...

No, you don't need to guess where the stops will be. It's fairly obvious most of the time. You need just a little more than a price chart. I don't know what Darkstar and the other orderflow guys are doing, but if they are staring at the tape, mkt depth, and bothering friends who work at banks, they are wasting lots of time. Also, I've seen DS say that he only trades a few times a month. I think he mostly trades at news times though..I trade several setups a week. It's all the same thing though. To each man his own..You'll figure it out Hanover..And when you do, Shhhhhh quiet!

Thank you for sharing. People like you make a difference in my trading. We all need to learn and grow together.

I'll have an opinion on this.

Fear of Being Wrong: Well as we know, any trade can go against us. You can't "predict" the market. So, Fear of Being Wrong shouldn't be a huge issue.

Fear of Losing Money: That's a valid fear. Considering that is the reason every one of us is here, to make money.

Fear of Missing Out: OK, I think I'm ready to tear this one completely apart....

Missing Out is caused by Lack of Discipline, Lack of Attention, Professionalism... it's Epic Fail.

And we've all heard the mantra,

"It's OK to miss a trade, they're like a bus.... another one will come along."
"Rather miss a good trade than be in a bad one"
"You can't catch every trade"
"The market will be here forever"

Dare I say.... "Blah, Blah, Blah".

Hanover, in another great post said.......

That's exactly right, in my opinion.

Saying that it is OK to miss a good trade setup is another Great Forex Myth.

Think about it..... This is a business, right ??

This is a serious business, however, it's OK to slack, screw off, and put up a 'small' effort ??

Would a professional company say that it's OK if my salesmen missed a bunch of opportunities this month because.....
....because what ?? Fear ?? BS

No. Missed because they were too busy playing computer games, email, etc.
Missed because they were just not paying attention.
Opportunities missed because they were just not doing their job.

Now I know that some trades are 'missed' because, at the time, I didn't feel I had a strong enough signal. That's not missing it. That is deciding against it. If that is due to Fear.... than it is one of the other two.

Fear of Missing It..... oxymoron.

Great post Price.

I agree with on this actually. You have to have a plan and decide when you will trade what instrument you will trade and what setup you will trade.

If you miss the trade during your trading time this is unacceptable! You have to have flawless execution swithed and no excuses should be going through your mind.

I agree. When it comes to discipline, being serious, and treating this like a real business.... yes, Each day we need to turn in an Olympic Performance.

(I suppose it could actually be OK to kick our feet up and not give a rip. Just don't blame it on the br0ker !!)

"Fear of missing it ..."

The question to me is not so much "missing" or passing on the bad trades. It is more a matter of missing the good setups. Those setups that are lost due to inexperience.

In the beginning many good setups are lost. This isn't a fault in the Trader so much as inexperience. The Trader not having the visual acuity to recognize the one or more aspects that make a trade "good". One of my most recent lessons is the acceptance of time. For so long I've been digging for as many trades as possible. I had forgotten the simple mantra "Quality over Quantity", which is a part of "Fear of missing it ..."

Now, while I am studying my charts 8, 10, 12 hours a day. The only trades I take are those that are clear and on point with my system. There is no fudging of the rules because I might miss a good trade.

As far as "Fear of being wrong ..." It is most certainly is a valid fear. Man by its nature as a being with an Ego needs to be right or correct in its judgment. Take away the Ego and being right is to an extent instinctual, well the need to be anyway. The man or being who is wrong does not eat or turns into danger not safety. So "Fear of being wrong ..." is most certainly a valid fear.

The difficulty comes in letting that fear go in the context of trading. As a Trader, "Fear of being Wrong ..." is a fear that must be let go. This is accomplished through the acceptance that in trading, where many professionals average 50-60% positive trades, losses are inevitable. It also means that we need to accept that Losses do not necessarily mean we were wrong in our assessment of the trade. You could have done everything right and still take a loss simply because you fell into bad side of the probabilities. We as Traders must, absolutely must, recognize the fact that there is but two absolutes. The first, the market will move in a direction. Not necessarily the one you want, but it will most certainly move. The second, you will never, I repeat never, be 100%. Not an easy concept to accept, but one that must be learned.

Well I have blathered on to long. I will continue to read this thread with interest.

I relate 'fear of failure' very closely to 'fear of being wrong'. With trading, if I'm wrong often enough, I will ultimately 'fail'.

At the risk of sounding unduly self-absorbed....... I've come to realize that my 'fear of failure' is actually the by-product of a deeper fear: fear that, despite my recent performance, I don't have a real, enduring edge. If I could somehow know with absolute certainty, that if I traded the same setups in exactly the same way in the future, that the probabilities involved were guaranteed to remain constant, then I could trade fearlessly. That would be possible if the probabilities involving price movement were fixed and calculable, as they are with casino games. If (hypothetically) casinos were to introduce a game where the player won 60% of the time at 1:1 payoff, with no house limits, fully scalable stakes, and a reasonable transaction frequency, would I suddenly lose interest in forex trading? You can bet your bankroll that I would!

Why the fears about my (supposed) forex edge? Well, what if the belief systems that create the technical patterns change over time? What if my performance to date has been nothing more than fortuitous (see the Joel Rensink quote below)? What if, due to (for example) inexplicable economic shifts, or 'black swan' events, I fall victim to a freak sequence of losses? What about Keynes famous quote that "the markets can remain irrational longer than any trader can remain solvent"?

My fear is likely irrational. That is, of course, the very nature of fear. Uncertainty is an integral part of trading, but one must assume that one's setups will continue to hold good, on similar basis of probability, into the future; that past performance offers some real indication as to future results. The alternative is to quit trading altogether. Like you say, nothing ventured, nothing gained. Exactly.

Fear is what keeps us working for people who had the guts to face their fears and realize the potential the world has to offer. Frankly, I would rather go broke trying, I can always find a job.