How to Overcome Your Trading Fears: by Justin Paolini

One of the issues that new and experienced traders face over and over again is the fear of having losing trades. Much has been written about overcoming the fear of loss, but most people just have too much trouble accepting the fact that it is part of the game. We offered some tips in a previous article but this time we will try to give some alternative practical exercizes to help overcome the fear of loss – or any other fear for that matter.

Decision Paralysis

At a very basic level, not being able to pull the trigger on a trade due to fear of loss is simply the fear of making a bad decision. Many people that suffer from fear of loss actually demonstrate the same fear in other aspects of their lives. For example, over the years I have spoken to people that:

  • were afraid to make a career change, despite an initial salary increase, in case there were unknown difficulties further down the road;
  • were apparently very confident but in reality delegated all important decisions to their boss, wife and family;
  • were effective and motivated in various aspects of their life until life threw them a curve ball and they were unable to get back on their feet.

The bottom line is that when a person has trouble taking on risk (often even with small amounts of money), the reality is that the person is most likely not taking the responsibility for other important decisions in life either.

Be Courageous

Fear knocked on the door. When Courage when to answer, he found nobody on the doorstep – Tony Robbins

Whatever fear you have cannot be eliminated alltogether. Show me a person that has conquered their fears, and I will show you a person that found the courage to face their fear and manage it successfully. Here’s what doesn’t work:

  • avoiding the situation (it will always come to haunt you)
  • attempting to control things (control is an illusion)
  • attempting to simply “accept” that you have a problem (this is a very limiting belief that will hinder your self-esteem)

So instead of running away from your fear, learn to manage it and potentially exaggerate it in your mind, until it doesn’t seem all that menacing. Let’s see how.

Exploit the Paradox

I was set free because my greatest fear had been realized, and I still had a daughter who I adored, and I had an old typewriter and a big idea. And so rock bottom became a solid foundation on which I rebuilt my life. –  J. K. Rowling

Paul Watzlawick and the Palo Alto school of psychology have studied an ingenious way of helping people overcome their fears. They have found that by voluntarily exaggerating and fuelling your fear produces a mental and physical paradox. Our nervous system deactivates and allows the body to continue functioning.

So here’s what you can try at home:

  • for one week, each day for 30 minutes in a secure space, envision the worst possible manifestations of your fear. For example, if we’re talking about the fear of having losing trades, then exaggerate that concept. Imagine not being able to win even 1 trade. Imagine being a total failure at this whole trading game and what that would mean to you personally. Exaggerate all emotional connections to the fear of losing.  Usually, these catastrophic consequences don’t manifest themselves. And in any case, once you have prepared yourself for the worst possible consequences, everything else seems a little easier. After all, if it’s not a life or death situation, what are you really afraid about anyhow?
  • during the second week, think about your fear intensly for 5 minutes every 3 hours, without stopping whatever you are doing. Imagine once again your “worst nightmare” during those 5 minutes, especially if you are confronting the very thing that generates fear or anxiety. This will help you overcome the tendency to avoid your fear.
  • a variation on the theme is also to take some time in the morning to write down all your anxieties and worst nightmares that could happen during the day, and then simply live your day without avoiding anything. At the end of the day, check how many of your worst nightmares actually manifested themsevels.

By voluntarily exaggerating our fears, day after day, we’re exposing our mind to something greater and to be honest, usually people just get tired of that particular fear after thinking about it so intensly for so long!  In any case, these strategies help to really put your fear into perpective and hence develop the courage to accept the fear but do things anyway.

Over to You

We are bound by invisible ties to our fears, and are vicitims of our expectations” – J.K. Rowling

Nobody likes to lose. Nobody likes to go through drawdowns. But trying to avoid losses and drawdowns will only make things worse. You can manage your losses (by cutting them at the knees as soon as logically possible) and your drawdowns (by reducing your position size, by filtering quality trades, by making sure you’re not overtrading) but you cannot avoid them alltogether.

So do something better: learn to confront your fears with the techniques illustrated above and let us know how it goes. By finding the courage to face adversity, your trading (and your life) will never be the same, for the better.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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