In This Episode
- Why you should rush back in, when you're afraid
- There's nothing to really fear in trading
- Habit breaking strategies that have helped us overcome fear
Fear of Losing in Trading and Strategies for Overcoming It
This is a big one for many traders, so we sat down to talk about the causes of fear and how to overcome them. We give you practical strategies that have helped us in the past and could help you too.
Walter also brings up a great point that employees trade time for money. However, traders trade risk for money.
There's no right or wrong here, only what resonates with you. But fear could simply be a perception if you are used to trading your time for money.
Listen in to learn more…
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Read the Transcript
Walter: Hi, Hugh. I was talking to a trader today just before we got on. He was asking about fear. How do you deal with fear? If you've got a lot of fear in your trading, what do you do about it? I guess the question was: Where does it come from?
So I kind of equated it to one thing but I would like to hear about what you think about fear. What does fear mean in trading? How do you deal with it? What are some techniques to wrap yourself around the fear of taking trades and trading in general?
Hugh: Well, in reality there is nothing to be afraid of trading. You are just going to lose some money. You are not going to get shot. You are not going to be attacked by a lion or whatever. You are just going to lose some money. So any type of fear is irrational.
You have to ask yourself, “Where does that come from?” Is it fear of losing all your money or is it fear of being wrong? Is it fear of just knowing your ego being bruised? Those are kind of the biggest ones that I think a lot of traders run into.
Once you can identify that then you can start working on it but if you are still afraid then you have to figure out what the source is. Otherwise, you are kind of just going to be afraid all the time. Once you identify it then you can start to work on it. That is what I think at least. What do you think?
Walter: I agree. I think about these coaches in the NFL. These great Iron coaches. So what they do is they have these stories and they wear the stories like a patch on their sleeve, “Oh, I slept in the office. I get up every day at three-thirty in the morning. Go and watch a film”.
They have these big, you know, this is their thing. Thinking about it, why do they do that? Why do they spend so much time watching a film of their opponent? The reason why is preparation. Because when come game day, they feel like they've prepared their team. To the point where they can kind of expect anything and they know what to do in any situation.
They've prepared so they know what to deal with and they have a plan for what's likely to unfold. All that preparation reduces the anxiety. It is the same with trading. The more prepared you are, the more you've seen your system through different types of markets. Through your back testing or demo trading or live trading. If you've been trading for decades then the more likely you are to be able to sit through it and be able to feel like, “I can do this. I've got it.”
Now here is the thing. Fear comes from uncertainty. I had this experience where I was surfing back home in California, in December. I think it was the day before Christmas. It might have been Christmas eve. It was, you know, rainy. The water was brown from all the dirt rush, in the rivers rushing into the sea and I was surfing this reef. It was pretty big.
The waves were pretty big, and got held down. Wiped out, held down onto the reef. Kelp everywhere. This thick northern California nasty kelp held down onto the reef. It is black down there and I could not get up. The next wave came and held me down. It is the dreaded two-wave hold down. You do not want to have multiple-wave hold down because you start running out of air. You start panicking.
Finally, I came up and then I kind of let the waves wash me in and I was shaking. I was sitting on the beach and I was thinking I really should go back out there because if I let this fear kind of fester for a while then I am going to have that in the back of my head when I go surfing. Especially if I go surfing at this place again.
So I force myself to go back out there and pedal back out there. At least get one wave and then come in, do you know what I mean? I could say that you know, that I did it and really I think that is where it comes from. The fear of uncertainty. Not knowing what is going to happen but as you said, you are absolutely right.
What is going to happen in trading? You are going to lose some money. You are going to make some money or nothing is going to happen. You ain't going to lose money or make money, that's it. That is it. Now, might you get gap. Might the market move fast and get you out beyond where your stop-loss was and you lose a little bit more than you are expecting.
Absolutely, but the same thing if you use like a trailing exit or something, the same thing happened. You get more than you expected if you allow that for yourself at the other end. So to me, I think this idea of being fearful can come from a lack of preparation or a misunderstanding of the unknown. I mean, in a lot of ways the unknown is what makes life so exciting.
Imagine if you got up and every single day you knew what was going to happen, it was groundhog day, right? Like that Groundhog Day movie with Bill Murray. So every day you have the same thing for breakfast. People say the same things. You go to work. The same thing happened, that would be so boring.
So being alive means embracing uncertainty and being a trader means getting paid for embracing uncertainty. You do not go and exchange your ten hours in the day for a pile of money at the end of the month like most people do. What you do is you exchange the risk that you are taking in face of uncertainty for a potential payoff.
It is a totally different world for traders and that is why you were made to be a trader because you see the world a little bit differently. So that is what I would say to everyone listening. That is really part of what makes trading so great. We get paid for uncertainty. We get paid for doing that and I think it is great.
However if that really scares you and you do not like the uncertainty then maybe trading is not for you. Maybe you need to exchange time for money. Find out or sell widgets or whatever you can do to make money because that is really the heart of what trading is.
Hugh: It is totally not for everybody. I think you bring up a good point about facing your fear again because I actually have the opposite experience that you had. So I went to the north shore after being on the mainland for a while and you know you have to get used to those waves. I got drilled right in the middle of my back. I came out like throwing up all this kind of stuff.
I never went back there but like you said in reality, I probably should have gone. Maybe like the next week and then just face that again so that I do not have that issue. I think it is the same thing in trading. You maybe have a bad week or whatever then you just get back up on the horse. Maybe you do a demo account or something. Just get back in there and not be afraid just because of that one experience.
Walter: I agree. I mean, you just do not want it to control you. You do not want it to dictate your life. In trading that is really important, you know. I do not really think of it this way anymore but sometimes traders want to get back at a currency pair. Like, you know the USD/CAD really got me last week so I am going to get my, you know fill or whatever.
I guess I used to actually think that way. I do not even remember where the last loss was from anymore. I do not even care. I just think of it as a roll of the dice but I used to think that way. I used to be like, “Alright, loonie I am going to get you. Let's see what we could do to the loonie today you know because the loonie stole a bunch of money from me last week.”
It is revenge trading, isn't it? I mean that's not very productive.
Hugh: Or, the bigger issue is like I will not trade the JPY/USD just because I lost a bunch of money. I think that is going to hurt you like in the long run.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Walter: It is like saying, “I am never going to talk to a girl with blonde hair because the last girl with blonde hair slapped me” or whatever you know. That does not make sense, exactly.
Hugh: Yeah, cool. Thanks, Walter.
Walter: See you!
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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