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For many traders and investors, particularly those new to the world of trading, fear is the most difficult emotion to overcome and control. Fear can manifest itself in any number of ways including, but not limited to, fear of being wrong, fear of not being right, fear of facing another losing trade, fear of losing money, fear of missing out, fear of disclosing losses to another party such as a spouse or business partner, fear of facing the market after a losing streak, and the list goes on. In most cases fear expresses itself physically as well as emotionally and psychologically – you can actually ‘see’ fear in people. Some signs including agitation, irritation, sweating, clenched fists, a stiff posture, a dry mouth. I’m sure many of you have experienced these signs of fear when faced with a potentially fearful physical situation or when confronting something that you find uncomfortable for the first time like parachuting or facing an angry dog.

The weird thing about our fears is that the great majority of them never actually eventuate. We worry ourselves sick about a perceived fearful situation only to have it resolve itself long before our fear is realised. Fear is often referred to as False Expectations Appearing Real.

When facing fear, it is usually good to ask yourself “What is the worst thing that can possibly happen?” If the worst outcome is too great for you to handle, then remove yourself from the situation (or don’t become involved in it in the first place), and move on. If the worst case scenario is within the realms of what you can deal with then involve yourself in the situation fully aware of what the worst thing is and then take measures to best as possible limit the situation to that worst scenario.

In trading the markets this relates to position sizing and the use of stop losses. If the amount of money we have at risk is too great and we are fearful of the loss that may eventuate, then walk away from the trade. If however we are position sizing and managing risk according to rules with which we are totally comfortable then fear can be overcome by trusting your rules will keep you within your limits. You can’t trust and fear at the same time, its one or the other in control. If we are prepared for the worst case scenario before we enter a trade, and we can handle that potential loss emotionally and financially, then we have nothing to fear.

Facing fear and eliminating it from our trading operations stems from an acceptance of the fact that we can never hope to be right all the time. If we know and understand this and employ a prudent money management and risk management system then quite simply, we have nothing to fear from the markets. We can continue to trade our system day in and day out, knowing that sometimes we will have winning trades and sometimes losing ones, but that the only way we can achieve the winners is by continually probing the market without fear of loss or fear of being wrong.


  • Kevin White says:

    Great posting Gary. As always it is a work in progress for most of us. Thanks.

  • paul wilson says:

    “If however we are position sizing and managing risk according to rules with which we are totally comfortable then fear can be overcome by trusting your rules will keep you within your limits”

    How true. A prudent approach. You can trade without destroying your trading account.

    Once I’ve entered a trade, I always feel a little anxiety. I think this is diff. to fear. This is a good thing because it keeps you actively managing a trade. My 1st target is 10 points. I ‘lock it in’ by closing half my position and adjust my stop to my ‘entry’ for the other half. Now my ‘worst case’ scenario is a 10 points profit! The remaining ‘half’ of my position is managed in exactly the same manner.

    Problems arise when you know you’ve broken your rules (it’s diff. this time) and anxiety turns into fear. That’s because of lack of discipline. (Topic in Gary’s prev. posts).

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