Binary Options Psychology Training: FEAR
After taking some hits in your trading, a new mental problem can arise: Fear. This is the second part of Playing Mindgames serious. For Part 1 Here.
The pressure of maybe suffering more losses can have influence on your decisions and even force you to stop trading even high quality setups. It can bring you off balance and make the problem even bigger. Doubt gets a hold of you and panic can force you to leave your trade plan and make mistakes. Although some traders experience this problem from their first trade, most will encounter it when taking some losses in a row or period. Experienced traders know the problem, but also know it’s part of trading. They have learned to handle losing or winning streaks and if they are good traders, they will be able to stay in balance and go on. New traders or nervous traders, however, will have a hard time coping with this fear.
Example of FEAR
Let’s imagine that you have a winning system, with about 65% of your first 40 trades arriving ITM (in the money). Your confidence is rising and you decide to trade with a little higher trade size. Suddenly four trades in a row end in a loss, then you win one and lose three again. Your confidence is in shatters and you decide to stop trading your system. Many traders would leave their system behind and look for a new Holy Grail when such a downswing occurs. Others step down for a while, find out they would have won the next 10 trades and start trading their system again (and maybe hit some new losses, costing them their remaining confidence).
Another kind of fear can be fear of losing winnings. You won some trades and don’t want to lose that money, so you call it a day, while there are still many good opportunities that day. There is no reason to assume your system doesn’t work anymore because you won some trades. You could lose indeed, but you could also win more. Trading is an ongoing business and the best way to make profit, is using the given opportunities and avoiding bad setups. If the conditions are right, then why stop at that moment? Fear of losing money can cost you profit and remember: next time you start trading, you could still lose!
It seems fear is the main problem for these traders. However, this is not always true. Fear can be the emotion that comes with losses or even winnings. But fear has some reasons. It’s a warning sign in our brain, that senses a threat. It’s what you do with your fear, that makes the difference. Fear itself can be a problem, but it’s the reason behind the fear that should be dealt with. Avoiding fear is running away instead of conquering problems. It can make you running away from every big obstacle in the future and will be back again and again, no matter what system you use.
What if you had some severe losses? Did you test your system with a big enough sample size? Do you have an idea what a good sample size is and are your expectations realistic? Did you test live or only in back testing? Did you use solid money management? How big are earlier downswings in your testing or trading? A lot of questions (and there are more) you should answer first.
What if you won some trades in a row? Is that a reason why you should lose the next one? Does the market change because you won some trades? Should you stop trading while the conditions are still nice?
The main reason why this fear gets to you: lack of experience. Experienced trades have seen it all: wonderful winning streaks and horrific losing swings. Sudden unexpected price moves and news events ruining their trades. It’s part of trading.
To overcome the problem, getting experienced is the main solution. This can be achieved by demo trading, but better by learning to trade live, with a minimum trade size and a solid money management. Use demo trading to get to know your system through and to discover the swings in results. Then start trading live with small trade size, to add the tension and fear to your experience. Use a solid money management and see that money as learning money. To get an education will cost money, so why should that be different with trading education? This is also the main reason why following signals is not a good way to learn trading. Learn to make your own mistakes and get educated by that. Nothing beats own experience, if evaluated and learned from!
Fear to trade is a result of uncertainty in what you are doing. If you are uncertain of what you’re doing, you’ll be thrown off balance easily, while you can stay focused when you know it’s just a downswing in a further normal trade system.
- Fear in trading is devastating for your results.
- Fear in trading mostly comes from lack of experience.
- Avoiding fear is running away instead of conquering problems.
- Losses at the beginning of your trading life must be seen as educational costs.
- The solution is to get experience and to use a solid money management.
Conclusion – No Fear!
Handling losing and winning streaks and learning to find the reasons behind fear, can make the difference in your trading, making you a successful and experienced trader. Your mind can be your friend and your enemy. Learn to understand and profit from it. Trading is a mental war-zone, so handle with care!