I think that everyone here knows what fear is and has already experienced that emotion on financial market ! So we’re gonna start by a short definition and we will see what that implies for our trading activity.
Fear is defined as an uncomfortable feeling induced by a situation perceived as a threat by the subject. So, threat is the cause and fear is the consequence. the two go hand in hand, It sounds obvious but we often hear that your trading method must match your personality which means that you must consider your sensitivity. I’m not totally agree with it. What could affect your trading except fear itself ? Does this mean that some traders are more sensitive to fear ? I don’t think so.
Are you afraid by opening your fridge or by preparing your dinner ? Of course not….,so how is it different from trading ? We will see three major causes that induce fear and shall be proposing some suggestions for overcoming them.
1. Fear from denial.
Denial is an unconscious refusal to admit a fact or a thruth. This refusal can be explained by pain and discomfort to face reality. The person clings to his own reality; a fantasy world of course but much more comfortable to live with.
This can happen to trader who refuses to admit his strategy doesn’t work. He refuses to face it either because of his ego or because he cannot warm to the idea of re-think his strategy from the very beginning. He does not want to realize that succes on the market may need a much larger effort than anticipated and maybe to see his dreams going up in smoke……he’s unwilling to admit his method flaws and persists.
Over time, consequences of this behaviour are manifold, for example :
- Partial abandonment of his strategy, most often unstated,
- Discretionary trading without any research,
- Increased confusion, trader clings to new false beliefs,
- Vain hope that his curse is just temporary.
There’s a point beyond which obstinacy will generate anxiety and fear. Trader will be catch in a vicious circle where he can not escape from. This will continue until he gives up or loses everything.
So what we saw is that denial induces loss of control that generates fear. The solution to that is the seriousness of your study and its application on the market. It is of course possible that your strategy might need some minimal changes in real trading. Your skill will be to understand what works with some changes and what doesn’t work at all, don’t lie to yourself.
2. Fear from your mood.
It is well known that mood can change our perception of the real. Here, only trader’s experience can help him to known when being out of the market is better.
3. Fear as a wish.
Here, fear is what is wanted. The person doesn’t trade for making money but rather to put himself in harm’s way. This is the behavior of compulsive gamblers. Causes of such behavior are numerous and won’t be discribed here.
A « serious trader » are not concerned a priori by such problem). However, the irrepressible need to put ourself in danger exists, that’s one part of human nature. It’s a way to judge our ability to face adversity. Most of the time it looks like a game which is not.
As kids fight or couples argue, trader who get bored by his trading sessions could play to satisfy a need. We must be well aware of this and to those who feel concerned, I suggest to pratice any activity that could help them and avoid market as a outlet.
