How to defeat the fear in Forex trading?

Fear of trading catches all traders sooner or later. As a human being it is normal to have fears in trading, but whether it cripples you or pushes you to new heights is entirely dependent on you.

Fear is a highly powerful emotion that has paralyzed many at one moment or another.  It has confused you, separated you from your intelligence, your wisdom, your ability to make a good decision.  This is true not just in trading, but also in life.

Looking face to face, fear is not so bad emotion to have in all walks of life. The main secret is having the key to control it. In trading we have established that most traders are fearful of losing their money and rightly so, preserving capital is vital. This is achieved through mindset. 

There are several trading fears everyone will most likely experience during their trading ascent to success. The first one is, logically, the fear of losing, and it can have a massive impact on your trading judgment. It can lead to inability to pull the trigger on new entries as well as on new exits. When it holds you back in taking action, you also lose confidence in the ability to execute your timing strategy.

Nobody likes to lose. Nobody likes to go through drawdowns. But trying to avoid losses and drawdowns will only make things worse. Both new and experienced traders face this fear over and over. You can manage your losses (by closing loosing positions 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 altogether.

A lot 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. In order to defeat our fear we need to be sharply honest with ourselves. It starts with asking ourselves correct questions, following our trading diary, analyzing why the fear has appeared and then acting to prevent this fear. If you see that fear steel stands on the way of your success, follow the steps below:

1. Do not risk what you cannot afford

Lower your lot size to the level that you are comfortable trading without fear settling in. It might cut your profits but it will cut your losses also.

2. Do not open many orders at once - the more orders are open, the more risks and the more difficult to control

Instead of opening 100 various positions, choose one. Try to break it up into 3 smaller positions for the same trade i.e. 1 x 0.01, 1 x 0.02 and 1 x 0.04. Pick trades with decent target expectations and cash in your 0.03 as it reaches or exceeds a profit that matches your S/L risk with the remaining two positions open. At least then you can relax knowing that you really cannot loose with the two remaining positions, and hopefully profit from them all. Using the above example, you have now raised your overall lot size from 0.05 to 0.07 with a much less risky scenario.

3. Define the trading plan and follow it. For example, train yourself to trade one of the classic Forex indicators.

The next essential step is to define trading plan that works for you, something that suits you. Eliminate all the uncertainties in your method and you will be much more confident to trade. Is your entry rule is crystal clear to the point where you can answer by simple "yes tradable" or "no I skip it"? Is your exit rule is crystal clear to you? How about trade management and money management rules? The day you fix these issues you will see that there is nothing to worry about.

4. Get and analyze your trading journal

Make sure you keep a record of your transactions in trading journal. The purpose of a trading journal is to build confidence in your trading system. When you trade with confidence you are able to trade objectively. By taking detailed notes about your trade setups, emotions as you enter, manage, and exit the trade, accompanying market activity, and profit/loss, you are able to break down which things are working and which are not. Besides that, it’s a very effective tool designed to manage your emotions, mostly in situations when you make your first deposit. You should also write down your emotional state at the time of transactions. 

Another fear, very common among newbie traders, is the fear to start trading with live account. Anyone who trades with real money eventually faces it wondering, why it that wasn’t there while they were trading on their demo accounts. It’s not surprising as all traders are simply human just like everybody else, and trading on any market can cause a lot of sharp situations. The possibility of risking money is stressful in and of itself, so you should learn how to handle your emotions and how to overcome your fears in order to maintain control of your trading decisions. Here are some hints:

1. Open the cent account and make the minimum deposit amount - starting with this will be much easier!

Try taking $50 or so and trading with that rather than $1k or more. The advice is if you can't trade consistently with $50 you won't be able to do it with $5k. The amount of capital doesn't matter, the results do. So if fear is settling in, make a few changes and see if that will help you out. Lowering your trade size will help you and withdrawing some money will also cheer you up.

2. Simply try it. The one is not mistaking, who does nothing. But, on the other hand, he does not get any success.

A great trader once said that the best way to overcome emotions in trading is to feel and experience them fully. If you stop resisting and allow yourself to experience the feelings that you do not wish to feel, they go from becoming your enemies to becoming great allies.

To draw the line, you need to reanalyze your whole trading philosophy from grounds up. Start from deciding what style of trader you want to be to begin with or even your capable of being one as such due to personality, time, capital, life style and etc, and move on. Once you get the basic out of the way then you got to really work that system and know it down to the crust of it. You should love it, work it and live it, till you can feel and touch every curve of it by heart. Don’t forget that Forex market gives absolutely everyone a unique opportunity to raise real profits and even become a millionaire. All these together will help you to overcome thing called trading fear.

So instead of running away from your fear, brutally face it and curb your fear. Got it?


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