Fear of Losing Money
It is an established fact that 7 out of 10 trades opened immediately go into loss.
Fear of losing money happens when a trader first initiates a position and immediately sees the trade go against them. At this moment, the traders will often second guess their decision. Intense fear of losing can cause the trader to immediately 'cut their losses' and exit the trade, at a small loss. These "small"losses, though individually small, can quickly add up to a significant amount. Over time, such losses can cause the trader to lose their morale and confidence.
To overcome fear of losing, remind yourself that a surgeon spends more a lot of money to receive their qualifications. Treat losing in the market as a form of tuition fees, a necessary investment. Investment in education always pay the best return. To make sure I get the highest return from my 'tuition fees'. Make sure to analyze each losing trade to find out what mistakes were made and that helps in strengthening trading.
Fear of Losing Profits
Another fear is the fear of losing profits on winning trades. When a trader sees their position making a profit, the trader starts fearing that any second, the position will turn against them. "Most people fear when they should hope and hope when they should fear." Thus, they close out their winning trades, taking a small profit, believing that they can't go broke taking a profit.
Unfortunately, they CAN go broke taking small profits. Unless the trader can achieve 100% accuracy in picking trades, they are bound to have a number of losing trades. In order for traders to make money in the market, they need profits from those winning trades to be big, so as to cover for losing trades. If a trader constantly takes small profits, it is unlikely that they will have a significant amount of surplus left after covering for these loses.
It has been said that: "It is not about whether you win or lose, it is about how much you win when you are right and lose when you are wrong that matters."
To overcome fear of losing profits, consider using this. Instead of focusing your thoughts on the possibility that the position can go against you, focus on the need to win big when you are right.
There are three main methods to overcome fear of losing:
•Changing one's perception of losing. To overcome the fear of losing money, treat any money lost as tuition fees. In addition, do not treat unrealized profit as your money; those are merely profits on paper. One can't be afraid of losing money that do not belong to them yet.
•Have clearly defined rules for cutting loss and taking profits. These should be based on empirical research or intensive back-testing.
•Use visualization techniques to take one's focus away from the possibility of losing. Visualise the current position becoming a big winner, a grand slam.
◦This does not mean one should pray and hope and visualise a losing position turning into a grand slam.
◦A good trader should always ensure that they know exactly when to cut loss.
◦As long as the protective stop loss is not reached, one should not let the fear of losing overwhelm you resulting in the closing of a position prematurely.
It helps to ask yourself two questions:
Q1 - What is the worst that can happen?
•The worst is that your stop loss is hit and you lose your pre-determined amount of capital on your position.
Q2 - What is the best that can happen?
•The best is that your profit targets are hit and you win your pre-deterimined amount of capital on your position
If you cannot accept the worst that can happen, you should not open the position. If you can accept it, you should find courage in the fact that even if the worst happens, your world won't fall apart (which means there's nothing to fear). You should then focus your energy on visualizing the best case scenario.
