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Everyone who decides to be a trader brings to the table a unique set of skills and personal characteristics, yet they all share a common challenge: battling irrational fears.

These fears, deeply rooted in the psyche, consistently cloud the judgment and hinder the ability to make rational, strategic decisions. That's why fears in trading cost a lot. And not just money! They have an impact on your overall well-being as well.

Understanding the Psychology of Trading Fears

There are three major fears in trading. So, let’s see what we’re dealing with:

• Fear of losing money - stems from the worry of experiencing financial setbacks, often leading traders to hesitate in making decisions or take excessive caution, hindering their ability to seize profitable opportunities.
• Fear of being wrong - manifests as anxiety about making incorrect trading decisions, causing hesitation or second-guessing, which can impede effective execution. 
• The fear of missing out (FOMO) - drives traders to enter positions impulsively, influenced by the fear of missing profitable opportunities observed in others' trades or rapid price movements. 

In this article, we'll delve into each topic in-depth and explore strategies for effectively managing them.

Why are fears holding us back?

When fear takes the wheel, it shifts the focus from growth to chaotic madness. Every decision and action becomes a desperate attempt to avoid the pain of their fears, whether it's the fear of losing money, making mistakes, or missing out on opportunities. 

These irrational fears can cause you to make poor decisions, miss out on profitable trades, and even take you out of trading altogether.

Let's explore how to get a grip on the basic trading fears in more detail:

Fear of losing money

The fear of losing money is perhaps the most common fear among traders. It is understandable, as trading involves putting your hard-earned money at stake. However, this fear can be paralyzing and prevent traders from taking necessary risks to grow their portfolios.

Losing money is an inevitable part of trading, but for some, the fear of losing money is so strong that it prevents them from taking action or causes them to exit trades prematurely.

💡Important Note: This fear can be especially potent for new traders who may have had little experience with losses or may have had negative experiences in the past, such as extremely large losses.

Every trader deep down knows that losses are part of trading. And still, many traders are lying to themselves about it and not accepting the risk before taking a trade.

📌 Remember: Even the most successful traders are losing money. But it’s not about avoiding losses, it’s about managing them. This is one of the key skills that will determine your success as a trader.

How to deal with the fear of losing money?

1. Start seeing losses as part of “the game”: “It is foolish to fear what you cannot avoid” – Publilius Syrus. Stop fearing losses and instead embrace them as part of the trading process. Understand that every trade has a risk and that losses are an investment in your trading business. And instead of focusing on trying not to lose money, put your effort and energy into learning how to control your reaction to losses.
   
   
2. Manage your risk: Proper risk management can help you minimize your losses and avoid wiping out big chunks of your account. Set your stop losses and stick to them. Never risk more than you can afford to lose. If you are afraid to lose your profits on open trades - work with trailing stop orders.
   
   
3. Keep a trading journal: Keeping a trading journal can help you analyze not only your trades but also identify what triggers your emotions and as a consequence your behavior. It will show you how you scare yourself out of a good trade or how you talk yourself into a bad trade.
   
   
4. Focus on the process, not the outcome: Don't focus on the profits or losses of individual trades. Instead, focus on the process and the rules that guide your trading. If you stick to your rules and manage your risk, the profits will follow.

Fear of being wrong

Being wrong isn't something anyone enjoys, and for traders who are typically high achievers, this fear can be especially damaging. The fear of being wrong can cause you to second-guess your decisions, hesitate in executing trades, or even avoid trades altogether. This fear can lead to missed opportunities and stagnation in trading progress.

Many traders equate being wrong with personal failure (and it's not!) and see it as a reflection not just of their skills, and abilities but of who they are. And because that weighs heavily on your self-valuation this fear can cause you to make irrational decisions. Well, it is irrational from the market perspective, because, from your internal perspective, you are just trying to protect yourself from the pain of feeling like a failure.

The fear of being wrong is not something that only traders experience. However, trading can be especially potent because there are many variables and uncertainties involved. Trading is based on probabilities and it is impossible to be right 100% of the time. What’s even more important is that it is unnecessary!

💡 Consider this:  If you trade with a risk-reward ratio of 1:2 you only need to be 40% right to end up with a profit! So you can relax and stop trying to be so perfect. Focus on the highest probability trades and follow your process!

How to deal with the fear of being wrong?

1. Reframe your thinking: Instead of seeing being wrong as a failure, reframe it as an opportunity to learn and grow. Every mistake is feedback that can help you improve your skills and become a better trader. Remember that feeling like a failure starts inside your head. It’s all about managing your mind! Focus on the behavior (what you did wrong) instead of being wrong (seeing yourself as a failure).
   
   
2. Focus on the long-term: Don't focus solely on individual trades or short-term results. Put your attention on your long-term goals and the progress you're making toward them.
   
   
3. Work on your integrity: Stick to your trading plan and rules, even if they result in losing trades. This will help you stay focused on the process and avoid emotional decision-making. If your plan is sound it should work in your favor over time.
   
   
4. Seek feedback: Ask for feedback from other people who understand what trading is about. It could be your fellow traders, a trading mentor, or a trading mindset coach. It’s good to get an outside perspective because it can help you identify blind spots and areas where you need to improve. And while listening, try to stay open as much as you can. Otherwise, you will not hear what you need to hear to move past your fear of being wrong.

The fear of missing out (FOMO)

The fear of missing out, or FOMO, is the fear of not taking advantage of profitable opportunities or missing out on potential profits. It can lead to poor decision-making and cause you to enter trades impulsively or hold onto positions longer than you should.

FOMO can be especially potent in trading, where there is a potential for big profits. The underlying trigger for this fear is usually the belief that there is not enough of something (in this case profit opportunities) and that’s why you need to grab it while you can.

Even if it means doing something out of the ordinary - like risking more money than you can afford.

It arises when you see either a big move and you’re not in it or when you see others making profits and you’re not. It creates a tons of pressure!

Drove by this fear you may find yourself chasing after trends without proper analysis or consideration. I want to also put your attention that this fear tends to rear its head in chat rooms, where the excitement of potential gains can be infectious!

📌 Want to dig deeper? Join me in exploring how Chatrooms Crush Trader's Confidence here, where I share insights and strategies to help you navigate this common challenge.

How to deal with the fear of missing out?

1. Stick to your trading plan: There will always be opportunities in the market. The reason why you have a trading plan is to ensure that you will focus on trades that give you an edge. Treat your plan as a filter that is helping you filter out the noise. Using that filter will increase the quality of your results and protect you from being burned.
   
   
2. Set realistic goals: Set realistic profit targets and understand that your goal is not taking every penny off the table. Unrealistic expectations will cause you to take unnecessary risks and trade outside of your plan.
   
   
3. Be patient: Patience, or rather the ability to do nothing is a key trait for successful traders. Don't force trades or rush into decisions. Chasing everything that’s moving is taking your edge away. Wait for the right opportunities to present themselves. In trading often less is more. The less you do the more you make.
   
   
4. Practice mindfulness: Practicing mindfulness can help you stay focused, keep your awareness of what’s in front of you, and avoid getting caught up in emotions. Make sure that during the trading day, you check from time to time with yourself whether your focus is on trading well or on making money. Take time to take a deep breath, notice what your thoughts are, and reflect on them before making trading decisions.
   
   

💡 Remember, in trading money comes as the result of your efforts and never should be the reason for your efforts. Money should never be in focus and never lead your trading decisions.