How to Reduce Trading Anxiety
Trading Anxiety can be a significant hurdle for traders, often stemming from various fears that can impact decision-making and overall performance. The fear of losing money, the fear of missing out (FOMO), and the fear of being wrong are some of the primary drivers of trading anxiety. Throughout this blog post, we will explore the underlying causes of trading anxiety, its profound effects on traders, and also ways to deal with it. I will provide actionable solutions to help you manage and overcome these fears.
The Roots of Trading Anxiety
As a trader and a mindset coach, I’ve had the privilege of working with a wide range of traders. While each of them has its unique strengths and weaknesses, there is a common theme: irrational fears that stand in the way of making rational decisions and causing trading anxiety.
Traders are often motivated by the desire to make money, but when they're ruled by fear, their decisions are driven by avoidance instead of growth. Every action they take is an attempt to avoid feeling the pain of whatever they're afraid of, whether it's losing money, being wrong, or missing out on opportunities.
These irrational fears can cause you to make poor decisions, miss out on profitable trades, and even give up on trading altogether.
So let's explore the basic trading fears in more detail.
Fear of losing money
The primary fear driving trading anxiety is the fear of losing money, a common challenge for traders. 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.
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 fully accepting the risk before taking a trade. The truth is that 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.
Tips to deal with the fear of losing money:
- 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 on learning how to control your reaction to losses.
- 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.
- Keep a trading journal: Keeping a trading journal can help you analyze not only your trades, but also identify what triggers your emotions and patterns in your behavior. Journaling is also a good practice to help you with your discipline.
- Focus on the process, not the outcome: Don't focus solely 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
Another prevalent source of trading anxiety is the fear of being wrong.
Many traders equate being wrong with failure and see it as a reflection not just of their skills, abilities but who they are.
And because that weighs heavily on your own self-valuation this fear can cause you to make totally irrational decisions.
The fear of being wrong is not something that only traders experience. But in 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, it is absolutely unnecessary. In fact, 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.
Tips to deal with the fear of being wrong:
- 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 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 towards them.
- 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.
- Seek feedback: Ask for feedback from other people who understand what trading is all about. Whether your fellow traders, a trading mentor or a 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 in order to move past your fear of being wrong.
The fear of missing out (FOMO)
And last, but not least - fear of missing out (FOMO), which significantly contributes to trading anxiety.
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 before it’s gone. Even if it means doing something out of ordinary - like risking more money than you can afford.
Tips to deal with the fear of missing out:
- Stick to your trading plan: There will always be opportunities in the market. And the reason why you have a trading plan is to assure 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.
- Set realistic goals: Set realistic profit targets and understand that your goal is not taking every penny of the table. Unrealistic expectations will cause you to take unnecessary risks and trade outside of your plan.
- 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.
- Practice mindfulness: Practicing mindfulness can help you stay focused, keep your awareness on 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 breathe and reflect before making trading decisions.
Tips for reducing trading anxiety
- Identify your fears Start by identifying the specific fears that are standing in the way of following your process. Once you know what you're dealing with, you can begin to develop strategies to overcome them.
- Practice visualization Visualization can be a powerful tool for overcoming irrational fears. Visualize yourself making successful trades and achieving your goals. This will help you prepare for the situation before you actually get into it. This can help you control the triggers, build confidence and reduce anxiety.
- Get support Trading can be a lonely pursuit, but it doesn't have to be. With other’s support it is easier to see where you have room to improve, because people are always reflecting your own behavior back to you. And the same happens with fears. Fear will make you feel stuck because it prevents you from taking a step forward. And it is easier to overcome it with the help of others, because they are not involved emotionally as you are.
- Take breaks Trading can be stressful, and it's important to take breaks to recharge your batteries. Make time for exercise, relaxation, and hobbies that bring you joy. Remember, your goal is to trade for a living and not living to trade.
- Focus on what you can control Many variables in trading are outside of your control. Focus on the things you can control, such as your risk management, trading plan, and your mindset.
By grasping the fears that are impeding your progress and undertaking a process of detachment, you can seize control of your emotions, decisions and therefore your trading results.
Trading anxiety and irrational fears don't have to hinder you. There are straightforward methods to manage your mental state while trading and you can learn them.
And you can begin with finding out what makes you act emotionally during trading, triggering your fears and causing you trading anxiety. Check now my course Unlock Your Trading Mindset here.