Trading rules are universal. The following post has been reprinted with the permission of Mr Zahir of MTrading.eg
In forex trading, fear arises from the prospects of losing money. There are various types of fear that may occur in the course of your trading activities, whether unconsciously or otherwise. These include
- Fear of missing out on profits
- Fear of failure
- Fear of impending doom or losing everything
Unless you learn to manage your fear appropriately, it may affect your market decisions which may result to losing positions. In some cases, fear is helpful, particularly when it makes you respond promptly when you realize that you are in a wrong position.
Some jaded traders admit to letting their fear to show them the proper time to exit a particular trade. This is mainly applicable to situations where you are deciding on when to cut a loss short or take in a profit.
Manifestations of Fear in Forex Trading
A sound trading system and a plethora of analytical and technical tools are not enough to ensure trading success. You have to sport the proper mindset which can only be achieved by eliminating emotional responses when doing trades – in all situations.
An emotional response such as fear can affect your actions adversely. This can be particularly damaging if you are in a losing position and you suddenly find yourself paralyzed because of fear as you helplessly watch the market continue to move against your position. Fear may likewise keep you from taking advantage of an opportunity. Fear may take over and prompt you to deviate from your trading plan
Fear may also show up after a losing trade that may cause you to lose confidence. Even if there is an opportunity to jump back in and recover the money you lost, fear may impede you from doing so.
You may also exit a profitable position earlier than necessary because of fear, in the process limiting your potential gains and the ability to take in losses longer. In order to recoup your losses, you sometimes have to be able to absorb them long enough in order for your profits to wipe them out.
How to Deal with Fear
The first step to deal with fear is to be aware that the emotion is tied up exclusively to events in the future – whether worsening the current situation or prolonging an unwanted position.
Constructively deal with fear by using it to replace hope that is potentially detrimental. Instead of saying “I hope the market recovers,” you can say “I fear I will lose more.”
“If you stay disciplined when trading, and stick to a sound money management and trading system, you can control your fear as well as any other emotion. As long as you keep “planning your trade” and “trading according to plan,” you can keep fear in forex trading under check” an instruction given by an analyst from MTrading.eg in a Forex webinar.