Trading psychology studies the ways that one’s emotions can affect their trading habits. From excitement and greed to fear and anxiety, emotions can wreak havoc on our results if we let them. Here are a few examples of ways that emotion can interfere with your trades:
A trader experiencing crippling anxiety, also known as analysis paralysis, enters trades too late or fails to enter a winning trade altogether, even though they knew it was a good move.
A trader that is excited might fail to exit a trade when they should because they are feeling lucky. This could cause the trader to stay in the trade for too long.
A trader that is feeling greedy might want to make every cent possible and could stay in the trade past their take profit goal. Otherwise, the trader might close out the trade after incurring a very small loss because they don’t want to lose anything more.
While all of these problems can cause serious problems, fear is probably one of the worst emotions that traders can experience. Fear causes us to doubt ourselves and our capabilities. Have you ever allowed fear to interfere with one of your trades? If not, then think of the following ways that fear may have played a role in a bad decision you’ve made:
Have you ever failed to enter a trade even though you knew it was a good move?
Have you ever experienced a series of losses that almost made you feel paralyzed to make another trade? Did you feel as though trading was riskier than normal or your luck was bad?
Has the thought of losing money ever stopped you from making a move that you knew you should make?
Have you ever exited a trade too early because you feared the market would move in the other direction, only to watch that trade go on to be a winner?
If you answered yes to any of the above, then chances are that fear has in fact affected you while trading. There are several reasons that could cause a trader to feel fearful. Losing money is perhaps the most prevalent. After all, it takes hard work to make that money and the thought of losing even some of it is scary. Some fear failure altogether and cannot stand the idea of wiping out their account and failing as a trader. Making a mistake, failure, and other personal issues can tie in with trading because of the uncertainty of it all. Then, anxious traders might also doubt their abilities and overthink their strategy even when it’s a solid one. There are many different factors that can cause fear in a trader, and all of them have to do with the way that person thinks in general and while under pressure.
The first step to solving this problem is realizing that it is affecting you. If you’re reading our article, you’re likely already aware that fear is interfering with your trades. Fear is a powerful emotion that clouds our judgment, but there are ways to stop it from hurting your trades.
If you’re experiencing both fear and anxiety, then you likely have a common problem known as analysis paralysis. Traders experiencing this are like deer caught in headlights. They can’t decide in time, so they either enter trades way too late, or they fail to enter them at all because they cannot make up their mind.
There are ways to overcome this, however. Many suffering from this problem of overanalyzed data. They might use too many indicators, for example. Simplifying the number of indicators you’re using or even trading without them are good ideas if you have a ton of indicators running at once. Having a good trading strategy is another measure you can take to overcome the fear and anxiety behind analysis paralysis. Or you can take other measures, like meditation or yoga, music, or another relaxation technique to help calm yourself. There are lots of resources online related to this problem and how to manage it.
Once you’re aware of the ways that fear is affecting you, you can figure out how to use it to your advantage. Understand that highly driven people are usually driven by fear. If you don’t want to fail, then why not put forth every effort to be the best trader you can be? Instead of being paralyzed by fear, you should let it inspire you to do better. Learn more, perfect your trading strategy, figure out the best ways to analyze data, and so on. Embracing your fear can help you to use it to your advantage.
Every trader should know that fear is an understandable emotion that can stem from several different places when one is trading. Whether you’re fearing failure, worried about losing money, or something else, the first step is identifying where this emotion is coming from. Once you’ve done that, you can work on getting better. You might not be able to get rid of your fear entirely, but there are ways that one can use it to their advantage and continue on to trading success. If you’re suffering from analysis paralysis, then there are actually several different methods that might help you overcome that. At the end of the day, every trader needs to know that fear doesn’t have to interfere with their trades or bring an end to their trading career as long as they learn how to manage it.