Overcome your trading fears

Overcome your trading fears
Steve Ward provides four steps to limitless trading success.
48 YOURTRADINGEDGE UK www.YourTradingEdge.co.uk NOV/DEC 2011

a tennis player double-faults on match point. It is due to a change in emotional state and the resulting changes in their physiology. One is the impact that our emotions. Reduced blood flow hinders your ability to make good quality NOV/DEC 2011 YOUR TRADINGEDGE UK www. it is not because of an inability to perform the task. When a footballer misses a penalty in a big game.Overcome your trading Current & New fears Charts I s fear getting in your way? Think back over your recent trading performances. have on our decisions. When you feel fear and anxiety. We frequently see the effects of fear and anxiety in moments of intense pressure in sport. There are many reasons why we do not always follow through with our intended trading actions. It is the same for traders. or a lack of strategy – they are top-class performers. Have you: • Taken a trade you know you should not have taken? • Run a loss further than you originally intended? • Taken profit too early on a trade? • Not taken a trade set up from your strategy? It is quite likely that you have encountered at least one of these situations. which impede their ability to execute their skills and strategy. and that you know what you should have done. One change is reduced blood flow to your neocortex.YourTradingEdge. particularly fear and anxiety. the part of the brain that is responsible for logical.uk 49 . yet somehow did not do it. physiological changes occur within. or a golfer misses a short putt and loses the tournament. reasoned thought.co.

choose a new belief instead and then condition that belief by thinking and acting in accordance with it. However. Fear of missing out Do you believe there are multiple opportunities to make money in the markets and that you do not have to trade every one to achieve your goals? Or do you believe that you must take every trading opportunity. and to adopt and internalise such beliefs. that every one is significant. How you perceive events. that they are a reflection 50 YOURTRADINGEDGE UK www. the only one? 3. have a reason to change the belief.co. but that do not serve you well in the markets. I have provided questions for you to answer so you can reflect on what you believe about trading and the markets. but as a result of their trading practice. you feel before you think. because you know that in the end you will be profitable. 4. changing those beliefs is the next step. What are traders afraid of? In ‘Trading in the Zone’ Mark Douglas lists the four most common trading fears as: • fear of loss • fear of being wrong • fear of missing out • fear of leaving money on the table. Sometimes traders experience fear and anxiety in their trading not because of any psychological reason. your beliefs around events and the meaning you give to those events will have a significant impact on the frequency and intensity with which you feel fear in your trading.uk NOV/DEC 2011 . beliefs are just one way of managing fear at source. Fear of leaving money on the table Do you believe you have to be trading tops and bottoms in order to make money? That you should take 100 per cent of every market move? If you identify some limiting beliefs. that they make you a loser? 2. Do you recognise any of these fears creeping into your trading decisions? How are they affecting you? of you as a person. 1. Beliefs are changed when you become dissatisfied with the old belief. that each could be the big one. You will also have less fear about leaving money on the table because you know your strategy works for you. Good trading practices help to prevent fear and anxiety. At such moments your emotions take over. Your beliefs have a significant effect on how you feel and the decisions you make (see figure 1). Fear of being wrong Do you feel that a losing trade makes you wrong? Is being right more important to you than making money? Do you believe that being right is the most important factor? Managing fear at source Fear is a perception. and whether your beliefs are helping or limiting you. you worry less about losing. and you are prone to making emotional and instinctive decisions that were designed to keep you alive in times of physical danger. Fear of loss Do you deeply believe that losses are a part of trading? Or do you believe that losses are avoidable and bad. Take a moment to reflect on your trading.Overcome your trading fears Figure 1 trading decisions and to follow through with your strategy. Because perception drives emotion. Beneath each of the four trading fears listed below.YourTradingEdge. Trade with a strategy that has an edge If you believe in your strategy and have an edge. it is important to create useful and performance-enhancing beliefs and perceptions about the markets. 1.

Unconsciously held biases and biological responses combined with thoughts arising from particular market events can create unwanted feelings. deflate the balloon. With practise.co. Ensure adequate preparation Being fully prepared lessens anxiety. Having little confidence leaves openings for anxiety and fear. They do so because unless people can manage their emotions and overcome fear and anxiety. not even the best trading system will give them consistent or profitable returns.YourTradingEdge. Is it fear or is it anxiety? When you notice a feeling of fear. • Become competent – work on your trading skills and knowledge. it is possible to manage feelings of fear or anxiety effectively in this way. in the moment. They are activated today even though the threat has changed from physical (predators) to psychological (fear of losing money). not connected to any market event. It is useful to have some techniques and strategies to deal with them. 1. switching on your relaxation response to reverse the effects of fear through the technique of diaphragmatic breathing. ‘Anxiety’ would be fearing a loss and wanting to close out a trade because of thoughts around not wanting to lose that came from a prior losing trade. www. One way of managing your fear is by regulating your emotional state. Your body’s stress and relaxation responses are mutually exclusive – you cannot be relaxed and fearful at the same time. There are two very powerful and well-proven approaches to help you manage the ‘feeling of fear’ when it arises in your trading.Overcome your trading fears 2. taking only appropriate risks and with adequate preparation. breathing out fear or tension.highperformanceglobal. Alongside developing your trading skills and strategies it is important to make sure that you work at achieving peak trading states and overcoming negative ones such as fear and anxiety. and feel the oxygen getting into your body and brain.com NOV/DEC 2011 YOUR TRADINGEDGE UK www. Being able to achieve feelings of confidence. experience some fear and anxiety in your trading. • Manage your risk. Which do you have in place? Are there actions you can take that would help prevent fear and anxiety? such as increased heart and breathing rates and increased muscle tension. Regulation of emotional state Physiological and physical changes occur when you feel fear. Imagine that while breathing in you are inflating a balloon in your belly. Focus on your belly rising and falling. Managing fear in the moment Even with positive beliefs. The first is a cognitive (thinking) strategy and the second is a behavioural (emotional) one. a genuine marketdriven threat might be having a trade on when there is a significant forthcoming economic announcement that could affect that trade. of missing out and leaving money on the table. 2. or is this just a thought or worry about my P&L. Lack of competence brings lack of confidence. They signal that you are feeling fearful and are part of the fight-or-flight response designed for survival in prehistoric times. for being disciplined. • Prepare before entering the markets • Ask yourself: is this the market or is it me?’ • Regulate your emotional state with diaphragmatic breathing. • Develop a trading strategy with an edge. As you breathe out. a good strategy. • Create positive performance-enhancing beliefs and perceptions about the market and trading. What is the difference? Ask yourself: Is this feeling a genuine threat to my position from a market event. of being wrong. author of ‘High Performance Trading’ and a consultant to BBC2’s Million Dollar Traders. Steve Ward is a leading trader performance and psychology coach. concentration and composure are key to making good trading decisions. 4. Engage in only appropriate risk taking If you are taking excessive risks in your trading.uk 51 . competence. 3. Lessons from the top The training programme of a successful US trading group includes a session where the owners – both highly successful traders – teach trainees diaphragm breathing and a simple meditation technique. is it the market or is it me? For example. Develop competence If you have well-developed trading skills and knowledge – competence – you will be less fearful and anxious. it is possible that you might. you can bring about greater fear and anxiety because risk-taking increases the possibility of a loss. a first step is to identify whether it is fear or anxiety. for following through with your trading plans.