Fear in trading…..

I’ve recently discussed over-confidence in trading and what this can potentially lead to; over-gearing and the use of either ultra wide stop losses or no losses at all. Over-confidence is an exceptionally dangerous position to be in so traders should always self analyse in order to ensure they keep their emotions in check.

[For 2 free days to Charlie’s trading room (plus his report on how to trade for a living) click here ]

The opposite of over-confidence would be fear. Some traders will never have issues with confidence because they are too worried about losing to make those risky trades. Just because a trader respects risk management rules doesn’t mean they will make money though. A trader who carries fear will struggle to hold onto profitable trades through fear of giving back any open gains they’re sitting on. So they’re likely to grab profits too early.

I’ve heard traders say “no-one ever went broke banking a profit,” and this is totally incorrect as a statement.  If you bank your profits too soon, when you do have losing trades, these will quickly wipe out your profits. A trader who suffers with fear will struggle to even hit the buy or sell button, let alone struggle with holding onto winning trades. I traded on a fund several years back and another trader involved ‘lost his mojo’ and kept banking his winning trades way too early. Then as soon as a couple of losing trades came along, it put him underwater. Needless to say, he couldn’t cope with the pressure of managing other people’s money and was gripped by fear.

So how do you overcome a fear like this? Remind yourself that the next trade is simply one of the next 100 trades you are going to do. This helps you to place less significance on each individual trade outcome and more on the outcome of a much larger set of trades. Also keep reminding yourself that if you keep banking your winners too soon, they will never pay for those inevitable losers that will come along and so ultimately you’re hurting your longer term performance by grabbing that profit now.

Moving onto the currencies, it’s FOMC week so on Wednesday we are likely to see plenty of volatility in the USD pairs. The USD/JPY has been consolidating of late and has created a nice range. A close either above 114.60 or below 112.10 would likely see a break of that range as highlighted on the chart.

Have a great week

Charlie Burton

Ezeetrader

For 2 free days to Charlie’s trading room (plus his report on how to trade for a living) click here