You have to be in a right emotional state when trading, don’t trade if you’re tired, upset or bored, because your decisions and analysis won’t be as good as when you’re in an optimal state. Ideally you should be in a neutral alike state, without other emotions impacting on your performance.
Mark Douglas in his famous book “Trading in the Zone” highlighted these pillars and fears that you should be aware of:
1. Your edge is strong, and you have an unshakable belief in an outcome with an edge in your favour.
2. You truly and deeply accept loss.
3. You know that once you are in a trade anything can happen, and anything is possible, so you remain neutral and flexible.
4. You expect positive results for your efforts with an acceptance that whatever results you are getting are a perfect reflection of your level of development and what you need to learn.
Now let’s see the main fears:
1. Fear of being wrong.
2. Fear of losing money.
3. Fear of missing out (also called FOMO).
4. Fear of leaving money on the table.
Let’s break down these fears so you have a clear understanding of them and see some tips on how to overcome them.
Fear of being wrong: you have to accept the unpredictability of trading. No one can predict with certainty the future, what you should do is stack all the probabilities in your favour by doing your analysis and trade accordingly. If a trade is not working out as you expected, then cut it, take the loss and move on. Always look at the bigger picture and not the short term setbacks.
Fear of losing money: you have to accept that losses are part of trading, everyone loses, even the most successful traders in the world, so you should focus on trading well rather than the gains or losses. If you do that, you will do great in the long run.
Fear of missing out: you have to realise that no matter how good you are, you will always miss opportunities, it’s part of the game and you shouldn’t chase the opportunity if it’s not there anymore forcing unplanned trades. Remember that you do not need to get on every opportunity to make money.
Fear of leaving money on the table: It will happen that you exit a trade and will see it go even further in your direction or worse cutting a losing trade and then watching it go in your favour massively. This is absolutely normal and ties perfectly with the unpredictability of the markets. You can’t consistently call perfect tops and bottoms or exit just before a big drop or rally against your positions. Take what you got and just reassess for the next opportunity, because just as it’s hard to make money it’s equally hard not to give them back to the markets.
When you notice that you’re performing badly and your emotional state worsens day by day just shut everything off, do something else, do some sport, read a book, if you have a hobby even better, you have to get away from that bad psychological state before returning back to trading.
This article was written by Giuseppe Dellamotta.