How losing makes you lose more if you let it! Learning to manage the fear and pain of losses is a major stumbling block to all traders. Get this one right before the market eats your account for breakfast…
Anyone making the transition from full-time employment to full-time trading – or even part time trading / part time working – finds themself facing the hazards, uncertainties and risks of suddenly being without a reliable income stream.
Many new forex traders are surprised at the intensity of the change. Even who go into the venture with their eyes open and do their homework often find themselves thrust into a state of near panic when things don’t go as planned.
The difficulty is this: with a day job you get paid for turning up. With trading, you turn up to your trading station and the market is likely to use you as a punching bag!
You simply won’t win every trade, and what most traders fail to grasp in the beginning is that every trader, and every great trading system, suffers streaks of losses that can easily shake your confidence if you are not psychologically prepared for them.
This is related to the issues of trade predictability and probability.
“The fact is that the average man’s love of liberty is nine-tenths imaginary, exactly like his love of sense, justice and truth. He is not actually happy when free; he is uncomfortable, a bit alarmed, and intolerably lonely. Liberty is not a thing for the great masses of men.
It is the exclusive possession of a small and disreputable minority, like knowledge, courage
and honor. It takes a special sort of man to understand and enjoy liberty — and he is usually an outlaw in democratic societies.”
– H.L. Mencken
How best to prepare for this Shock Of The New? It really comes down to the three basics of what you need to have nailed down as a trader, in accordance with the levels of Risk and Probability you are comfortable with:
1) You must have a sound education in the market you are trading
I hate to be the bearer of bad news but it really is a case of do your homework or fail the exam. I think it was Anthony Robbins who said something like “There are only two real pains in life: the Pain of Discipline and the Pain of Regret”. Accept the pain of study to avoid regret.
There is abundant reading on this site on the topic of Forex Education, and lots of pointers to other resources dedicated to forex schooling.
2) You must know your own psychological make up and be comfortable with it
If you don’t like who you are, chances are you will fail at trading. Talk about pain compounding pain: you don’t like being who you are and then you don’t like getting what that brings you! Sorry, do whatever therapy / meditation / religion you need in order to get this right, it is a Must Do!
The section relating to Forex Trading Psychology contains articles that will help. In the future I will be beefing this up with extensive resources from more experts in the field.
3) You must have decided on an approach to the market based on the above two requirements
Find a strategy you’re comfortable with and tailor it to your unique needs. It sounds simple, but chances are it will take quite some work.
There are plenty of options on AuthenticFX for strategies and systems that can accommodate you here.
Lastly, your chosen trading strategy needs to ensure the following:
- That you never suffer a string of losses you are uncomfortable with, either with respect to the number of losses or their size.This comes back to understanding probability. It’s basic trader education, and you need to know it. If you don’t, see Probability in Trading
- That you manage to derive an income stream over the longer term based on the performance of your trading strategy as used with the account you are trading. Your trading strategy must provide a suitable Trade Expectancy with respect to the size of the account you have to trade. See How Much Money Do I Need to Trade? to learn more.
The two primal instincts of fear and greed drive the markets, and they do so because every trader is subject to these emotions. Suffering pain beyond what you can normally handle creates fear.
Being aware of fear and the damage it can do is a great start for any trader. Taking the next step to – overcome fear – is the mark of a trader who is destined to survive!
Acknowledge and tackle your trading Pain and Fear head on; you’ll never regret it!