You know that you have the ability to trade and to trade well. You have the intuition, a tried and tested system, sensible risk management, perhaps a good role model. And yet there you are underperforming what you know you are capable of. What’s going on?
Anxiety is one of the more unhelpful states in trader psychology, the main problem in trader mindset and one of the first obstacles a newcomer should overcome. It interferes with perceiving reality appropriately and objectively. Two of the consequences of anxiety can be following:
1-Mistakes or the appearance of a psychological “wall” during trading
2-Paralysis and inability to make any transactions
A coaching client recounted to me “Back in the days when I had only started trading, our desk hired an 18-year-old world champion in chess. The guy was a real genius with the best grades in school, and the winner of the world level math competitions. But he couldn’t press the button without anxiety and overthinking before each trade. He literally was so scared to press the button that in his first two trading weeks he didn’t made one single trade. No matter how smart you are, your fear can destroy your career even before it started. I said to him “Trading is like checkers, not chess” – one of the key things to keep in mind.”
The types of anxiety that you and other traders typically feel
1- Fear of losing all capital is one of the most common fears. The trader clearly understands that the numbers in the terminal are his money, and their reduction limits his financial capabilities in the future. Under fear of losing an even larger sum, a market participant does even more stupid things or even freezes up and refuses to trade.
2-Fear of losing more money in an already losing position. Similar concerns arise during the transaction period under the influence of strong market volatility. This kind of fear is easily correctable
3-Fear of not spotting the signal to enter or exit the market. Although it is more often faced by newbies, who don’t know and understand the level of risk involved in their transactions and how to protect themselves from it, this fear can crop up later in a career as well.
4-Fear of getting another one, or several more, of those losing trades. Such fear leads to the appearance of excess fuss. As a result, the trader misses a really good trade
5-Fear of an early profit taking (or fear of lost profit). The position could still be kept open, but the trader reduces his risks, closes the deal and receives less profit. For many market participants, the fear of making such a “mistake” is even stronger than the fear of losing trades. It’s a little bit strange because “No one in all history lost money taking profits”.
6-Other fears that are not related to directly trading but more its indirect consequences. These include fear of losing a job, family, being left without income, and so on.
Causes of anxiety in trading
Some of the main causes of anxiety in trading are excessive expectations, experiencing unusual and unhelpful behaviours during trading and need for control.
The main fear traders have is to lose, to be left without your funds in the account, to be a loser. There are several causes of this fear, including excessive expectations. Many traders are sure that they must always win. This is a wrong expectation that has repercussions in the future. As soon as expectations are not met, a break in the pattern occurs and an additional fear of trading appears.
1-This happens in contexts other than trading, of course. If a person is confident in something and is waiting for that thing to occur, but their expectations are not meet, then fear of a new defeat appears, faith in one's own strength is lost. It is important to think from a different perspective - each unjustified expectation is a kind of lesson for the future. The right trading mindset would be - without such training, success in trading is impossible. The main thing is to draw the right conclusions from the lessons. “No one succeeds in the same way, but everyone makes the same mistakes”.
2-If the brains gets paralysed by indecision when opening a particular transaction and there is no explanation for what is happening, then your future trading psychology will be negatively affected. Failure to understand the reason for what happened makes it less possible to solve the problem and make the right decision. Uncertainty often leads to even greater trade errors. So its important to analyse the root cause of what caused the trade paralysis in the first place.
3-Attempts to take control of what is in principle unrealistic to control. The more money at stake, the more the trader tries to do everything right. There are attempts to take control of the market, which is not amenable to any control at its core. As a result, the quality of trade itself is reduced significantly. Therefore, it is better to focus on those points that can be taken under control and not be distracted by third-party things. .
4-Seasoned traders may suffer less often from these. Part of this is because of the accumulation of experience, partly because of survivorship bias (those who end up being in the game longer will be there because they have better control of their emotions), but rarely does a trader pass the test of time without burning some accounts. .
How this anxiety affects you from fulfilling your trading potential
Three of the impacts of these fears are neatly summarise by these three outcomes:
1. The fear of losing money will can lead to paralysis and thus miss out completely on a winning trade.
2. The fear of losing money in a position when you, or your system, still believes in the trade could leave money on the table. This is for both losing more from current losers, and losing profits from existing winners.
3. Fear of getting losing trades after a bad run, when your system still wants you to put on trades will make you miss out on a really good trade. .
How to deal with this anxiety
To deal with this there are ways of just powering through, getting medication, self-medicating through alcohol and stronger substances. But of course, the way solution to avoid the fears above, with the highest payoff, would be to find a trading coach. It’s smarter to learn from other people’s mistakes instead of repeating them. It’s even smarter to fix your mindset so you don’t get anywhere near these mistakes in the first place.
Contact Us Today To See How We Can Help Improve Your Trading Mindset