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How to Overcome Fear of Loss in Trading

Posted by BluFX


How to Overcome Fear of Loss in Trading-1

Overcoming fear is crucial to your success as a trader. If you're afraid that you might lose, you are far more likely to make losing decisions - but many traders fear loss of profit. It's how they deal with it that counts. At the beginning of your trading journey, it can be hard to know how to overcome this fear to get started trading in the first place. This is where this blog can help: here, we talk about how to overcome your trading fear and dive into the traders' pool. 

This blog is part of our new Make It Happen series, a series of blogs aimed at total beginners to forex: for people working a full-time job, with little capital to start off with, and limited time to learn how to trade. Sound familiar? Here’s how to get started on your trading journey.

Read Women in Trading: Mandi Rafsendjani Q&A ⟶

Tips on How to Overcome Fear of Loss in Trading

What is fear of loss in trading, and how can it affect you?

The fear of loss is a psychological condition. If you're just starting out trading - or even if you haven't, but want to - it's probably a feeling you know well. You're scared of losing the money you worked so hard to save. You're scared of blowing up your account. You're scared to put money into something without knowing yet if you'll be profitable. 

These are all perfectly normal fears - if you weren't scared, that's probably a sign you weren't taking it seriously enough! Here are some tips on how to overcome fear of loss in trading. 

Know the basics - read up on forex trading here...

Step 1. How to overcome fear of loss in trading: write down what scares you

By making a list of all your fears, you'll quickly realise which ones you need to pay attention to, which ones you don't, and how to navigate your fears. For example, it's reasonable to worry about losing your hard earned money - but probably not reasonable to worry about losing your life savings (this can only happen if you funnel your whole life savings into a trading account... which we definitely don't recommend!). 

Once you've written a list of your fears, it's time to tackle them. For example:

Fear of losing money

  • You're worried that you'll lose money. 
  • Think: How can you overcome this? Being prepared to lose money in trading is a concept trader must learn and accept. But you can mitigate the amount you lose - setting the right stop loss for you, or setting a good risk-reward ratio. From then, knowing the purpose of your trading (is it to make a maximum profit or is it to grind out small profits consistently) helps a great deal when it comes to overcoming the fear of losing. You might also decide to set aside a specific amount of money - relative to your outgoings, salary and spending necessities - to use on trading every month, so that your loss feels more manageable and specific. 

Fear of no money to trade

  • You're worried you don't have enough money to trade.
  • Think: How can you overcome this? Contrary to popular opinion, you actually don't need huge amounts of capital to be able to trade. You can set aside a small amount for your trading account, or take out an affordable subscription (for example, here at BluFX one of our accounts is £99 a month, for a $25,000 account). If this isn't feasible for you, you could consider increasing your income by working part-time for a while, or cutting down on unnecessary expenses (unused TV streaming subs, or gym memberships). 

Get inspired with trading success stories... 

Step 2. How to overcome fear of loss in trading: know yourself

Do you know your trading abilities? Each trader must find his or her unique tolerance for risk. The key to success is the ability to push yourself, but not get carried away. Do you know what goals are achievable for you? To avoid the trap of wishful thinking, pursue only plans that are measurable and achievable.

For example, there's no point in telling yourself you'll make X amount of money in your first week trading if you a) haven't been putting in the time to learn first, b) that amount of money is unrealistic for your account size, and c) you work full-time so you don't have the time to commit during the weekdays. It's all about setting measurable, specific goals - this will help you overcome your fear of loss once you see that you're in control of your goals, your time and your abilities. 

Get learning - here are some forex podcasts to check out... 

Step 3. How to overcome fear of loss in trading: keep an eye on your account

When you do begin to trade, keep an objective eye on your account balance, as you'll be able to mitigate your emotional responses better and you'll feel more in control of your money. Use this checking in to minimise losses and maximise gains - but make sure you're doing it sensibly.

Don't refresh your balance every five seconds - this is counterproductive: not only will your anxiety skyrocket, but you're likely to take your eye off the trade itself, ironically resulting in a loss - but instead check in at the end of the day so you can reassess before you step back in the day after. 

Here are three things to do after making a loss...

Step 4. How to overcome fear of loss in trading: think long term

Trading is a long-term game, but we tend to have a short memory for drawdowns. If you can think long term, you can have a clear mind and not be shaken by drawdowns. Don't give up because of a few losses or one losing streak. Learn to treat losing trades as a learning experience and start thinking long term. Think of trading as a long-term investment - one that you won't necessarily see rewards from straight away - and this might help to relax you. If you don't expect to see profits straight away, you'll be far more patient and even-minded about your trades and learning curve. 

Short-term trading can test even the most educated, intuitive investor. There are times when stocks fall unexpectedly and threaten the confidence of even the most seasoned trader. But as you work through these times, know that it's only a temporary setback, and you'll come back stronger - ready to try again, maybe not the next day, but the next week. You're in this for the long haul! 

Worried about loss? Set stop loss - here's why it's important... 

Step 5. How to overcome fear of loss in trading: visualise how the trade will work out

Once you have a trading plan and understand the currency market's price action, use visualisation techniques to take your focus away from the possibility of losing. Visualisation works by helping to relieve anxieties and negative emotions; it allows you to premeditate success.

This is contrary to conventional thinking, which says that the focus should be on managing loss. However, many traders have found this kind of "visualisation" practice very helpful in dealing with the fear of loss. Give it a go, and see if this helps to alleviate your anxiety. 

Stay tuned for more in the Make It Happen series for practical tips on overcoming anxiety to get your head in the trading game... 

Read Women in Trading Q&A with Mire ⟶

Tags: Make It Happen

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