Last week we discussed two of the four fears of trading: the Fear of Missing Out (FOMO) and the Fear of Loss. Today we’ll discuss the Fear of Being Wrong and the Fear of Letting a Gain Turn into a Loss. These concepts were introduced by the late great trading psychologist Mark Douglas in his stellar book “Trading in the Zone.” His premise is that traders and investors can easily be overtaken by their emotions, but if you can manage them, you can be successful.
I have seen the effects of fear, and it ain’t pretty. Nobody is immune to emotions when money is involved. We are all wired the same. We are competitive animal spirits who want to accumulate as much as we can and lose as little as possible. Therefore, we live on the spectrum of fear and greed. On one end, we fear losing our money to forces we can/cannot control. Yet, we are all greedy when it comes to accumulating money. We want more, are never satisfied, can never say “enough.”
Conquering the four fears is a monumental task that takes learning, discipline, repetition and focus. Many investors find themselves swirling in a vortex of negativity, gripped by fear, often forgetting what to do. This behavior will cost you dearly. You’ll lose money and miss opportunities.
Let’s look at the final two of the four fears of trading to better understand how this can play out.
The Fear of Being Wrong
This fear stems from a crisis in confidence. While I like to preach that trading is not a game of perfect, you can’t grow your account if you’re always wrong. If you find that your system of trading is not working, you have to change it. Likewise, if you find yourself in a bad trade and cannot seem to get out of it, you have to decide when and how to cut the loss. I have been in both situations, so don’t think you’re alone. Being wrong is not all that bad, but staying wrong is a major problem.
The Fear of Turning a Win into a Loss
We have all experienced what it feels like to have the rug pulled out from under us. It creates a feeling of devastation and despair. It can paralyze us to the point that we just want to give up entirely. The mind is powerful, but it works both ways. Yes, wins can turn into losses, so when that happens, move on and adjust your approach for the next trade.
Both of these fears can be conquered. The key is not to let past results get in the way of good judgment. Take profits when you have them! No matter how big or small, take winners off the table. Banking wins is a powerful psychological boost that compounds itself into the next trade, and the next one, and so on. Soon you will find yourself on the winning side of trades far more often than not with a growing portfolio that proves, yes, you are a successful trader.