What is fear?

Fear /fɪə/

noun

an unpleasant emotion caused by the threat of danger, pain, or harm.

Fear is arguably the #1 killer for beginner traders. I will explain why.

• Picture this: you hear about trading, you get excited, and you learn a whole bunch of strategies that you want to put into practice. You have your small arsenal of tools ready to tackle the markets. You put in your first trade, but before you click that buy button, fear strikes you. Your body freezes. Thoughts of “What if I’m wrong?”, “What if I lose money?” starts to cloud your judgment. You end up stepping away from the markets, telling yourself, “I will take the next trade, just not this one.”

Fear manifests itself in 2 ways in trading

• Fear of missing out (FOMO)
• Fear of failure (FOF); so let’s address them one by one

Fear of Missing Out (FOMO)

• The fear of missing out plagues a beginner trader’s early earning curve. They’ve been sold a dream by social media that you could “get rich quick” and “quit your job in X days," only to be met by the experienced traders they look up to running laps around them. You are brought in to think, “Trading is easy.” It’s not. I had to lose money before I gained money. Good things don’t come without the bad. There is no rainbow without rain.

• This is where we come in; we try to hold your hand as much as possible, but the onus is on you to want to improve and to get better with your own effort. It’s the same thing as doing your homework (concepts, analysis) to prepare for an exam; the more you do on your own, the more prepared you will be to ask your mentors/peers good questions (during streams/over text), and the better you will do for the exam (the trade).

• The #1 most likely reason for FOMO is that you see others around you succeeding. Look at your other VIPs; they’re taking their own trades, sharing their trade ideas, and performing absolutely well. You happen to miss a trade that was shared, and you decide “I want to get involved in this move too”, only to be messed up by price action which you may not have anticipated.

  The reasoning for this is simple:

  • Your risk management becomes vastly different, the later you are involved in the move. If you have a 20-pip scalp, with a 10-pip stop loss, getting involved even 3 pips late vastly changes the risk management. Instead of risking 10 pips for 20 (1:2RR), you now risk 13 pips for 17 (1.3RR). You missed out on 0.7RR that you could have caught if you had made it.
  • Now, this is just assuming the trade went well. What if price reversed when it was running 10 pips in profits? Notice how different your risk management has to be now? You have to manage a 7 pip to BE, while your peers are comfortably managing 10 pips (1:1)
  • You can argue that this is less apparent for swing trades, and I’d agree. However, the overall principle still stands. Over time, if you keep FOMO-ing into trades, the small effects will stack up and only become way more obvious in the long run.