This article will showcase one of our trader's stories and how he dealt with his fear and overcame it.
In the past month I began trading much larger positions in an effort to increase my gains. I had traded Forex for over 7 months straight with a fantastic performance. Each day I would trade two mini contracts two to twenty times depending on the circumstances, market situation and my own timing. Every month I routinely had many good trades averaging around 25 to 75 pips a day or more. I would often pick up even more with some good days well over one hundred. I also had some losing days but not that many. All in all, my drawdown was relatively low and my approach seemed appropriate.
My Forex strategy was clear and complete making it very quick and easy to spot potential trades. I learned the strategy from a teacher who worked giving online lessons daily about a software system that he developed on his own. I had a great environment to learn and trade in with a live trading room, daily classes and daily emails with key S&R, fib levels and pivots to reference. With all these tools I felt comfortable trading and I think that both the structure and makeup of my trading environment/setup boosted my confidence.
After seven months I had turned my $10,000 account into $22,500. It was a fantastic return. Perhaps the outcome was not the best in the world, but certainly good enough to continue trading. I had essentially traded two mini lots for between 20 and 30 pips on average. After seven months, my average win was $44 and my average loss was $40. Certainly, there was room for improvement but I felt that I was well on my way to a solid Forex trading career.
On the eight month, I decided to make a change. I increased my Forex account equity to $50,000 in order to increase my gains. I would use the same method and strategy but I would trade two full lots instead. Once I began trading things started to change. I was no longer feeling comfortable and easy going, but instead, I started feeling much more tense and uncertain. If I lost 20 or 25 pips I was looking at a loss ten times greater than my previous trading method. I was able to gain a few pips here and there but once I sustained my first series of losses my account was down my more than one thousand dollars. I was so upset at myself I could hardly contain my emotion. After all, I had lost some serious money.
As I began to be more concerned with my increasing losses I started to get desperate to get recoup my losses. It was a really bad situation. As I was stressed and pressed to perform, often my trades started to become both hurried and harried. I would increasingly use less methodology in my trading, rushing into bad situations with only hope on my side, and I started to feel more a lot of emotion once into each trade. Eyeing each trade as they sank deeper into negative territory I would suddenly feel either compelled to escape with a loss before it got worse (exiting too quickly) or start to consider the trade “longer term” even adding to the losing position and re-framing my logic surrounding the trade. My losses increased and consumed me.
Needless to say, it was all very, very bad. In hindsight, it was all so very easy to avoid. I feel like a fool and I was. The question is can I come back? How do I overcome this? The fact is, fear of losing overcame me and clouded my judgment. It was almost imperceptible at the time but all too clear now. Previously, when I was trading amounts that I did not fear losing trading was so easy and quite fun. I always had wanted to get more and longed for the day when I could increase the leverage and win $100 instead of $10 on any one trade. I think this is natural. However, despite an excellent teacher, good support from fellow traders, and high-quality tools and indicators, in the end what caused my failure was my own psychology.
Here are four things that fear can do to you (and that you must avoid at all costs):
1. Fear causes you to hesitate so that you may not heed your indicators and enter a seemingly good trade after suffering a loss.
2. Fear can cause you to make a bad decision by hastily entering a bad trade (against your own trading rules) so you can make back the funds you just lost.
3. Fear of losing profits on a trade that is going your way causes you to close the trade too early. You become so afraid of not banking the profit you quickly close the trade and give up any further gains.
4. Finally, and perhaps most devastatingly, fear causes you to stay in a losing trade too long, hoping and/or praying that the market will turn around and you will get out with a profit instead of the loss.
