Fear – A Natural Response
By: Gaurav Taneja, Financial Trainer, Venteskraft May 20, 2020
Everything was going fine, your portfolio was green, and you were just waiting for a certain target to touch. But Bam! The market starts going against you, you were confident when you entered and you see your portfolio now, it is losing its color. What seemed to be a good day’s profit is now turning into a loss which surely you can’t bear. Sounds dramatical but familiar? I know most of the people have been through. Then comes the Fear, and the most common response to fear is flight or fight. This is what differentiates between a successful trader and a novice.
Fear is a very basic response that animals use to survive in the wilderness and it’s controlled by very primitive parts of the brain. When trading in the stock market, the fear instinct can throw you off course. You should remember you don’t want to panic and sell off positions impulsively. Instead, you should evaluate your options calmly and rationally make a prudent decision.
It is important to manage your fear and not allow it to make you respond irrationally. When the capital is on the line, it can be hard to think clearly. The question arises, how can you control your fear? But the fact is you cannot overcome anything until you accept you are affected by it. So you have to acknowledge that you are afraid. By doing this at least you are aware of the outcomes consciously and the outcome actually loses its power.
The first step to conquering fear is to merely admit that you are afraid. One of another way would be to trade with small quantities. People actually ask how much quantity to trade with. To those specific people, unless and until you are asking that question, it means you are not confident with the quantity you are trading with. And this is for sure when you are not afraid anymore you will yourself know that now is the time to take a step. Third step is to manage risk, before even placing you should know if this trade goes against me what the risk will be. Fourth step is to have a trade plan which should be made cautiously with a practical approach.
For example, suppose you have a day trade where you are forecasting the market to be bullish. If the longer-term trade trend of the market is also bullish, you will be taking less risk. Even if the market moves against you during the day, you know that in a worst-case scenario, you can wait it out and minimize your losses, or even make a profit. Finally, if things get too rough emotionally, you can stand aside for a while and paper trade. If you are especially prone to fear, it is probably because you have recently had several losing trades, because of these losses, fear is associated with your trade execution.
Next time before entering the trade, make sure you know where you are headed and the risk is always probable. Try to relax and prevent the fear response from occurring by using a relaxation procedure.
If you want to read the “Market Psychology” series from the beginning click here.
