Trading Psychology

How to handle and overcome fear in forex trading?

Fear in forex trading
two traders in fear

Fear in forex trading, next to greed, can hinder the growth of a trader. It is another negative emotion that you need to watch out for. Since Forex is quite unpredictable, all Forex traders go through fear from time to time.

Psychologically speaking, fear and anger always prepare you for physical activity. It is known as the ‘flight or fight response’ which changes your physiological processes like heart rate and blood pressure temporarily. But this can also cloud your reasoning and you may not be able to make decisions confidently.

A slight amount of fear may be good because it reminds you of the risky nature of the Forex trades. If there is no trace of fears, there may be nothing to remind you that you should not risk too much. But when it starts clouding your reasoning and lowering your confidence, you may not be able to harness the true potential in Forex trading.

How Fear in Forex Trading can affect your performance

The first and foremost fear is the fear of loss. You should be concerned about your risk management, but it should not have an emotional impact that stops you from trading good opportunities in the market. There is no use in having a wonderful trading strategy if your fear stops you from using it.

There is also a fear which is totally opposite to the fear of loss. It is the fear of missing good trades. There are people who always chase the market because they constantly worry about missing good trades. This may lead a trader to place a trade when there is really no opportunity.

There is also a fear which is directly linked to your self-image. Your self-image thrives on being right. So, whenever you are proven wrong, your self-image is threatened. Because of this, traders may also have a fear of being wrong. Because being wrong brings unpleasant feelings to your mind. This fear of being wrong is similar to the fear of loss, as it also stops you from making use of good opportunities.

Fear: The Strongest Emotion of mankind

The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.

H. P. Lovecraft

Fear is very primitive. It has traveled with us through all stages of evolution. Since it is very deeply rooted and sometimes it’s hard to overcome. And this fear has stopped many people from achieving their goals.

Fear in Forex is also a fear of the unknown. The Forex market is vast and unpredictable. Millions of traders are active in Forex and there is action 24/5. When the impact of fear is overwhelming, you cannot succeed in Forex trading.

San Tzu, an ancient Chinese Philosopher said: “If you know the enemy and know yourself, you need not fear the results of a hundred battles.”. In Forex trading, one of the enemies that we are dealing with is the fear itself. To conquer fear, it is very important to understand the fear and also understand yourself.

A sense of acceptance always gives you the readiness to face losses. When you completely understand that losses are normal in Forex, the fear of loss will go away. When you understand that the market is not always full of opportunities, the fear of missing good trades will go away. To make the fear of wrong going away, you must understand that you cannot always be right. No one can be right all the time.

In the subsequent articles in Forex psychology series, we will explore more scenarios related to fear and discuss various ways to handle and manage fear. Fear is a big hindrance to your Forex performance and success and hence avoid fear and success will follow you eventually. Likewise, there is another devilish emotion which can cause problems to forex trader-greed. Know how to overcome greed here.