Fear can be the final gate that prevents a trader from making a trade that makes money. Fear is the prevailing negative emotion that halts traders in their tracks and causes them to experience what they detest most — losses. Fear can be looked at as a double-edged sword.
On one hand, we fear losses. On the other, we fear missed opportunities. Traders who fear too much will ultimately neuter their strategies by adding a negative ingredient into their concoction.
The root of all fear is an ineffective trading strategy.
When we finally nail a good trade, we often exit too early for we are afraid to hand back our hard-earned profits. Sometimes the trend is just beginning and exiting too early does not let us realize the full fruition of our potential profits. This is one of the biggest mistakes a trader can make.
We know that we need to have a positive profit-loss ratio in order to have long-term success. If you lose every other trade, but your profit is 20 percent larger than your average loss, you will be quite pleased with your long-term results as a trader. However, this is only possible if you let your profits run as long as the market goes in the direction of trend. That’s why fear of loss and fear of missed opportunity continues to plague traders every single day.
Do not suffer from this fate. If the market is going in the direction you expected, let it exhaust itself. Only then should you lock in your profits. This will keep you striving for maximum reward, and you’ll finally hit that home run trade. On the other hand, we can fear opportunities, and this causes us to get in a stock too early. It is human nature to get impatient, and the ability to wait for opportunities and to let them present themselves is nothing short of a virtue. We start searching for opportunities like a foolish hungry lion, running blindly through a field instead of waiting patiently behind the high brush.
Do not run around desperate for an opportunity. Traders will present themselves, and when they do, you have to capitalize on them. Once you develop your conviction and confidence, you will have the ability to overcome anything the market throws at you, especially fear.