Home

Fear And Emotions

By Sum Edward

Over time I have come to realize that a trader success is really based on a firm grasp of trading strategies and a total control of the trader emotional involvement in their trading. A losing trader might sometimes have a lack of knowledge or skill, but it is more likely that he also has an inability to separate his emotions from the market. There are three overriding emotions within traders and the market. They are fear, greed, and pride. Any of these will confuse any rational decision making.

For most of us, the money that we take to the market is not easily gained. By working hard or by being frugal we finally pull together some start-up capital. We may have witnessed first hand the success of others or we have heard media reports of market success. Wanting to participate in this cash machine, we venture boldly into the market. We do all the right things by studying, taking classes and learning trading strategies and techniques. We practice for a while, not using real money, so that we can observe real-world conditions. But nothing really can prepare us for the emotions that hit us when the market behaves in its usual unpredictable manner.

The market is not a static place. it is always in flux and changing. It moves up and down on the news of earnings, economic reports, world political conditions, and other factors. If a new trader does not fully understand the implications of these factors and how they impact stocks, they can be blindsided by their effects. When this happens the trader begins to feel fear. Once fear takes hold, it often translates into the trader not taking any action. The answer is to train yourself to realize that to just sit and not take action when the market behaves in an unexpected way is insane. It is how many lose money. The simple answer is of course stop losses. Traders who can overcome fear and follow through with stop losses are well on their way to becoming good traders.

In the scenario that I have described, those who become good traders come to a point early on where they realize that the reality of losing money overcomes any fear of losing money. Not matter how much you fear losing money, once the market has surprised you and the money is lost, it is still lost. To sum up again the three most important things to remember, they are stop loss, stop loss, and stop loss. That is the key that the best traders have discovered.