63.21 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.21 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Syndromes and fears in trading and how to avoid them

Published: 26.06.2024

Trading is a mentally taxing activity where every mistake can cost you money. In this article, we will therefore look at how to avoid these mistakes.

The forex market is a 24 hours 5 days a week environment where we know nothing about the motivation of the counterparty and where the price can theoretically rise indefinitely. Forex is a very unstructured environment from this point of view, in which rules must be followed. But it is also an environment where is a strong temptation to break the rules at any given moment. Related to this is the emotion that operating in this environment brings.

The ability to keep emotions in check and the ability to objectively and dispassionately evaluate market opportunities are essential to success in Forex. Unfortunately, often these abilities are negatively affected by adverse experiences either from previous employment or possibly relationships etc. If they are not resolved, they leave a negative imprint on us. This will sooner or later manifest itself in trading.


Example

In your previous job/school, you were not as valued as you thought you should have been. This has led you to be afraid to speak up and take responsibility for your fate. Similar frustration can result in the urge to release the negative energy from this experience in some way - often by wanting to hit a home run, i.e., looking for a really very profitable trade.

Or maybe someone has tried to discipline you, and the result is that the concept of discipline makes you uncomfortable, so you try to prove that you don't need it. But you can't do without discipline and systematic adherence to the rules in Forex.


These examples are just to say that you cannot succeed in trading if you want to avoid confronting negative feelings in those areas that are essential for trading. Fear can be the friend of winners but only if we solve our own problems by gradually uncovering their individual layers. If we ignore them, they will defeat us. Since the enemy loses power when we name it, let us now look at the most common fears that manifest in trading.

FOMO (fear of missing out) and how to deal with it

Zkratka FOMO je z anglického Fear of Missing Out, tedy něco jako strach ze zmeškané příležitosti. Určitě znáte momenty, kdy jste si říkali:

  • If I had made that trade, I could have made a nice profit today.

  • I told you the trade couldn't work.

  • I told you the trade couldn't work.

  • I should have exited the trade right then.

  • I should have waited a little longer, etc.

If these and similar phrases seem familiar, you are probably susceptible to FOMO syndrome. These phrases come to your mind as a reaction to an opportunity that has been or is in the market versus your desire to make money in the market.

The stronger your drive to make money, the more likely you are to develop this syndrome.

FOMO manifests itself, for example, by a trader letting losses run and exiting profits very quickly. Or it shows up in a situation where you enter a trade too early without waiting for confirmation. The worst thing that can happen is that the market will randomly reward you at the beginning leading you to believe that this kind of approach will work.

FOMO is unfortunately widespread among traders but it is also deadly. FOMO will constantly force you to break the rules you set. If you see that you could have taken a trade at a better price than what your plan set you, and it makes you feel sad or upset, angry, etc., then next time you will want to avoid these unpleasant emotions and will enter the trade randomly without a plan. Instead, you should try to find out why are you feeling this annoyance. The best place to look for answers is within yourselves.

 

Defense against FOMO:

  • You have a solid trading plan that you trust and follow.

  • Always wait to make a decision until the candle closes. You may not get the best price, but you'll have a greater likelihood of success.

  • Cultivate a resilient and disciplined mind. You can only do this by constantly repeating the right things. Any breaking of the rules will only cause you to add another layer of emotional baggage to your mental setup that will make success in Forex more difficult.

  • Understand the reasons why FOMO comes in. Most of the time the cause is life dissatisfaction.

A guide to candlestick formations and price patterns

Download this free guide to help you get to grips with the basic types of candlestick formations and price patterns. Always keep it handy to learn the basics of price action and forecasting potential price movements.

Fear of loss and how not to let it affect you

You can develop this fear by having experienced a major loss before and not wanting to experience it again. The result will be that you will be too fearful and distrustful. In trading, fear of loss is related to a part of the brain called the amygdala. You have suffered a loss and the amygdala registers it because the amygdala remembers everything that hurts or threatens.

In fact, we share the amygdala with reptiles, for example, and it's the oldest part of the brain evolutionarily. It regulates our emotional reactions and behavior.

While FOMO will tempt you to enter a trade unplanned or exit it unplanned, fear of loss may cause you to not enter a trade at all or to enter it but with very little volume because you fear losing capital.

If a trader suffers from fear of loss, it is good to remember that every trader has losing trades. The important thing is to look at trading not from the perspective of individual trades, but from the perspective of the system as a whole, which should be profitable. It is also important to think about the size of the loss for each trade. For some it is acceptable to risk 2% of capital per trade, for others, it will be 0.5%.

Self-saboteur syndrome

Behavior, where you cause yourself to make achieving your own long-term goals unrealistic, is classified as self-sabotage or self-destruction. The cause of self-destruction is low self-esteem and surprisingly, according to Dr. Ellen Hendriksen, it can also be fear of failure. But at the same time, you perceive yourself as not deserving of success.

When it comes to trading, for example, if you make some good trades but at the same time perceive yourself as worthless, instead of rejoicing and celebrating, you pull the brake and do something that confirms you are indeed a loser. In other words, when you make a profit, you then intentionally make the situation harder for yourself and give back to the market what you made.

Why? Because people like consistency and our actions are always in line with our values. So if you think you don't deserve success, your actions will confirm it.

Another cause of self-destruction in trading is boredom. You look at the charts and nothing happens. The signal doesn't and won't come. So you press a button just to get some action. The problem is when this behavior is not intermittent, but repeats itself regularly. Then there is a familiar feeling of instability and chaos, and the chance to succeed is one step further away.

Finally, let us remember:

  • FOMO is the fear of missing an opportunity. It is a fear of failure.

  • Fear of loss leads to an inability to enter a trade. It's related to the amygdala.

  • Self-destruction syndrome is related to low self-esteem and often to feelings of boredom.

63.21 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.21 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.