A Practical Framework for Overcoming Fear in Trading“Fear is not real. The only place that fear can exist is in our thoughts of the future. It is a product of our imagination, causing us to fear things that do not at present and may not ever exist. Do not misunderstand me, danger is very real, but fear is a choice.” - Will Smith, After Earth
Although I firmly agree with this statement, I also have to acknowledge that while fear is a choice, it’s also a biological response to perceived threats like uncertainty, lack of control, and experience.
When faced with these threats the brain activates the amygdala which triggers the fight or flight response releasing hormones like cortisol and adrenaline, preparing the body to respond quickly and instinctively.
If left alone, traders consumed with fear will either seek to take vengeance against the markets, typically referred to as “Revenge Trading” or they’ll hesitate when taking the next position fearing that it would be a repeat of the last. Either way, it never ends well.
In today’s article we’re going to be breaking down fear both figuratively and literally, by gaining a deeper understanding on how it works and what steps we should take to overcome it.
Three Types of Fears in Trading:
Now I’m sure most of you reading this article are familiar with the three types of fears related to trading, so I’ll go through these quite briefly but for those of you who might not be that familiar I’ll leave a short explanation for each of the fears highlighted.
Fear of Missing Out (FOMO):
The apprehension of missing profitable opportunities leads traders to enter trades impulsively without proper analysis, often resulting in poor outcomes. Traders experiencing FOMO generally find themselves in trading signal groups or rely on social media for direction, see my previous article on Trading Vs. Social Media
Fear of Losing Money:
The anxiety associated with potential financial loss can cause traders to exit positions prematurely or avoid taking necessary risks. This fear is closely linked to loss aversion, where the pain of losing is felt more intensely than the pleasure of equivalent gains.
Fear of Being Wrong:
The discomfort of making incorrect decisions can deter traders from executing trades or cause them to hold onto losing positions in an attempt to prove their initial decision was right.
In many respects, traders try to deal with these fears directly but usually without much success. This is because they’re treating the symptom but not the cause.
In order to deal with any of these fears either independently or collectively you’d need to first learn to become comfortable in three very specific areas.
Uncertainty - At its core, trading is a game of probabilities, not certainties. Certainty in trading comes only when you’re able to shift your focus from the outcome of any one trade to your ability to take any one trade regardless of the outcome. Remember, it's not your job to predict the future, rather you should prepare for it.
Past Losses - The outcome of one trade has absolutely no impact on the outcome of the next, and the best way to deal with past losses is to embrace the lessons that came with it.
Lack of Control - Although we cannot control the outcome of a trade, we do control the type of trade we take. We can control when we enter, exit, and how much we risk, which when examined closely carries far more significance than merely seeking to control the outcome.
Debunking The Biggest Myth In Trading
If you won then you were right, if you lost then you were wrong. This is the biggest myth in trading today and one of the main reasons why so many traders chose being right over being profitable.
Instead of accepting a loss, they’ll remove whatever stop loss they had in place in the hope that the market will eventually turn in their favor, refusing to accept that they may have been wrong.
There are very good reasons for this type of behaviour which is tied directly to our identity, social belonging and self-worth. When we’re faced with the possibility of being wrong our intellect, competency and self-image is challenged.
In order to protect ourselves from this challenge, we begin to resist any new information that could conflict or even threaten our existing belief, creating discomfort even when the evidence is clear.
This can trigger emotions like anxiety and avoidance behaviour which can show up in the form of hesitation, overthinking, or avoiding placing trades altogether. However, I’m about to share a framework with you that will help you overcome the fear of being wrong and instead of avoiding it, if you follow this framework, you’ll begin to embrace it.
3 Step Process To Profit From Being Wrong
In trading Losses are inevitable. In fact, some of the most successful traders lose far more times than they actually win, and yet they’re still able to make money. This is because you don’t need to be a winning trader in order to be a profitable one.
It’s under this principle that you’ll apply the 3 step process to profit from being wrong.
1. Reframe “Wrong” as “Feedback”
Generally being wrong comes with consequences, in trading those consequences comes in the form of losses. However, you determine how much you’re willing to lose on any given trade. This means that because you control how much you’re willing to lose, you ultimately control the consequences.
The market is a nearly endless pool of trade opportunities and no one trade can determine the outcome of the next. Therefore, a losing trade cannot mean you were wrong, because as long as you still have capital to trade there is another opportunity lining up.
Instead, what the losing trade does uncover is the market conditions in relation to your plan. It’s at this point where you review your initial analysis and see if anything has changed. If nothing changed, then it's likely you may have gotten in a bit too early and you’d just have to wait for the next setup.
However, upon your review, you discover the market conditions have changed, and you now have to re-evaluate your approach, then this is the feedback the market is giving you. This is what it means to take feedback from the markets and this is what it takes to be profitable instead of being right.
2. Separate Identity From Outcome
The mistake many trades tend to make is measuring their success on the outcome of a trade. This is a recipe for disaster because in order for them to feel successful they’d have to win every single time.
This of course is impossible, instead I’d encourage you to separate yourself from the outcome of the trade and focus on just trading. There are only one of three outcomes you can experience in a trade. 1. Loss, 2. Win, 3. Breakeven. When you’re able to accept 1. Loss then you don’t have to worry about numbers 2,3.
Because you control how much you’re willing to lose you should be able to accept what you’re willing to lose, and by accepting what you're willing to lose you’ve then separated yourself from the outcome of the trade and you can now focus on just trading.
To keep you in check with this step here is a very simple but highly effective practice:
✅ Practice saying: “This was a good trade with a bad outcome — and that’s okay.”
3. Celebrate The Process, Not Perfection
“That which gets rewarded gets repeated” If you’re only rewarding yourself when you close a winning trade then you’re simply reinforcing the notion of viewing the markets through the lens of right and wrong.
As we’ve already discovered this view is detrimental to your longevity as a trader and so I would argue that instead of celebrating a winning trade, celebrate your process. Reward yourself every time you follow your plan regardless if the trade resulted in a win, loss or breakeven.
This approach will help you improve your process which in turn will improve your overall returns and performance.
Conclusion
📣 You are not here to be perfect. You’re here to grow, to learn, and to keep showing up — fear and all.
The market rewards the trader who is calm under pressure, humble in defeat and focused on the long game.
Go into this week knowing that fear may still show up — but you’re more prepared than ever to handle it.
Let fear be a signal, not a stop sign.
You've got this. 🚀
