In trading, fear comes from the increased possibility of losing money, which may occur anytime for a trader.

Experiencing fear is normal. Fear is taken into account as a basic survival mechanism.

Without fear, we won’t find a way to acknowledge danger and respond appropriately.

The issue with fear comes once we let the perceived danger of stopping out or losing money scare us into making a call that goes against good trading habits and our pre-determined trading plan.

Let’s say you might be holding an extended EUR/USD position. You acquire it at 1.0850, and price is currently at 1.0835, so you might be down 15 pips.

Your stop is at 1.0790, slightly below the support at 1.0800. At this point, you might be very nervous and really afraid, especially since your last trade was a loss.

Simply put, you might be experiencing fear.

You think that you can’t handle it anymore and don’t want to lose greater than you have already got.

You close up early.

Are you able to guess what happens next?

Support holds, and the value shoots up a couple of hours later. Your fear caused you to irrationally close a legitimate, high-probability trade!

You’ve to seek out a solution to use this negative emotion to your advantage or as Brett Steenbarger, writer of The Day by day Trading Coach, puts it – make fear your friend.

Because fear warns you that something doesn’t feel right a few trade, you need to attempt to determine what exactly goes improper. Ask yourself these questions:

• Why am I feeling uneasy?
• Is it just because I’m afraid to lose?
• Or are there fundamental or technical aspects telling me to exit this trade?

When you discover the explanations behind your fear, you should utilize them to make higher trading decisions.

In case you’re able to research the foundation of your fear, you’ll be able to look back at your trading plan, which should assist you to determine what to do in that scenario.

Let’s return to that long EUR/USD trade that I discussed earlier. Let’s say you heard news that ECB members have expressed support for multiple rate of interest cuts this 12 months. This makes you are feeling uncomfortable along with your long euro position, so that you experience fear.

Now, there may be a change in the basic landscape and an increased probability of a losing trade, so it could be higher to exit your trade even before it hits your stop.

Once price breaks below support at 1.0800 and plummets, you’ll be patting yourself on the back for acknowledging a legitimate change within the environment as an alternative of closing your trade purely on fear alone.

For those of you who need your very own checklist, here’s the TL;DR version:

1. Embrace fear

Fear is an element of human nature and everybody experiences it, so embrace fear and concentrate on coping with it.

2. Discover the source of your fear

Did the funny tingling in your tummy come from valid reasons like a break in support and alter in market sentiment, or was it simply because you had a nightmare about your trade the night before?

Learn to discover the great form of fear versus irrational fear so you’ll be able to concentrate on acting on it.

3. Use fear to make higher trading decisions

When you pinpoint the source of your fear, make the essential changes in your trades. This manner you’ve turned your fear into an area of growth and improvement.

As super trading coach Brett Steenbarger says, “Confidence isn’t the absence of fear; it’s the knowledge which you could perform your best within the face of stress and uncertainty.”