There are two kinds of fear in this world. Legitimate fear and illegitimate fear. Legitimate fear is the kind of fear that is based on the fact that there is real danger. Illegitimate fear is based on perceived danger when none actually exists. Illegitimate fear can also co-exist with legitimate fear.
Here’s a real-life example. I was sitting in my living room and out of the corner of my eye I could see a black blob moving on the kitchen floor. I turned my attention to that blob and thought there was a tarantula in the house. I got up, summoned the rest of the family to enjoy this unusual spectacle only to see that it was the largest wolf spider I have ever laid eyes on. If it was a pound, it was a hundred. So, I went out, got the sledge hammer and smashed it. After scooping most of it up and informing my children not to trip over one of the legs that stuck to the floor, I drug it to the dumpster with my son, who loves crawling things.
My daughters on the other hand, hate spiders. The very thought of the 8-legged hairy critters sends them screaming, especially my oldest. In fact, the fear of spiders rates right up there close to the top of her list. Truth be had though, most of the fear is illegitimate fear. All spiders are venomous to a degree, only a handful can cause any real harm outside of a slightly painful bite. You would think by her reaction that if one so much as entered the northern hemisphere of the earth (where she lives), she would die the most torturous death known to mankind.
Fear in trading is both legitimate and illegitimate. Illegitimate fear is any fear that is not based on fact. It is fear based on a misunderstanding of the fact, over exaggeration of the facts or misperception of what the facts are or are not. The most common source for illegitimate fear is lack of knowledge. Take for example my incident with a boy scout group when I was in 3rd grade. Had I known that there was really not any such thing as a deer woman, I probably would not have had the pants scared off of me. Deep down inside, I did know, but I allowed emotions to over ride any rational thought…actually, any thought whatsoever.
It is amazing how similar fear in trading really is. For example, have you ever been involved in a trade risking a few hundred dollars where as soon as it started to go against you your heart rate increased and your palms became sweaty? Why is that? It is only a few hundred bucks? If you aren’t willing to risk a few hundred bucks, why are you trading, right? It isn’t about the few hundred bucks, it is about over exaggerating the situation. The emotions are given more attention than they deserve.
On the flip side of that (like I said, there is always a flip side), there is a very real fear with the ultimate outcome of any trading venture overall. The statistics back this up. It is a battle to balance the fear involved with trading. On a single trade, the fear should not exist. But the fear from the probability of long-term success is lingering in the background and causes many traders to try and change those probabilities one trade at a time. In the process of trying to avoid failure, they are bringing it on faster.
The first step to overcoming fear is to determine which kind it is. Kids are fearful of many things until they learn and understand that the fear is unfounded. Knowledge is the best weapon to fight the negative affects of fear in your trading. The more you know, the more you understand, the less fear will have a negative affect on your trading.
And that is the Truth About Trading.