Proficiency in the psychology of trading is a difficult, still under appreciated, element of learning trade of stocks. Even though there are many websites, books and other resources talking about stock trading strategies, little has been written focusing on the psychology of trading, specifically for short term traders.

This might be due to the reason that mostly technical traders tend to be mathematically oriented and are rarely interested in subjects like psychology. However, disregarding the psychology of trading might almost guarantee failure to be a regular profitable online trader. Various stock trading websites suggest that upcoming traders “paper trade” to acquire experience by trying hands on a simulated account. This might be advantageous for learning to spot entry points and technical patterns but it is not possible to pretend the psychological facet of a trade unless you put in your hard earned money at gamble.

The psychology of fear and how to benefit from it

To effectively deal with the fear of failure in stock market trading it is essential to adept the psychology of trading, a new entry trader must crawl his way through many trades to identify his own psychological weaknesses and strengths, and in that order. As trading operates in an environment of uncertainty and demands risk taking, it essentially engages the traders intellectually as well as emotionally. Emotional experiences such as tension, nervousness, stress, worry and fear, all depict a response to discerning threat and are a part of the “flight or fight” response that facilitate dealing with menacing situations.

No two people feel the tense of situations in the same way. For some, it might be a cognitive phenomenon where worry sets in and thoughts are speeded up. For others, physical manifestations like tensing of muscles, speeding of heart rate and increasing of shallow breathing. It might be a beneficial practice to occasionally make notes of the feelings, thoughts and physical sensations during the trading time and relate these to market behavior. Observing ones own anxiety related patterns and to see how they interfere with decision making will make it easier to alter the reactions by controlling the mind.

The feeling of any impending danger leads to a helpless emotion of fear. When traders are afraid of failure, they begin to sell a position without consideration of the price. Panic, an outcome of fear, leads to weak decision making. Just because there has been loss of money in the trades earlier does not mean that the trader should be scared to enter the next trade. Fear should be used to make healthier decisions and not choose bad options. During times of panic and fear, the best option is to go to cash. Never fight market trends just by going to the advice of news updates or trade gurus. No individual has enough money to hold up the entire market by himself/herself. When in doubt, it is best to get out!  Precisely understanding the weight of fear of failure is the key to improve stock trading abilities. The feeling is not easy to loose hence it is best to use it to your benefit.

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Carl Jones is an independent trader and trading enthusiast.