Common Mistakes: Trading Scared

This common mistake can actually be broken down in to two sections. The first one being an amplification to fear of loss by trading with money you can’t afford to lose. The second being the personal fear of failure and/or the fear of letting someone in your life down. A whole lot of fear as you can see and to take a quote from a movie “Fear is the Mind Killer”. These psychological elements all need to be addressed before you start because they will have an effect on your results.

Let’s kick off with the #1 mistake that people make in this category; no ”˜real’ risk capital to play with. By risk capitol I mean money that you can afford to lose. This doesn’t mean that you are planning to lose it, or think that you will lose it, simply that if you did lose it your life would not be greatly affected. It’s important that you start out this way to create a detachment to that money and reduce the amount of fear of loss that most people have. If you honestly can afford to lose the money you are using then in fact you should have no fear of loss whatsoever. Put the money in your trading account and forget about it for now, pretend it doesn’t exist and you just spent it on something.

I realize that no one wants to lose any amount of money and that most people starting out with Forex may not have that much to play with in the first place. Let me use a ”˜down to earth’ real life example to throw some ideas out there for you. Let’s say that you have $2000 as your risk capital and if you lost it your trading career would be finished but your life would be OK. Instead of putting that whole amount in right off the bat, read the warnings of high failure rate and assume that most likely you will not just start winning straight away even if you did do well on demo. Don’t assume failure or anything but accept that there will be a learning curve after your success on demo and once you enter the world of the psychological. Take the intelligent route and start trading a micro account using just $500. This would be the same as starting out on a standard account using $5000 when it comes to money management. If you go ahead and lose that $500 you will have learnt some valuable lessons without losing before you finished learning. Your trading career will just be getting started instead of ending. You will have four chances to repeat this process and providing you learn from your mistakes you will not fail. There is nothing stopping you from turning that first $500 account into $5000 but having four chances to do it is a little more realistic than just one. It is not the fastest route but if you don’t have big bucks to play with then you have to go down this road of baby steps.

Moving on to the secondary part of this article I feel it is worth mentioning that you don’t need any added pressures to the difficult journey you are on. Anyone in your life needs to be supportive of your mission but not asking you how much money you made each day. Trading success is not based on a daily result and it’s not an hourly wage job. They need to understand that you have an allocated risk capital and you will probably need a year or more to see if you are going to be successful. When it comes to everyone else I will warn you right now; if you tell anyone you are a trader then they will immediately ask you how much money you make. I am not sure why this seems OK for everyone but it is what it is. I certainly don’t go around asking people how much they make an hour, I always thought that wasn’t my any of my business and I don’t care anyway. For whatever reason though if you don’t follow the 9-5 mold everyone will want to know numbers. It’s up to you what you share with whom but generally just let people know you are still learning, it’s the truth, they will see your success later when you start rewarding yourself with expensive toys.

To wrap up it is worth mentioning that it is also important that you are honest with yourself about your progress. You certainly don’t need the added pressures of being asked each day or reporting back to people whose business it’s not, but you do need to be responsible for reporting back to yourself. Don’t lie to yourself, keep track of your trades and their outcomes, be disciplined in teaching yourself because you are your own boss on this one.

I must not fear.
Fear is the mind-killer.
Fear is the little-death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past I will turn the inner eye to see its path.
Where the fear has gone there will be nothing.
Only I will remain.