*Trading under fear*
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One of the most common emotions a trader could face while trading financial markets is fear. The goal of trading is to place a trade expecting the price to move in the direction of your favor, unfortunately, this is not always the case. The fear starts to build up as soon as your positions start to lead to losses. This is when, despite a carefully planned trading strategy, many traders decide to take sudden actions.
Here are some examples of trading decisions based on fear:
Deciding not to enter into a trade because of the potential of losing.
A phenomenon called the âsunk-cost effectâ: sticking to a losing trade because of the time and money invested in it.
Not closing a losing trade because of the loss would be accounted for while there is a potential for it to recover in the future.
Closing a trade too early because of the fear of losing the profit gained so far.
Trying to understand the origin of the fear and sticking to your trading strategy or plan is the easiest way to control this emotion.
