This fiend has a fearsome sight, and a sharp voice, bellowing, growling all the time, trying to intimidate us into indecision in everything that we do.
Fear has the opposite role of greed in our trading decisions. Instead of inspiring us to trade like a machine gun, opening and closing positions with the speed of lightning, fear convinces us that nothing that we do will be profitable in the long term, regardless of the power of our analysis, and the amount of study and consideration gone into perfecting our method. In this case, a fearful trader will be unable to wait for the realization of a profitable position, and he will be unwilling to act on the basis of rational expectations. In addition, the fearful trader will be unable to realize losses that result from mistaken assumptions, and the red ink in his account will keep spreading everywhere as a result. The result is usually ruin: as fear leads to more and more irrational decisions, and few trades are profitable, a few long-held losing trades will eventually wipe out the account.
It is necessary to distinguish between conservatism and fearfulness. Being conservative in our trading decisions is surely a healthy and sensible practice. A conservative trader is skeptical about everything he hears, but is still willing and able to act when his study confirms a profitable risk/reward prospect for a particular scenario. The fearful trader, on the other hand, is incredulous of not only the opinions of others, but everything that his analysis tells him too. He doesn’t know what to do, where to look, which trade to take and which to avoid, because all are the same to him. As he doesn’t trust his own logic, he has no tools with which he can understand or evaluate market developments. The end result is something akin to panicky gambling, with deleterious results being the inevitable outcome.
To avoid the disastrous effects of fear, we must train ourselves to understand that there’s nothing random about a successful trading career. We must be convinced that we are in control of our choices; we must have a clear plan to which we adhere with iron will, impervious to the illogical emotional extremes of the crowd. All that is only possible by a logical, calm approach to trading, which can only be gained by patient study. Another good way of avoiding fearful trading decisions is ensuring that we do not over leverage our account, and risking only so much that when the account is wiped out, we can laugh at the outcome, and go on and seek our fortunes in another aspect of life.