Your probability of trading success is directly proportional to your belief in your abilities. The greatest reason traders fail is fear. Fear can arise from your lack of belief in your abilities.
Wisdom is the correct use of knowledge. The correct use of knowledge is gained by experience. It can come from taking appropriate trading actions based on the technical market conditions at a given place in time.
There are probably more causes of fear than I can possibly put here, but one way that fear can come into the picture is from being a liar. You’re going to need to think hard about this one, because if you have it, you’d better confront it and overcome it before you lose all of your money.
Being a liar may get your through a lot bad situations, but there are few who make the connection between being a liar and the ultimate consequences of lying. The better liar you are, the worse the consequences will be when they finally catch up with you. There are no doubt thousands of wannabe traders who bomb out of the markets without ever realizing just why it happened to them.
You see when you are a liar, when it comes time to believe in yourself, or in your abilities to trade correctly, or when you need to have faith in what you are doing, you cannot do it?
Why? Because a liar knows he is a liar. The bigger the liar you are, the greater the fall you will take when you are in a situation where it is imperative that you believe in yourself and in what you are doing. A liar cannot truly believe in him/herself.
So, being a liar ultimately brings on fear. The fear derives from a feeling of insecurity – you cannot believe a liar and you know you are one.
Fear may immobilize your trade decision making process or cause emotional reactions which result in incorrectly analyzing price action.
How can you possibly leave your comfort zone and venture into the wilderness of trading, when you are not able to have faith in yourself? Fear is a natural experience, but there is good fear and bad. The fear a person has before a performance is natural and good. It brings up the production of adrenaline and spurs one on to a greater performance. Taking decisive trading actions lessens the effect of good fear and diminishes the inwardly directed anger of guilt caused by trading indecision. But for the person with bad fear, the following acronym applies. The bad fear acronym is False Expectations Appearing Real, whereby the trader experiences the pain of loss without the actual occurrence of loss. There is a certain amount of fear every time a trader experiences a new trading opportunity. The key to understanding fear and achieving trading success is this: fear is part of the same energy force that can create success. The opposite of fear is confidence, or the belief in one's abilities to act correctly based on technical market conditions without regard to outcome. But if you are unable to believe in yourself, fear for you will produce the wrong kinds of reaction.
The ability to take decisive action diminishes the paralysis of fear and builds the trader's self-confidence, making it easier to repeat trading actions. The second reason that only emotionally healthy individuals can assume risks is because they possess the ability to take decisive action despite experiencing fear and doubt amidst negative circumstances. The winner intellectually or rationally acts; the loser emotionally or irrationally reacts, or can not take action at all. Fear cripples the decision-making process creating confusion and indecision. Fear is a normal experience, but if one correctly analyzes the market it should not cause paralysis.
Joe Ross has been trading for more than 47 years, and is a well known Master Trader. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits.
Joe is the creator of the Ross hook, and has set new standards for low-risk trading with his concept of "The Law of Charts™." Joe was a private trader for most of his life. In the mid 80's he shift his focus and decided to share his knowledge. After his recovery, he founded Trading Educators in 1988 to teach aspiring traders how to make profits using his trading approach. He has written 12 major books on trading. All of them have become classics and have been translated into many different languages.