Fear and Anxiety During Uncertain Times
"The only thing we have to fear is fear itself." That's what President Roosevelt said during the Great Depression, and this observation seems as apt today as it was then. On the first trading day of March, the economic news doesn't seem optimistic. Companies have laid off workers, or cutback their hours. Consumers are spending less and many companies have reported losses during the last quarter. Emotions are contagious, and if you are not careful as a trader, you may allow the sense of fear and panic to impact your ability to trade with the proper mental edge.
The word "panic" refers to the mythical god "Pan." Pan was a hideous creature who often created fear in others. Following the Titans' assault on Olympus, for example, Pan claimed credit for the victory of the gods because of the fear he created in the attackers. During rough economic times like these, people often feel a similar state of fear and panic, and they often can't help reacting to it. But fear isn't the only emotion that bothers traders; anxiety plays a role as well.
Fear and anxiety are similar. Fear is experienced when we perceive immediate danger while anxiety is experienced when we anticipate danger in the future. Both emotions play a role while trading. Fear is experienced when we perceive immediate harm, such as when we see the price fall during the trading day. But anxiety is more ubiquitous. We feel anxious when we anticipate what will happen before the trading day starts, as well as tomorrow or the next day. Fear often protects us from harm. When we see danger lurking around the next corner, it is prudent to run away to avoid harm. But it isn't always adaptive to react to fear while trading.
Anxiety is similarly unproductive at times. It's useful to experience some anxiety, though. Indeed, Dr. Howard Liddell called anxiety the "shadow of intelligence. " Moderate levels of anxiety help us perform better, but when anxiety is extreme, we have trouble thinking clearly.
It's vital to manage your fear and anxiety and not allow it to make you respond irrationally. When your money is on the line, however, it can be hard to think clearly.
How can you control fear? In his book, "Trading to win," Ari Kiev offers a quick and effective way of controlling fear: Acknowledge you are afraid and the feeling will pass through your consciousness and lose all power. Refusal to acknowledge fear allows the feeling to perpetuate, while admitting that you are afraid will allow the feeling to diminish. The first step in conquering fear is to merely admit that you are afraid. A second way to manage fear is to trade small positions. The less money on the line, the less risk you are taking, and the less fear you are likely to experience. Third, manage risk. By using protective stops and by risking only a small percentage of capital on a single trade, you will feel more at ease and can more easily manage fear. Trade with money you can afford to lose. Finally, if things get too rough emotionally, you can stand aside for a while and paper trade.
Fear and anxiety protects us at times. It prevents us from making bad mistakes, but too much fear and anxiety can interfere with trading with the proper mental edge...
