How to Handle Fear in Trading | 6 Fundamental Questions to Consider

Fear of taking a loss or missing out on a trade – every reasonable trader, all the way from the smallest retail trader to the largest institutional investor, must confront the emotion of fear!

Is fear really a bad thing? It keeps you on your toes. More importantly, it gives you insight into how you trade. Let’s elaborate on this a bit.

There are rational fears which should be acknowledged, and there are excessive fears which may not be productive. Here’s a simple checklist to go through before every trade. It might help you distinguish between fears that may seem natural to the trading process and fears that are indicative of a real problem:

1: Are you using risk capital, or money you can afford to lose?

If you are not using risk capital, then of course you are going to be afraid. Here’s your simple solution: don’t trade until you have risk capital.

2: Do you have a manageable loss limit per trade?

Are you risking 1% per trade, 2%, 3% or more? In other words, do you know how much you may lose if your trade doesn’t work out? It’s natural to fear losing money on a trade, but make sure that you work out your loss limit calculations for each trade.

3: Do you have a manageable loss limit per session?

If you are risking 2% per trade, for example, it might make a big difference if you a) make 2 to 3 trades a day on average versus b) make 8 to 10 trades per day. See the difference? Make sure you have an estimation of how many trades your methodology will require on a per-session basis.

If you “trust” your method, then you don’t want to miss a trade. But if you can’t withstand losses on all trades in a given session, then you shouldn’t be trading using that methodology.

4: Do you have a manageable loss limit per week or month?

Hopefully, you are familiar with the concept of losing streaks. You may even have experienced them. What you might not know is that losing streaks–when they might begin, how long they may last, and when they might end–cannot be mathematically predicted. Hence, they cannot be “managed.” But you can at least attempt to manage your losses by setting loss limits.

5: Do you have a profit objective?

If you are a day or swing trader, might you know “when” to take a profit? Do you have a profit target, time limit, or a trailing stop strategy? If you are a long-term “buy-and-hold” investor, then your objective is clear: hold until certain conditions signal a liquidation, expiration or a portfolio rebalance. If you don’t have a clear profit objective, then you don’t know where you are going with your trade.

6: Did you check the economic calendar for upcoming releases or contract expirations?

If you don’t follow an economic calendar, then you are vulnerable to getting sideswiped by a market event (or an expiration) that might have been anticipated. This can work for you or against you, but either way, getting sideswiped by an economic release shows irresponsibility on your part. It’s like crossing the street without looking left or right. Just don’t do it.

These six questions represent just a few fundamental prep steps in managing fear in trading. If you’ve got these covered, then consider that many of the fears remaining might be natural to the process, but fear should not always be ignored.

Other reasonable fears to anticipate:

  • Fear of unexpected economic or political news that shocks the market.
  • Fear of a tech glitch that may disrupt your ability to trade.
  • Fear of your stop losses no longer working due to market activity or a tech glitch.

Unfortunately, these fears represent situations that cannot be completely anticipated.  You can’t do much about these when they happen. As a trader, these are just some of the risks you face on a regular basis – this is why you should use only risk capital when trading.



Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.