The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.
Truer words couldn’t been spoken better about the feelings of hope and fear, as it relates to trading. I don’t know of any other profession or industry where these feelings are felt the most on a daily basis. We feel one or both of these feeling in each and every trade: We hope a stock goes up after we buy, we fear we’ll lose money when the stock falls, we hope the price goes back up to our purchase price, we fear we might lose our profit when the stock goes up, and so on.
Hope and fear as a pair of emotions in trading can be turbulent or calming. These feelings can overtake a trader and cause serious financial losses, or these feelings can be utilized to produce consistent profits. Also, these feelings should be balanced and not experienced in extremes.
Hope and fear are healthy feelings!
Hope and fear are perfectly normal and healthy feelings, but it needs to be balanced. When a trader experiences one more than the other, then either of these feelings can be debilitating and lead to costly decisions. You let FOMO take over and buy in at the wrong time. You let hope misguide you into thinking a losing trade will go back to breakeven or better. When one of these feeling takes over the other in extremes, bad things can happen rather quickly!
The market rewards good and poor decisions alike and it doesn’t care what you feel. However, longevity and being a consistently profitable trader heavily relies on properly managing these emotions. If you’re prone to experiencing any of these emotions in the extreme, then you need to find a balance between hope and fear. On the other end of the spectrum, you can be extremely analytical and trade solely based on the numbers. If that’s the case, then know that the market is driven by fear and greed and trading is not pure science. Since you’re not an algo, you have to experience hope and fear to trade.
It’s not my intention to get philosophical about hope and fear. Experienced traders from all ages and eras know how critical these feelings are to trading. Hope and fear can’t be unfelt, and it can’t take over us. It just need to be balanced and exist in cohesion with our trading.