Fear and anxiety are common emotions that are experienced in trading. From a psychological viewpoint fear and anxiety are not the same emotion, because of their close connection however, we may use them interchangeably to denote the same emotional state.
So what is the difference between fear and anxiety?
Fear is an emotion that occurs due to a real, objective threat. We need fear in order to survive on the face of danger. For example, we are walking at the forest and suddenly we realise that we hear the roar of a bear.Fear activates the famous fight,flight or freeze mechanism in order to respond to the threat and promote survival. Anxiety on the the other hand, derives mainly from the anticipation of a perceived threat and is a future oriented emotion. In forex trading it is anxiety and its derivatives we most often experience: worry, apprehension, panic.
Anxiety Cocktail Recipe
The basic ingredient of the anxiety cocktail is uncertainty. Human nature is inherently intolerant to uncertainty. We feel more comfortable if things are certain and if we know where we are going. This will likely never happen in the world of financial markets because its very essence is about uncertainty and unpredictability. However, we can learn how to increase our probability for successful trades and turn more profits compared to losses. We could say then that there are two kinds of uncertainty; the first stems from the unpredictability of the markets. This one, we must learn to tolerate it because markets will never be entirely predictable. However, the second kind, the uncertainty you may experience as a trader due to lack of experience, poor methodology or no trading plan has to be managed. Our task as traders is to work on it because when we know what we are doing, then uncertainty is diminished and consequently, anxiety is reduced too.
Another ingredient of anxiety is the perception that we have no control or power to change the stressful event. Again, that’s very true for trading-we have no power, no control over market moves. Our control lies in placing an order. We analyse the markets,decide on our entry and exit points and place the order. And then? We wait. Impatience may come and visit at this point. Market can go our direction or opposite direction and we are powerless to change its course. But we are not powerless altogether. We can make informed trading choices, decide about our positions and what serves us best.
Powerlessness and uncertainty are the core ingredients of the intoxicating cocktail that we call anxiety.Having a little bit causes no harm but if you drink sip after sip, then you are most likely going to start feeling the effects and stagger all the way through your trading.
In particular, anxiety may lead you to over-analyse information and consequently become risk averse. You feel fearful, insecure and out of control. This is the reason you may spend longer than usual to cross check data-it is your attempt to reduce uncertainty and re-establish control. If your anxiety doesn’t reach a familiar and tolerated level, you may opt to stay away from any trading activity or wait too long until your next order.