Trading Mindsets – Fear of Risk

The difference between a professional and the novice trader is not necessarily the ability to analyse the markets. It’s how they handle the emotion of a bad trade or a sustained losing period.

In this blog post we look at the fear of risk, the emotions that surround it and how you can overcome it.

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Is Fear Of Risk in the Green Book?

To get deep into the fear of risk we have to look at some of the emotional triggers that point people into trying to make money from trading.

I don’t want to get shot down in flames here as there is loads of great information freely available on Internet about successful sport trading.

Trading is not easy to master and my advice if you come across sites that sell the picture that obtaining a green book is easy, then click away. A Green book (also known as greening-up) is phrase used when you’re guaranteed to make a profit on all outcomes.

These sites lead novice traders into false sense of security of how easy it is to make money on the betting exchanges. I love lines like you can trade with a bank as little as £50, the harsh reality is that you can’t and certainly won’t make any long terms profits from doing so.

When any trader plays with such small numbers, the emotions are totally different.

For Example: You may be risking 5% (£2.50) of the trading bank on a trading position.

Their attitude towards the trade will different to my attitude trading with a £10K bank and the £500 risk. We’re risking the same % of our bank, but the monetary value is much different.

Trading with a bank that is too loo will result in the losses not hurting, losing £2.50 is not a lot of money. Because the figure is too low it will not condition you to trade with bigger banks

The Fear Of Risk State

In our X-Horses Service we work to a £2000 trading bank and our risk per trade is no more than 1.5% (£30). I have seen so many new traders within this community have an instant fear of risk.

This is born out of mind-set thinking they will be a successful trader watching our strategy video overviews. These strategies work and are proven over many years, I have been trading full-time since 2002.

The difference is that I have many years of market history going through 1000’s of market cycles. Using the same strategies, market information the chances are that my entry points will be that much sharper than a novice.

This is down to experience and something that can only be built over time. Despite my welcome email saying take your time for a couple of weeks and focus on one element. I have witnessed new members get in a pickle within hours of joining.

This tells me that their emotion to trading is driven by greed and is often caused by thinking this game is easy. The end result is they instantly enter the fear of risk state, when reality dawns on them.

This is a common flaw in many novice traders and once they enter this state leads them to trade purely on emotions.

Greed and untruths are the sins here.

It is not being greedy if the market presents you with a bigger opportunity than first thought. It is being greedy if you try to play up winnings using emotions rather than your head.

At this point they will start to over think aspects of the trading process

I have said many times to members

‘The only difference between you and I, is that you will find endless ways to complicate simple processes!’

Over thinking or trying to be the ‘Perfect Trader’ as I like to call it, leads to making your timing in the market worst. The fear of the all red book actually results in more red books long-term as you find less profitable positions through over thinking your entry positions.

Fear Of Risk - Conditioning

Most of us are conditioned into thinking that risk is a bad thing – something that should be avoided at all costs.

This conditioning does us no favours when trading on Betfair. It leads us to seek out situations that offer no risk and to avoid the better opportunities, where the risk is evident but so too are the rewards.

I must point out that there is no such situation that offers ‘no risk’ even if you are playing with potential profits. As traders we must embrace risk and not be afraid. As a participant in the Betfair markets we are risk takers.

We have to take risks in order to achieve reward – this is our reason for trading. So we should welcome risk, just as we will welcome the rewards that come with it.

Risk is something we can calculate and this is reassuring in our goal for long-term profitability. Over a period of time we cannot make profits without sustaining short-term losses, and taking losses should be easy because the risk has been calculated beforehand.

We can set targets and achieve desirable positions when trading. However when something goes wrong, we then become vulnerable to doubt and irregular reactions from our emotions.

Emotions will play a big part in our success and it’s how we condition them that will determine whether we will be successful, both in trading, and in life.

Be truthful to yourself, all traders have the potential to make a living from trading but their emotions stop them from achieving this.

How we react when we make a bad trade is the key.

Remember – ‘No reward can ever compensate risking everything’

Overcoming the fear of risk is just part of the process to becoming a successful sports trader. However, that does not guarantee you will make money. To make money you need to have the ‘winners mentality’.

Developing a Winners Mentaility

Making money from trading is winning little but often, month after month, year after year. Successful trading requires patience and discipline and you shouldn’t become dismayed if you don’t achieve your targets straightaway.

It can be done with the right commitment and discipline.

I have mentored plenty of traders to full-time status over the years. For every one that gets to trade with a £10K bank, there will be 20 traders that don’t grow their banks from £1K to £2K

They either don’t stick to the development plan or give themselves the time needed to learn how we trade. All my successful members have had the right mentality and that is they believed right from day one that they were going to succeed.

‘The winning trader will be strong, independent and contrary in the extreme’ Bruce Kovner

Here is a checklist to keep you on the right track:-

  • Always do your homework - laziness is a common fault with the losing trade
  • Do not be arrogant as this leads to poor risk assessment and control.
  • Understand your limitations and trade within the limits of your skills.
  • Don’t trade unless the opportunity presents itself. If you find yourself looking too hard then the trade just isn’t there.
  • When you can’t trade with confidence don’t trade at all - take time off if necessary.
  • Don’t get complacent once you’re making money. The danger is that your targets get bigger and you can end up pressing the self-destruct button when you fail to reach these inflated targets.

In Summary

There is no need to have a fear of risk as it can be calculated beforehand and you should work with a risk management structure that you’re comfortable with.

Lack of knowledge of markets and strategies to work with can put you into a fear of risk state. This can lead to all kind of emotions, but the main one is that you may find yourself lacking confidence and self-belief.

I hope this post has given you some thoughts on how you can overcome this mindset and lead to improvements in your trading.

Matt Finnigan

Full time professional sports trader and founder of Pro X Trading.