Trading can be rollercoaster, but it's important to have the nerve to sit back and enjoy the ride.
The Freak Out Trader can be both a winning and losing trader, but is always a newbie trader as a Freak Out Trader NEVER makes it to professional status with consistent profits.
The Freak Out Traders emotions are let loose to the extent that when they have wins their excitement drives them to freak out and get so excited they think they are bullet proof. The Freak Out Trader also experiences depression and freaks out on the losses too. What is going on subconsciously is that they don’t realise it yet, but the reason why they are freaking out is because they are not in control. The market is in control. They are usually trading too much money, trading too often and don’t really understand the system they are using. These examples usually come down to inexperience and their attachment to money and certainty we all have when we start trading. As a trader you need to have a detachment to the money and learn to trade the probability rather than the expected certainty that humans have when we enter the trading arena.
If a new trader experiences a few winning trades to begin with they are lulled into a false sense of security. They begin to think that “this is too easy” and begin to trade larger sums or over trade and take multiple positions. This false sense of security often happens in simulation as traders rarely lose in simulation. They trade probability well but don’t know they are doing it, they follow the system as there is no fear of loss. They don’t know it yet, but they have gotten lucky and truthfully have no real idea about what they are doing, especially when they trade real money. Any mistakes are magnified 10 fold with real money. The first few trades a newbie trader makes with real money there is a 90% chance they got out of the trade before the profit target was reached or they altered the stop loss or profit target a number of times. They rarely did this in simulation as they felt comfortable, because there was no fear of loss and they followed the rules. Now of course if they do get lucky and their trades are successful while they are fiddling, this can be one of the worst things to happen, as it creates a false sense of security. They think they are in control, when the real truth is they are far from it. The Freak Out Trader is steadily growing inside and will shortly explode.
They are about to experience what it is like to be ambushed as a trader from within your own mind. When the short winning streak comes to an end they lose control emotionally and freak out. I have seen this happen time and time again and unless you are prepared to learn to trade probability and learn to manage risk of 0.05% of your trading account and learn to build up your mindset muscle, you will fall victim and likely become A Freak Out Trader.
To test right now if you are a Freak Out Trader ask yourself these questions…
- Do you get out of trades early whether for the profit or stop?
- Do you adjust your profit and stop loss levels?
- When you look at your trading statement are the wins always smaller than the losses?
If each win you have is not bigger than the average loss, if you don’t use a risk calculator, if you don’t learn to trade probability for months first and learn to experience winning streaks and losing streaks and build up your trading mindset muscle, you will fall victim to becoming A Freak Out Trader.
The only way to avoid becoming A Freak Out Trader (who usually lasts less than 6 months trading a live account) is to do the following.
- Trade 0.5% on each trade and trade with a small account.
- Learn to master one signal and own it emotionally and understand it’s probability through your own hard work learning the signal.
- You must feel comfortable with each trade and be totally at ease win or loss, and have faith you know the probability.
- Trade it consistently each time it presents itself with real money maintaining your risk vs reward and make sure the winners are always bigger than the losses.
If you apply the above 4 points you will put yourself in the class of trader who is not likely to fall victim to the Freak Out Trader mentality.
All the best
Andrew Barnett is the co-founder of LTG GoldRock and is an avid Forex trader and blogger on the subject. If you have any questions or comments, please leave them below.
