​Learn how the 4 cycles of a setup remove fear during trades

Dear Traders,

All traders are familiar with the feeling of fear when trading.

This intense feeling often overwhelms the mind and blocks our logic...

…and sends you down a spiral of bad decisions, making you freeze, panic, break rules and more.

Everyone has their own weaknesses:

• some fear when entering a trade or when exiting a setup
• some are anxious when price reaches their target
• others feel uncomfortable when price nears their stop-loss, for instance.

Both Zero to Hero course and today's article explain how I managed to reduce and then remove fear during a live trade setup.

The good news is that all traders can improve it.

They just need to understand the 'life cycle' of a trade setup.

The trading life cycle explained

The life cycle of an open trade setup has four parts:

1. the early start of a setup
2. reducing and removing the risk
3. giving space for a big win
4. locking in profit.

In my view, each cycle (or phase) of the open setup needs to be treated with a different approach.

Sometimes using a tight trail stop is critical...

...other times having more patient is vital.

Knowing when to apply the right approach at the right time is possible.

However, traders should recognise the life cycle of a setup and work diligently on reducing their fear.

Some traders prefer passive trade management, which means they do not change any parameters of the setup once the trade has been entered, rather than active trade management, which is when changes are indeed made during management.

This article will prove useful for both type of traders.

It will help you understand the market movements with clarity and familiarise you with market movements and potential trade management ideas.

The early start of a setup

Some traders encounter fear as soon as they enter a setup.

It is the best practice not to expect much from the start of your trade.

It's great news if the trade does go your way immediately…

...but it is important to realise that a setup usually takes time to develop.

That is why I must allow myself to be patient (when just entering) and give the trade space:

1. once I pull the trigger and enter a trade setup, I need to be confident enough to stay in a trade at least for a little while
2. otherwise, a loss or small win will not be worth entering in the first place.

You might be wondering how much patience and space do I show at the start?

Basically, I monitor and count candlesticks.

At the minimum, I wait 5 to 6 candles of the same time frame or 1 higher before making a trade management decision.

At the maximum, I usually do not wait longer than 24 candles (1 day of Forex trading with 24 hourly candles).

Reducing and removing risk

Eventually, the time comes to move on.

After that, I demand more from the setup and show less patience.

Over time, a setup should develop into the expected direction…

...otherwise, the chances of a win do start to decline.

Here is why:

1. the conditions of the original setup are no longer the same
2. new information is available with each candle
3. the dynamics of the chart slowly change and I need to reassess whether the setup is still desired.

Closing a trade at the very start of a setup is often due to nervousness and lack of preparation before the setup occurs.

But at one point, I deliberately become impatient and more demanding of the setup.

Remember this nugget of wisdom:

…a trader who keeps hoping that the market will turn and move in their direction is often applying wishful thinking.

Eventually managing the trade is a valid option (although not a must) if a trade is just not going our way.

Of course, if the trade is going our way, then it is also a good moment to manage the trade.

Here is how I apply a trade management decision:

1. when the trade is developing into my direction
   → I reduce the risk: move trail stop-loss close to or at breakeven
2. when the trade is not going well but there is place for a trail stop loss
   → I reduce the loss: move trail stop-loss close to or at entry)
3. When the trade is not going well and there is no spot for trail
   → I take a market exit: immediate exit of the trade.

The advantage of a trail is simple – the trade still has a chance to develop.

Giving space for a bigger win

Once the risk has been reduced, I become more patient again.

This is the point where I give the trade more time and space – simply because I want to give the set up a chance to develop into a bigger win.

Many traders become very conservative in their approach towards risk when a trade is in profit.

Cutting wins short, however, and letting losses run is not what a trader wants.

In fact, it is quite the opposite…

...and the common advice says to cut the losses short and let the winners run.

How do traders let their winners run?

By giving some time and space for a trade to develop once the risk has been reduced.

For instance, I would not mind waiting for a chart pattern correction like a bear flag or bull flag to complete before thinking about taking profit.

Locking in profit

This patience, of course, does not last forever.

Eventually, the trend will bend or end…

…and I do not want to stay in a trade as the reversal develops.

Letting the trade develop in a decent or big win is important, but there is a point in time where I must lock in profits.

This mostly happens when (multiple) divergence appears and price is reaching a strong support or resistance zone where confluence is present.

In such a case, there is no gain if my paper profits slip away, so I react by:

1. closing the trade via a take profit
2. using a tighter and tighter trail stop-loss
3. applying a mixture of 2 and 3.

Interested in more info?

You are most welcome to try our latest Zero to Hero course and the MT4 Supreme Edition, with 100+ plus extra features such as mini charts, which make multi timeframe analysis much easier.

Cheers and safe trading,

Chris