bbmac
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'..There is nothing to fear except fear itself...'so said FDR when talking about America's policies for exiting the great depression. Of all the known negative emotions that affect trading, I would argue that Fear is the most pervasive, and potentially the most destructicve.
Even that other emotion we are always warned about - Greed can be alternatively described as 'the fear of missing out' and so it's very essence is derived from fear. Frustration too is essentially born from fear as is Boredom, these being two other potentially harmful emotions that can afflict traders.
Fear in trading comes from the fear of a losing trade/losing run and the loss of money/not being right. This fear of losing stems from operating in an environment of uncertainty where the result is not known in advance. This uncertainty though does not have to result in fear per say.
The human brain is not naturally wired for trading in it's evolutionary development. It takes years of practice and development for someone to re-train their brain to accept uncertainty and manage it. This is the necessary acquiring of the psychological skills required to trade successfully. Essentially when it is more natural to hope we fear and when it is more natural to fear - we hope....in trading we have to do the opposite. Add to this the technical skill requirement of having to be right at the right time as being right at the wrong time is still a losing trade, and it is not hard to see that a process has to be undertaken to train our brains from a fear based outlook of uncertainty to a risk management outlook toward it.
Everyon's path will be different in achieving this essential mindset change but one of the pre-requisites in this is ensuring that any trading edge being used as a tactical approach to the market has a positive expectancy. This positive expectancy essentially results in all trades over a designated sample being winners regardless of them individually winning or losing.
Knowing about the trading edge can also help to remove fear, ie
1. What is it's Strike rate (winning trades as a % of total trades at the designated min R;R)
2. What is it's Expectancy
3. What is it's typical (mean/mode) consecutive winning and losing runs.
4. What has been it's maximum consecutive winning/losing runs experienced
5. What is it's likley maximum consecutive losing run over any given trade sample size and the probability of such an occurrence.
Knowing all there is to know about the trading edge can help ensure that it's performance causes no unneccessary anxiety so long as it stays within the known metrics of it. It can also provide a warning as to the continued effectiveness of the edge, - ie should it's performance fall outside of the known and probable metrics.
Optimising money management to the known metrics of the trading edge can also help to control fear. Knowing that should the maximum or probable consecutive losing run occur, that the resulting loss is managable and will not detsabilise future performamce / recovery.
Fear can amongst many other effects, destabilise us and our thinking. A consecutive losing run when overleveraged can see a sharp drop in equity that can result in us being unable to tradee effectively.
These 2 steps alone will vastly assist in the management of fear. It is then a case of live screen time to develop the necessary psychological skills to hot wire our brain to manage any residual fear that may always be present in an environment of ultimate uncertainty. This as stated above takes time (years) and expectations in this respect should be realistic. It won't (or at least it is very highly improbable) that it will happen overnight. Be prepared for this and factor it into any trading plan.
G/L
Even that other emotion we are always warned about - Greed can be alternatively described as 'the fear of missing out' and so it's very essence is derived from fear. Frustration too is essentially born from fear as is Boredom, these being two other potentially harmful emotions that can afflict traders.
Fear in trading comes from the fear of a losing trade/losing run and the loss of money/not being right. This fear of losing stems from operating in an environment of uncertainty where the result is not known in advance. This uncertainty though does not have to result in fear per say.
The human brain is not naturally wired for trading in it's evolutionary development. It takes years of practice and development for someone to re-train their brain to accept uncertainty and manage it. This is the necessary acquiring of the psychological skills required to trade successfully. Essentially when it is more natural to hope we fear and when it is more natural to fear - we hope....in trading we have to do the opposite. Add to this the technical skill requirement of having to be right at the right time as being right at the wrong time is still a losing trade, and it is not hard to see that a process has to be undertaken to train our brains from a fear based outlook of uncertainty to a risk management outlook toward it.
Everyon's path will be different in achieving this essential mindset change but one of the pre-requisites in this is ensuring that any trading edge being used as a tactical approach to the market has a positive expectancy. This positive expectancy essentially results in all trades over a designated sample being winners regardless of them individually winning or losing.
Knowing about the trading edge can also help to remove fear, ie
1. What is it's Strike rate (winning trades as a % of total trades at the designated min R;R)
2. What is it's Expectancy
3. What is it's typical (mean/mode) consecutive winning and losing runs.
4. What has been it's maximum consecutive winning/losing runs experienced
5. What is it's likley maximum consecutive losing run over any given trade sample size and the probability of such an occurrence.
Knowing all there is to know about the trading edge can help ensure that it's performance causes no unneccessary anxiety so long as it stays within the known metrics of it. It can also provide a warning as to the continued effectiveness of the edge, - ie should it's performance fall outside of the known and probable metrics.
Optimising money management to the known metrics of the trading edge can also help to control fear. Knowing that should the maximum or probable consecutive losing run occur, that the resulting loss is managable and will not detsabilise future performamce / recovery.
Fear can amongst many other effects, destabilise us and our thinking. A consecutive losing run when overleveraged can see a sharp drop in equity that can result in us being unable to tradee effectively.
These 2 steps alone will vastly assist in the management of fear. It is then a case of live screen time to develop the necessary psychological skills to hot wire our brain to manage any residual fear that may always be present in an environment of ultimate uncertainty. This as stated above takes time (years) and expectations in this respect should be realistic. It won't (or at least it is very highly improbable) that it will happen overnight. Be prepared for this and factor it into any trading plan.
G/L
