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Overcoming the Fear of Loss (Pulling the Trigger)
Rande Howell posted a topic in PsychologyThis is a new excerpt from my forthcoming book: Mastering Trading Psychology. It is focused on another common fear that limits the capacity of a trader to develop his or her full potential. The set up was there; all Jim had to do now was pull the trigger. His hand hesitated as he felt the clamminess in his finger tapping the key. Jim held his breath. A cacophony of strident thoughts erupted in his mind as his gut tightened. A battle was going on in his mind. “You’re going to lose. What if you lose? You can’t win. Who told you that you could trade? You need to find a safer way to make money.” The battle in Jim’s mind raged on – his hand frozen, his gut in turmoil. This was a battle he went through every day. And it was taking its toll on Jim. He feared pulling the trigger because he feared losing. In his logical mind he knew that traders always lose a percentage of their trades, but Jim could not shake the sense of catastrophe that would happen if he did lose. He did not like admitting this to anyone, but he was trapped by his fear of losing. He grew frantic. “Just pull the trigger so it’ll be over,” commanded a thought in his head, “You’ll feel better.” Jim held his breath in anticipation and pulled the trigger on the trade just to escape the tension. What a relief! He could feel the tension drain from his hands and chest. Then the price took a nose dive. He stopped out. Then his growing sense of despair engulfed him, “What are you doing to yourself? Trading is killing you. Why don’t you give up?”, echoed in his mind. _________________________ Coming Face to Face With Your Self Doubt This is one of the most common fears that traders experience. A trader’s entire dramatic relationship with fear and future possibility are rapped up in his fear to pull the trigger on a trade. It is literally the moment of truth about whether you are emotionally stable enough to be trading at a particular moment in time. And like Jim in the vignette above, it is a time when fear crushes the possibility for a trader to be in a calm, disciplined, and impartial state of mind. It is also one that illuminates the inter-connectedness of body and mind. You can literally experience the body and the mind seized by fear. In this vignette taken from real life, the trader’s hand is frozen, and he cannot pull the trigger. Has this ever happened to you? Simultaneously, his mind is plagued by self doubt. Fear has seized the body/mind of Jim – just as it does for many traders. And here we see the closing of possibility for successful trading. Why? Jim’s fear has set up the expectation of loss in his mind. Now the awareness in his mind is focused on loss if he acts. He is literally caught in a catch-22 of his own making. Unfortunately we generally find what we are looking for – or at least what the attention of the mind is focused on. The fear sets up the state of mind, and the state of mind “sees” what is possible based on the force of the emotional state. The mind on fear sees loss which is exactly what happens in Jim’s case – and in many traders’ cases. Fear restricts the possibility that the trader can see. If he were in a calmer more disciplined emotional state, a very different range of possibilities would have been possible. But, locked into a state of mind rooted in fear, he loses his capacity to assess impartially the quality of his set ups. He became the bucking horse in a burning barn. Reacting instinctively, the horse is trying to defend itself from a source of threat – only to be devoured by it. Jim, like the horse, ultimately jumped into a trade impulsively simply to escape his fear. Managing Fear Managing this fear so that it does not hijack the impartial state of mind and the courage to act within the risk management guidelines of a trader’s methodology is a novel idea. Gut level fear is not something that can be talked away or ignored. There is no leaving your emotions at the door in trading – no matter how appealing the concept. But the capacity to manage the fear so that it does not sweep you into reactive patterns can be taught. When trading is simulated, this fear stays in the background of your awareness because there is no possibility of real loss. However, the moment your money is at risk, (and you will most definitely lose money and take draw downs on a percentage of your trades) the primitive emotion that the fear of loss is rooted into stampedes your rational mind. And just like in Jim’s example from above, the rational, left-brained (and well trained) mind of the trader is swept away in a flood of self doubt. To the emotional brain the fear of loss associated with pulling the trigger springs forth from the deeper, darker emotion – the fear of death. The emotional brain simply cannot discern the difference. Threat is threat. And loss is interpreted as a threat by this primitive, emotionally driven, part of our brain and mind. Until its power to hijack the rational, impartial thinking required for successful trading is managed, an anxious state of mind sabotages knowledge every time. Add to this our culture’s obsession with winning as a measure of our worth and importance as a human being. This creates a psychological pressure to perform to a set of expectations that are not realistic, or needed, for success. If you stay mindless to this pressure, you get stuck in the fearful pattern in which our friend Jim is embedded. Regulating the instinctive aspect of this fear of loss is essential. It is by calming down the power of this fear to freeze us from taking calculated risks that we gain access to the state of mind that accepts risk and loss as part of trading. It is this mindset that allows us to stack the risk so that it favors the probability of winning more times than losing. Beyond Calming the Body and Mind When the body and mind are calmed, your capacity to trade from an impartial state of mind becomes possible. Accessing this state of mind that self soothing skill sets requires re-learning how to breathe as a first step. It is your breath that either accelerates the fear that seizes the mind or regulates the emotional state so that you can trade from a calm state of mind. Beyond that though, after the body and mind are calmed, you can access the very emotional intelligence that leads to peak performance states of mind for trading. In the managed calmness, you can learn to call up the impartiality, discipline, patience, and courage required to trade consistently. Calming the emotion is the gateway for building these essential skills. Rande Howell