Is Fear the Hurdle to Your Trading Success?

Yesterday, I re-read two books:

• The Disciplined Trader by Mark Douglas, and
• Mindful Trading by Rande Howell.

It struck me that FEAR plays a major role in our trading success or our trading failure. Indeed, this emotion may well play a role not only in trading but also in our success or failure in life. Fear not only impacts are trading decisions, but it also impacts how we decide to acquire a trading education.

So what is fear?

It’s an instinctive an emotional response that generates the fear, flight or fight (3Fs) response. These are the three instincts that protected our prehistoric ancestors. But, nowadays it is more a hindrance than a help to our achieving are trading goals.

To understand fear’s role, and to understand what we need to do to enlist its support, we first need a picture of our brains structure.

One useful model is the Triune Brain.

It’s said we are hardwired with three brains, the reptilian, the limbic, and the neocortex. The first two served our prehistoric ancestors well. Thanks to them, we survived and evolved. But, in this age where uncertainty is paramount, and luck plays a role in our success or failure, they can be a handicap.

The reason is, our brain cannot distinguish between a physical threat and an emotional discomfort. It treats both exactly the same. As a result, when it experiences emotional discomfort, the 3 F’s kick in robbing us of the ability to make a sound decision.

If that’s the case, is the solution is simple as suppressing our emotions so that we trade like robots?

Unfortunately, it’s not that easy. The works of Antonio Damasio show that we need two components to make good decisions: the emotional and the rational. So, the answer is not to suppress our emotions but to manage them in a way that keeps the 3 F’s in check.

What are the main fears that prevent us from succeeding? Mark Douglas sets out four:

1. The fear of losing
2. The fear of being wrong
3. The fear of missing out, and
4. The fear of leaving money on the table.

To these four, I would add, the fear of change – our reluctance to move outside our comfort zone. I believe this to be the granddaddy of all fears.

Think about this for a moment: it’s said that in the self-improvement world, 60 to 80% of seminar attendees do not complete the course content. Also, less than 25% make use of the excellent education so provided. I suspect that the failure rate is even higher in trading.

Marketers say that trading is in the mature stage cycle, i.e. traders are at the stage where they have become cynical about the promises of success and shy away from taking courses.

The interesting thing is, studies show that traders continue to take content that has previously failed them. Or, they reject the education but continue with the behaviour and actions that lead to financial loss and ruin.

Let me give you an example of what I mean: a dear friend has been looking for trading success for as long as I have known him, over ten years. His failure pattern remains the same to this day:

1. Some success
2. A loss phase, where prior profits are surrendered and greater losses incurred.
3. A trading pause for 6 to 12 months, then
4. A return to trading.

Over ten years of repeating the cycle, time and again!

By the way, he always has a good reason for the actions that move him from “the success to the loss phase” and from the “loss phase to the pause”.

Now here’s the thing: one of the best pieces of advice that I have ever received was from Dr George Lianos. I was experiencing the same pattern as my friend. My excuses for each failure were, to say the least, imaginative and unique. Dr Lianos told me:

“Ray, if your behaviour is not producing the results that you want, focus on the pattern of the behaviour. Ignore the excuses for the individual act.”

Excellent advice! It has served me to good stead to this day. My friend needs to focus on the pattern of behaviour that he needs to change to break the failing cycle. How we do this, I’ll consider tomorrow.

In the meantime, my question for you:

• Where are you on the success/loss cycle?
• What do you have to change to improve?

The post Is Fear the Hurdle to Your Trading Success? appeared first on Ray Barros’ Blog for Trading Success.