As we embark on a new year, we can learn from the past to help us bolster our efforts into the future. Change is always good, but there are some things very tough to alter - our emotions. Try as we may to check our emotions at the door, as traders/investors there is often too much going on to just be emotionless. When money is on the line we suffer from the emotional responses of fear and greed. We are ALL wired this way and find ourselves somewhere on the spectrum - there is no escaping it. But if we can control and manage our emotions we can then turn our attention to becoming better than we ever thought possible.
The four fears of trading were talked about by the late Mark Douglas in 'Trading in the Zone'. In this book, Douglas outlines the different stages we all suffer from in trading (and actually, in life). The four fears: Fear of Missing Out, Fear of Loss, Fear of Being Wrong and Fear of Letting a Win Turn into a Loss. We will talk about two of these fears in this article and cover the next two the following week. Conquering these fears is incredibly difficult if not impossible, but managing them is something we all must do to move forward.
The fear of missing out strikes us all with some pain. The emotion of regret stings more than anything, especially when others around us are winning. Nothing is more painful than sitting on the sidelines and missing out on the excitement. We are supposed to be in the game -- why are we not in the game? Fear of losing is so overwhelming that we tend to paralyze ourselves. When a trade is 'right' we just can't seem to move our feet for fear of being 'late to the party'. We have all felt that way, and when markets are running higher we want to kick ourselves for missing out - especially when it seems too obvious.
The fear of loss is equally painful in trading and in life. We mourn the loss of loved ones, crushed relationships and failing in sports all equally but with different degrees of pain. In trading, we mourn the loss of our precious capital, and fear taking risks in the future. We abhor pain, and a loss will only bring on more of it - no mistake, we fear losing money. But losses are part of the game and once we accept that notion and understand it then we can rise above and deal with losses. The key is moving on and not reflecting on the loss for too long. There is always another trade around the corner - so take it!
In the next article we'll discuss the fear of being wrong and the fear of letting a win turn into a loss.