trader psychology

traderslaboratory.com:

The “Fear of Missing Out” drives many of the fear and impulse-based problems that traders experience in the performance of trading. But what does it look like? In what areas of trading performance does it manifest?

Have you ever seen a set up that looked too good to pass up and you grabbed it impulsively before it could get away, even though it was not in your trading plan? Have you even been seized by hesitation, looking for more and more confirmation before entry and felt the pressure of opportunity building up to act until you jumped in the trade just to get out of the discomfort? Or, have you ever been in a trade, got unnerved by the initial flux, and gotten out of the trade with only a small profit before anything else could go wrong, and the trade went on to your target?

Fear of Missing Out as Greed

These are the primary faces of the “Fear of Missing Out”. Notice that this particular fear can show up in the form of fear or greed or a combination of both. In the first scenario greed drives the “fear of missing out”. The trader sees opportunity arise outside of the parameters allowed by his trade plan. The greed to seize opportunity (or the desire to acquire) hijacks the trader’s discipline and impartiality.

This is seen in over-trading, impulse trading, and revenge trading. When discipline slips, the “desire to acquire” motivation trumps clear-headed thinking. Greed, as a driver of motivation, has its origins back in our evolutionary history. It is neither good nor bad. It is simply an emotion that evolved over the eons to help us survive, and then it became instinctual. In the times before agriculture, no one knew from where or when his next meal was coming. So when the opportunity arose, survival dictated that you take advantage of a situation – whether you were hungry or not. Taking more than you needed, even at the expense of others, helped ensure survival in leaner times. So it became wired into our biological repertoire.

This survival strategy was embedded long before man had developed a psychology as we understand it today. Greed evolved into a survival strategy as an opportunistic way of taking advantage of circumstance. In a breakdown in the learned discipline required of trading, greed (in the form of the “fear of missing out”) can trigger and take the trader out of the impartiality so necessary for consistently successful trading. Without emotional state management skills, a trader will continue to have his trading mind hijacked by primitive impulses rooted in survival.

Fear of Missing Out, a Mixture of Fear and Impulse

In addition, a mix of fear and impulse produce tension and psychological discomfort to a point where a trader jumps out of his hesitation and into a trade late. The pressure to act builds as he watches the trade in order to get more and more confirmation, and he is held by his hesitation from entering the trade. Finally the emotional pressure compels him to act impulsively just to get out of the discomfort fostered by the opposing drives of desire of avoiding uncertainty and the desire to acquire. By the time he enters the trade, the real opportunity for this trade has passed and the trader is stuck with having bought high.

This timing problem is as much a psychological management problem as a skill of timing of the trade itself. The fear of uncertainty or loss has kept the trader out of the trade even though it meets his criteria for a trade entry point. He keeps looking for more confirmation as tension to take advantage of opportunity builds. The need to take advantage of a set up is not being driven by disciplined impartiality; but, rather, the need is being driven by a going concern that he will miss out on the opportunity. The mix of the fear of uncertainty and the fear of missing out has collapsed the capacity of the trader to trade from disciplined impartiality.

These are the trades that cause the trader to wonder when reviewing his trades “What on earth was I thinking?” The point is that he was not thinking. He was reacting and his thinking mind was clouded with opposing biologically-based motivations. In the resulting confusion, poor trading decisions arise from the lapse in internal discipline.

The Fear of Missing Out as Fear of Losing Profit

In the third example, the fear of missing out shows up purely as a fear of losing profit. This also represents one of the most common risk and trade management situations in trading. A trader enters a trade and experiences a period of flux as his trade bounces around. It’s below his entry point and then it spikes above his entry point. Then it takes a quick dive back into negative territory. An undisciplined trader is unnerved by this behavior and is triggered to fear. Now the trader is managing the trade from a position of “fear of loss”. And when he sees the opportunity to take a small profit and exit the trade (remember he is thinking and acting from fear now), he pounces on the opportunity. Relieved of the psychological discomfort, he now watches the trade go to the target. But the fear of missing out (on a small profit) has done its damage.

Notice in this form of the Fear of Missing Out that there are two “acts”. It is the emotional and psychological management of the trade entry and the resulting flux that unnerves the trader – and he never recovers from this initial moment where his psychology is coming face to face with his beliefs about his ability to manage uncertainty. Once he is past the initial flux and the trade begins to trend, his trading mind is already hijacked by his fear of losing and he grabs at the first chance of taking profit. In the intensity of the moment, this seems like a victory. Later, when his brain and mind has calmed down and he is reviewing the trade, the trader realizes that fear immobilized discipline, impartiality, and a planned trade.

Beliefs and Emotional Regulation Hold the Key

A trader’s beliefs about his capacity to manage uncertainty to his advantage is at the core of the “fear of missing out”. If he holds a core belief that he is powerless in the face of uncertainty or inadequate to manage uncertainty, his trading account will bear this out. If this is the belief, the trader is driven to produce the feeling of certainty (which is impossible in the market) rather than to build a mindset designed to manage the probabilities in uncertainty.

Trading becomes a mirror into the organization of the self that the trader brings to the management of uncertainty. It will show you whether you are creating your life out of the avoidance of fear or the management of uncertainty. Trading and performance in trading, with Mindfulness developed as a skill, becomes a mirror that reflects the beliefs that actually color the trader’s perception of the trade.

As the trader journeys into trading, he learns that he has to face his fears and the self-limiting beliefs operating in the background of his awareness. The “fear of missing out” is exposed in the act of trading, but it will have been in operation in other domains of the trader’s life. Eventually, the trader embraces the assumption that all life is uncertain and that certainty is not possible long term. The threat is not external – there is no Holy Grail “out there”. You are the Holy Grail. It is the mindset (your beliefs about your capacity to manage uncertainties) that you bring to the uncertainty of trading (and life) that create the difference.

With the “fear of missing out calmed” and a disciplined and impartial mindset established, you realize that it is not about winning or losing a single trade. It is about the mindset that you bring to the performance of the trade. Winning and losing disappear in the moment. Freed from fear, you trade what you see and not the crazy conversations going on in your mind. And your “fear of missing out” leads you to the very place in your psychology that you needed to re-organize.

Rande Howell

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