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Rande Howell

Overcoming the Fear of Loss (Pulling the Trigger)

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This 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

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If skillfully applied, self hypnosis can be a useful skill to develop as part of a psychological trading plan. It is not a cure all though. I teach self-hypnosis as part of my course work. I teach it as a method to calm the body and mind and to re-direct your awareness away from fear and toward more empowered parts of the self. If you use self hypnois to over power fear or greed, it will work in the short term and fail in the long term. You do not change beliefs with hypnosis -- you calm body and still mind. Self hypnosis fails in treating food compulsion and smoking sessations long term. You have to do the internal work once you have the mind still.

Rande

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Please note my book has been available for awhile now. It is relevant material for any trader seeker to understand and manage his emotional nature. And I certainly will participate in the discussion.

 

Rande Howell

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A couple of editing notes. I would remove "A cacophony of strident thoughts" -- sounds overcooked. Also, "rapped". Finally, Jim is not "literally" caught in a catch-22. Unless a "catch-22" is a literal, physical trap of some kind, which I'm sure you did not intend. Jim is simply caught in a catch-22.

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Today was an excellent day in class...we all made money

 

The reason I am posting is that this is contrast to yesterday, when we started out with a couple of losses, one of which was caused by a loss of Internet connection while trying to exit a trade.

 

Both days we ended up on the winning side. Yesterday however we learned some very important lessons about how to handle stress, and ultimately how to pull the trigger even when you have just had a couple of losing trades...

 

I have a very small class this week, only 4 people in the room, one of them on medical leave to recover from surgery, and one on vacation...so only 2 people to work with...and in this instance I was glad to be able to give each person the attention they needed

 

What I noticed was the following. On the first trade, as people saw it go against them, you could feel the tension as traders watched each tick, and asked me (what do you think Steve, do we get out or wait)....and my answer was....stay calm, breath slowly, monitor your data, remember that your stop is already in place protecting you....just watch and wait, you have plenty of time.....

 

In the time span of about 3 minutes we got stopped out on our first trade and the reaction was "OK then what do we do now?" and my reaction was, "we remember to keep our head in the game"....."when we have a losing trade, we don't get down, we don't go over and over the trade, we stay in the moment and watch how the market acts.....and we ask ourselves, what is the market telling us".....as it turned out this was an important lesson to learn.....because withing the next 5 minutes I took a long that turned against me and then lost my Internet connection.....I had to respond to students who wanted to obtain my opinion about the postion they were in, and I had to wait for my Internet connection to be restored (automatic on my system) and then close out the position....

 

Interestingly we made it through that small event and went on to other trades, and during the day, I heard several comments concerning my state of mind and how I managed to keep on an even keel, even though I had no way of knowing what my trade was doing, and how much I had lost...(it was about $1,0000)....

 

As our situation stablized we took a moment (I asked both students to stop for a moment and look at the daily charts)....we located our targets for the next trade, and we went back to work in a orderly fashion....what we did was to in effect "re-set or start over again fresh" and from then on we did quite well, I ended the day up about $400 and my students about the same based on small accounts trading no more than 5 contracts.

 

I think there are many lessons to learn from adversity and loss, among them are the need to understand the following sayings taught to me by my boss "things are never as good or as bad as they seem"....."just relax, breath slowly and take a moment to think about what you are doing" and "always keep your head in the game"..."do not allow yourself to get down, or to get too excited about your wins or losses"

 

This advice has always served me and my students admirably.

 

Good luck to everyone.

Steve

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I think there are many lessons to learn from adversity and loss, among them are the need to understand the following sayings taught to me by my boss "things are never as good or as bad as they seem"....."just relax, breath slowly and take a moment to think about what you are doing" and "always keep your head in the game"..."do not allow yourself to get down, or to get too excited about your wins or losses"

 

Good advice steve, thanks for the post.

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A couple of editing notes. I would remove "A cacophony of strident thoughts" -- sounds overcooked. Also, "rapped". Finally, Jim is not "literally" caught in a catch-22. Unless a "catch-22" is a literal, physical trap of some kind, which I'm sure you did not intend. Jim is simply caught in a catch-22.

 

If this makes it easier for you, good for you.

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If this makes it easier for you, good for you.

 

Rande, I enjoyed the article. I'm providing suggestions for YOU so your book will be more readable and correct. I don't have a horse in this race and don't own your book. If you can't take criticism, don't post your article here.

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Today was an excellent day in class...we all made money

 

The reason I am posting is that this is contrast to yesterday, when we started out with a couple of losses, one of which was caused by a loss of Internet connection while trying to exit a trade.

 

What I noticed was the following. On the first trade, as people saw it go against them, you could feel the tension as traders watched each tick, and asked me (what do you think Steve, do we get out or wait)....and my answer was....stay calm, breath slowly, monitor your data, remember that your stop is already in place protecting you....just watch and wait, you have plenty of time.....

 

In the time span of about 3 minutes we got stopped out on our first trade and the reaction was "OK then what do we do now?" and my reaction was, "we remember to keep our head in the game"....."when we have a losing trade, we don't get down, we don't go over and over the trade, we stay in the moment and watch how the market acts.....and we ask ourselves, what is the market telling us".....as it turned out this was an important lesson to learn.....because withing the next 5 minutes I took a long that turned against me and then lost my Internet connection.....I had to respond to students who wanted to obtain my opinion about the postion they were in, and I had to wait for my Internet connection to be restored (automatic on my system) and then close out the position....

 

Interestingly we made it through that small event and went on to other trades, and during the day, I heard several comments concerning my state of mind and how I managed to keep on an even keel, even though I had no way of knowing what my trade was doing, and how much I had lost...(it was about $1,0000)....

 

As our situation stablized we took a moment (I asked both students to stop for a moment and look at the daily charts)....we located our targets for the next trade, and we went back to work in a orderly fashion....what we did was to in effect "re-set or start over again fresh" and from then on we did quite well, I ended the day up about $400 and my students about the same based on small accounts trading no more than 5 contracts.

 

I think there are many lessons to learn from adversity and loss, among them are the need to understand the following sayings taught to me by my boss "things are never as good or as bad as they seem"....."just relax, breath slowly and take a moment to think about what you are doing" and "always keep your head in the game"..."do not allow yourself to get down, or to get too excited about your wins or losses"

 

This advice has always served me and my students admirably.

 

Good luck to everyone.

Steve

 

Steve46

 

What I like about what you did is that you keep your students grounded in the here and now of staying focused on the trader's performance in a trade, rather than the anticipation of disaster or of a future event.

 

The state of mind we bring to the trade opens or closes the possibility and probability of the trade. In dealing with ambiguity, odds favor a calm, disciplined, patient, courageous, and impartial state of mind. Fortunately this state of mind can be built if the trader does not come stock with it.

 

Rande Howell

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Rande, I enjoyed the article. I'm providing suggestions for YOU so your book will be more readable and correct. I don't have a horse in this race and don't own your book. If you can't take criticism, don't post your article here.

 

It wasn't intented on my part as criticism. And I appreciate your suggestions. Probably the language used comes out of my former life in advertising.

 

Rande Howell

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Steve46

 

What I like about what you did is that you keep your students grounded in the here and now of staying focused on the trader's performance in a trade, rather than the anticipation of disaster or of a future event.

 

The state of mind we bring to the trade opens or closes the possibility and probability of the trade. In dealing with ambiguity, odds favor a calm, disciplined, patient, courageous, and impartial state of mind. Fortunately this state of mind can be built if the trader does not come stock with it.

 

Rande Howell

 

Yes thanks, staying focused on the data is critical...I call it "keeping your head in the game"

 

Today for instance, we took a short trade off the open getting filled at 1210.25....We have planned this trade in advance...and my students know that once you are in a winning trade it is imperative that you keep focused on the data so that you can obtain the psychological comfort of knowing that the rest of the market is "with you"....As a result they stayed in long enough to get 5 points...(they can only get 5 right now because they are trading small)...

 

In the process of holding the position, each student learns that focusing on the data at hand not only helps them to stay in the moment but provides the tools they need to manage the physical stress of uncertainty....each time they do this successfully, I encourage them to "stay with it" just a little bit longer than the previous trade...each time they make a little bit more money and the positive feedback they obtain in the process provides a mental "track record" that they can rely on when a trade turns against them (as it will periodically)..

 

This version of stress training works best if the teacher is able to provide the proper feedback and put the results in context of what the market is doing...the preferred scenario is to have a series of positive winning trades with few losers interspersed so that the student has a realistic experience of trading. Fortunately that is what we have had so far...

 

Thanks for your comment.

 

Steve

5aa71095d8609_Shortentryontheofftheopen.PNG.b85e508e63e3bba376591e59ed7d79ff.PNG

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Yes thanks, staying focused on the data is critical...I call it "keeping your head in the game"

 

Today for instance, we took a short trade off the open getting filled at 1210.25....We have planned this trade in advance...and my students know that once you are in a winning trade it is imperative that you keep focused on the data so that you can obtain the psychological comfort of knowing that the rest of the market is "with you"....As a result they stayed in long enough to get 5 points...(they can only get 5 right now because they are trading small)...

 

In the process of holding the position, each student learns that focusing on the data at hand not only helps them to stay in the moment but provides the tools they need to manage the physical stress of uncertainty....each time they do this successfully, I encourage them to "stay with it" just a little bit longer than the previous trade...each time they make a little bit more money and the positive feedback they obtain in the process provides a mental "track record" that they can rely on when a trade turns against them (as it will periodically)..

 

This version of stress training works best if the teacher is able to provide the proper feedback and put the results in context of what the market is doing...the preferred scenario is to have a series of positive winning trades with few losers interspersed so that the student has a realistic experience of trading. Fortunately that is what we have had so far...

 

Thanks for your comment.

 

Steve

 

What your teaching "Focused on the data" is what I call Ruler and Sage. Or the state of mind defined by the emotions of discipline and impartiality. You're using a behavioral immensement strategy whereas I teach a memory enrichment process to build state of mind. With a little luck, the students will attune to your mindset (which happens as a by product of our humanness) and they will habituate it so that it becomes familiar pattern for them. I also appreciate your approach where you are using a process called stress inoculation to adapt your students gradually to higher levels of risk so their confidence is also grown.

 

Rande Howell

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