Training the Brain to Manage Fear

[Rande Howell 10]

The mindset that you brought into trading is rarely rooted in the psychology that will produce success in trading. If you hesitate in attempting to pull the trigger, or experience a fear and impulse roller coaster ride when you are in a trade attempting to manage it, you have experienced this first-hand. Many people come into trading with a psychology of self that produced success in other domains of their lives. By sheer drive or by patient accumulation of capital over time, people enter trading with preconceived notions of how to produce success. They believe, “My work ethic worked in the past, why not in trading?”

 

The Journey of Understanding Fear

 

After a number of years committed to learning how to trade, the vast majority of traders still perform inconsistently and have come nowhere close to managing the fears that manifest in trading. The old ways of managing fear, so useful in their former careers, simply do not work in the uncertainty of trading. Trading with an attitude of “you can conquer the world” is not going to help you win at trading. Developing an attitude of winning in trading is very different from winning in most other endeavors. It’s not external. Instead, you have to conquer yourself, and out of this comes the internal kind of confidence necessary for successful trading. This is a very different kind of confidence. Trading confidence is rooted in being comfortable in managing ambiguity rather than certainty.

 

The psychology that most new traders bring into trading was built to create certainty and then act accordingly. In trading, the opposite is true. The trader is always in the midst of uncertainty and the ambiguity that springs from never working with a “sure thing”. This powerful bias toward certainty is wired into the very fiber of our biology. Humans evolved with an environmental pressure to survive in a dangerous and threatening world. And our success as a species is in part due to our capacity to spot danger at a distance and avoid it. Humans became wired to seek certainty and avoid uncertainty. And as humans became psychological, we developed beliefs that shaped our perception rooted in avoiding uncertainty and desiring certainty. A mindset focused on trading not-to-lose-money-again is the way this bias shows up in the ambiguity found in trading.

 

Re-enforced by family and culture, our perception became shaped to avoid uncertainty (threat) or attack the object of danger. This trait of coupling uncertainty with fear is truly exposed in trading. In most of the areas of our lives, the relationship between uncertainty, ambiguity, worry, and fear are not so straightforward and immediate so we do not have to adapt to this world view. This allows us to remain in an illusion of control. Occasionally something does crash into our carefully “certaintized” world (but they are rare if you live in a developed country).

 

In trading the linkage between uncertainty, ambiguity, worry, and fear is ever present and is inescapable. This is the problem that has to be solved to become a consistent trader. Uncertainty and ambiguity have to be de-coupled from worry and fear. And a trader has to develop a mindset that allows him to work with the ambiguity of uncertainty. It will not be the mindset that you brought into trading. It is a mindset that has to be developed as the old mindset is deconstructed.

 

Toward a Probability-Based State of Mind

 

The state of mind that you bring to the rigors of trading is going to determine the probability of your success in trading. The standard, historical mindset that humans have developed over many years is that of fear and avoidance. And most traders, in their mindlessness, bring this historical fear-based mindset into their trading without ever having the skills to observe and change it. As long as this is not changed, fear will build and maintain a belief system that will avoid threat or psychological discomfort. With a fear based mindset, it does not matter that probability (your methodology) is on your side.

 

Fear will never allow you to move out of reactive avoidance patterns without reconstructing the beliefs that lie behind the fear. This is why, by themselves, affirmations, visualizations, guided meditations, and NLP do not work to create long term change. Belief structures in the brain and the emergent mind are highly resistant to change. Failed diets and failed surface-change solutions clutter a person’s library as a result.

 

The bottom line is that the beliefs that we bring to trading are rarely the beliefs that can produce success in trading. Until uncertainty has been decoupled from fear and worry, a trader is not going to be able to produce a probability-based mindset that is needed in trading. Add to this the reality that the vast majority of traders lose money and transfer their capital to traders who have been able to build or inherit a disciplined and impartial mindset.

 

By our nature, we evolve as we adapt our belief system to the challenges of the world or we resist evolving due to our nature to produce certainty. This is what biological systems, whether conscious or not, do in their dance with the world of uncertainty that we are immersed in. We develop "fears" that allow us to avoid the ambiguity of the uncertainty of change. These fears were in response to the threat that uncertainty held for survival. And at one time in our not-so-distant past, uncertainty and fear were glued together as part of our survival.

 

It is the management of this ambiguity that must be faced head on in trading. The distant past must be brought into the here and now of trading. In un-tethering uncertainty from fear, you open the door to the reorganization of the self in a purposeful direction. In this sense, trading becomes the laboratory of the design of self-fulfilling beliefs about the self and the world that we are part of. When we learn to face our fears from a position of calm assertiveness and can think in terms of probability, trading becomes much easier. We are no longer living in our histories, but are creating our futures.

 

In mindfully developing a state of mind designed to deal effectively with probability, we become intentional about the mindset that we bring to the uncertainty and ambiguity of trading. There is no threat to biological life at stake – fear and worry are no longer necessary for processing information. With training, a probability mindset delivers the disciplined, impartial, patient, and courageous state of mind needed to engage the uncertainty of not knowing “for sure” and a trader’s methodology truly gives him the edge he needs in the management of risk – not threat. This is a state of mind that the trader builds – he does not find it. It is not “out there”. It exists as a possibility within each trader; but they have to become intentional in developing it.