Getting Control of the Fear of Missing Out

[Rande Howell 10]

Déjà vu All Over Again

 

“This happens to me all the time. I’m a profitable trader, but I leave way too much money on the table. Each day I wake up resolved to stick to my trading plan. And I’m fine until I get into the trade. Then something goes haywire, particularly if I’ve already lost one. I get rattled as I watch the trade bounce around. The more I hold on to the trade, the more I feel the pressure build to get out of the trade. Then I don’t know what happens. When I finally see the trade becoming profitable, I've come unglued. I just want to get out with the profit I have before I lose it.

I get a jolt of relief when I get out of the roller coaster ride I’ve been on. I’ve got some profit. Then I watch the trade do exactly what it was supposed to do. I see it trend and I realize how much money I left on the table, again. In hindsight, I know in my right mind that I should have stuck to my trading rules, but my right mind just gets blindsided and my fearful mind takes over. I never see this coming. This is the biggest problem I have in trading. If I could get this one licked, I would be a very profitable trader.”

 

A Strong Will Never Wins Over an Excited Emotional Brain

 

One of the largest obstacles in a trader’s journey to reach consistent profitability and income is actually learning how to manage his emotional nature once he is in the trade. This is when risk becomes real and palpable. And this is where a trader’s lack of understanding about emotions and thinking becomes the barrier to his growth. To the trader who has not trained his mind to work in this highly charged emotional environment, there is a powerful tendency for him to get ambushed into a fear that paralyzes clear thinking and urges him to take the profit he’s got RIGHT NOW rather than risk the gains that could evaporate if he waits for the trade to further develop. This is despite what (while in a logical state of mind) the rules of his trading plan dictate for his exiting a trade and taking profit.

 

In this special case of the Fear of Missing Out, the trader has fought through trade entry. And, unprepared for the requirements and skills for psychological management of the mind that he brings to the performance of managing the trade, his will power to force an emotionless mindset in the face of uncertainty is swept away, along with his profit. The problem for the trader is that he does not “see” the fear before it has already undone his capacity to manage a trade from a disciplined and impartial state of mind.

 

He has just experienced an emotional hijacking of his rational mind (and his will power) by his emotional brain. Trying to steel his emotions in the face of the challenge of risking capital seemed to work – for a while. Then the use of will power in the face of continual exposure to the risk of uncertainty and the negative attribution bias built into the primitive neuro-circuitry of his brain was overwhelmed by millions of years of biological programming that he bumped up against while trying to manage his trade.

 

What actually happened to his state of mind? Did this hijacking just come out of nowhere?

That is the way this trader, and most traders, explain it. They "did not see it coming". And they do not understand how to change a deeply wired reactive pattern that the emotional brain has already established to avoid uncertainty. In fact, this trader (and most traders) head right into a head-to-head collision between their will power and the force of a powerful emotion that can derail a trader’s thinking in nano-seconds.

 

The Emotional Brain Makes a Decision: the Thinking Brain Produces an Explanation to Support It

 

First, let’s start with examining some of our assumptions about the nature of emotions and thinking. Rene Descartes was wrong. The guy who brought us the Rationalistic Tradition by declaring “I think, therefore I am” made a fatal flaw in his understanding of how body, brain, emotion, and mind inter-relate to one another. It was like he attempted to separate the mind from the body (emotion). This error moved through the centuries and became an unexamined assumption at the base of many human endeavors, including western medical and scientific thinking. This thinking held that you could ignore the mind and the beliefs contained there and simply treat the body. Mind and body were separate in this assumption.

 

Now, of course, with the advent of neuro-biology, a very different paradigm of understanding has emerged. Today the understanding is that the mind (thinking) emerges from emotion. The well-evidenced theory today is that all thinking is emotional-state-dependent. So much for leaving emotions at the door while trading! Without the presence of emotion, you have no thinking. The only question here is what kind of thinking is available to you based on the emotional intelligence of the trader.

 

The key is managing the emotion that you are bringing to the management of a trade, rather than having the reactive emotion managing the mind that trades. If you go back and read the oh-so-real vignette at the beginning of this article, you can observe that the trader ignored his emotional nature at his own peril, and that by not heeding the presence of emotion, his thinking (when he needed it most) was compromised by fear. The emotion he wanted to be in was impartiality. That emotion produces the clear thinking so treasured by traders managing trades under the stress of uncertainty.

 

Being ignorant of the way emotions and thinking are linked together, he kept falling into the same trap, again and again. What he saw as “coming out of nowhere” was in fact very observable (and manageable) if he had known what to look for. But first, he had to develop an understanding that allowed him to see emotion in a very different way. By doing this, he would be able to see his reactive pattern in a new light.

 

Emotions Are Biological – They Take Over Psychology

 

By the time the trader in the beginning vignette noticed the psychology he was trading from, he had already compromised his capacity to manage the uncertainty and ambiguity of the trade in process. He was not prepared because he did not know what to look for. What he missed were the tell-tale signs of the emotion arising and turning into a force that took over the mind that was supposed to be trading from a disciplined and impartial state of mind.

 

Because emotions are biological, there are physiological changes that start occurring as the triggering of an emotion ramps the body and brain up for action. (That action, in this case, is getting out of the trade early.) This “ramping up” of the emotion is called arousal and is much like a dragster gunning his engine in preparation for accelerating down the drag strip. Emotional arousal has a biological signature associated with it that can be observed. In this trader’s case of the Fear of Missing Out of Profits, his breathing would have either stopped, or become rapid and shallow. His muscles in specific areas of his body would also begin tensing. In addition, his heart rate would have accelerated anticipating a call to action so that a threat could be avoided.

 

Unfortunately, the trader had not developed the Mindfulness needed in order to be aware of the building up of the emotion before the chemistry of that emotion began flooding into his body and brain. This is analogous to the dragster not gunning his car in preparation for the run, but just racing down the drag strip. In the case of the emotional build up with our trader friend, the emotion has hit a threshold that flips a switch and the emotion is propelling the trader into reactive avoidant action.

 

Yet, with training and practice, he can develop the Mindfulness to be vigilant about the avoidant pattern (avoidance of loss) that is wired into his adaptive response to the management of uncertainty. By intentionally altering his breathing and relaxing his muscles, he could have managed the intensity of the emotion so that it would not have taken over his mind (hijacked his mind) as he attempted to manage the trade.

 

Notice here that the trader becomes an emotionally intelligent Observer of his body as part of an emotion. This is critical because the emotion dictates the kind of thinking that the trader brings to the management of the trade. It also allows him to face what he has been avoiding.

 

Beliefs Become Embedded Into Emotion

 

Ultimately, by managing emotion so that it does not hijack thinking, the trader is able to approach his beliefs about his capacity to manage uncertainty. It is these beliefs that generate the results in his trading account. It is also these beliefs that the trader has been avoiding because they cause such discomfort when brought into awareness.

 

This is called "facing your dragons". Ignoring the dragon gives it enormous power over your life. Pretending that you can use positive thinking or affirmations to make the dragon simply go away is very simplistic. Ultimately, the dragon must be faced.

 

The "belief dragon" does seem real. But it is only an assumption that has been embedded into the neuro-circuitry of your brain’s programs and has taken on the force of belief. It feels real because it has become habituated and has become the fulcrum around which your sense of self has been forged. What is being exposed in this trader’s performance is his belief about his inadequacy to manage uncertainty.

 

And until this "belief dragon" is challenged, deconstructed and re-organized, the dragon will have emotional power over the trader’s performance under the stress of managing his trade. Notice that this begins by managing the emotion so that it no longer has the power to overwhelm. It is at this point that the trader can step back from both the emotion and the belief and recognize that beliefs and the emotions in which they are embedded can be re-organized into higher functioning states of mind.

 

Instead of avoiding the discomfort of the emotion, the emotionally intelligent trader recognizes that the structure of the emotion is his teacher. The fear teaches you to seek out the self-limiting belief that keeps you stuck from achieving your greater potential. Getting equipped for this kind of work opens the door for using your fears and impulses as guideposts in your journey into becoming a professional trader.

 

Rande Howell

www.tradersstateofmind.com

[SIUYA 11]

Rande in your experience with traders -

do you find the 'Fear of missing out' on getting into a trade is similar to the 'Fear of leaving profits on the table'?

 

Given it seems to be told/rumored/quoted (please dont quote me) that many retail traders actually enter trades at good levels - but cant run to the plan because of this fear of leaving profits on the table.

 

Also - of these traders that get emotionally charged -

how many do you think actually have well thought out plans that have been tested to reinforce the emotional control, as opposed to just trying to regulate the emotions based on what they think should happen - based on their entry.

 

thanks.

 

Re control - I downloaded a book about relinquishing control - "Losing Control - by Daniel Miller" - anyone read it, and or can recommend it? It cost 2.50GBP on kindle but i dont know if its worth the time to read. thanks

[Rande Howell 10]

Rande in your experience with traders -

do you find the 'Fear of missing out' on getting into a trade is similar to the 'Fear of leaving profits on the table'?

 

Given it seems to be told/rumored/quoted (please dont quote me) that many retail traders actually enter trades at good levels - but cant run to the plan because of this fear of leaving profits on the table.

 

Also - of these traders that get emotionally charged -

how many do you think actually have well thought out plans that have been tested to reinforce the emotional control, as opposed to just trying to regulate the emotions based on what they think should happen - based on their entry.

 

thanks.

 

Re control - I downloaded a book about relinquishing control - "Losing Control - by Daniel Miller" - anyone read it, and or can recommend it? It cost 2.50GBP on kindle but i dont know if its worth the time to read. thanks

 

Hi SIUYA

 

Good to speak with you.

 

For my purposes I separate the impulse to get in a trade caused by a fear of missing out from the fear of missing out on profits that takes place while a trader is attempting to manage a trade. To me it is the difference between the roles that an offensive coordinator and a defensive coordinator. Different mindsets that they are acting from. There is alot of complication here and a case could be argued that they are similar. My obsevation is that there is a different emotinal belief lurking in the background that compromises performance.

 

I find developing the skills to manage a trade to be the hurdle most retail traders have the most difficulty with. Even if he can get past the entry problem, he still has the management problem. I find this to be the problem, also, with professional traders.

 

The vast majority of the traders I work with have well thought out plans that have been developed in conjunction with a methodology coach. I work with very few self taught traders. This is because if they don't have a plan that is successful in sim, I encourage them to work with a trading mentor and not waste their money on me, yet. Their plans work in sim and in back testing. It's that risk thing that gets in the way of execution.

 

The problem I find is that most retail traders don't seem to understand that they are going have to develop the mind that they bring to trading. It's just a different animal from what produces success in other endeavors. Professions get that.

 

I have a question for you. I am speaking at the CLSA Forum in Tokyo later this month and my audience is fund managers, risk managers, CFO's, and CEO's of large companies and trading groups. What I have observed in the professional traders I have worked with is that either euphoria based trading or taking profits too early are the major concerns they bring to work on. What is your experience on this?

 

Rande Howell

www.tradersstateofmind.com

[SIUYA 11]

Hi SIUYA

 

Good to speak with you.

 

For my purposes I separate the impulse to get in a trade caused by a fear of missing out from the fear of missing out on profits that takes place while a trader is attempting to manage a trade. To me it is the difference between the roles that an offensive coordinator and a defensive coordinator. Different mindsets that they are acting from. There is alot of complication here and a case could be argued that they are similar. My obsevation is that there is a different emotinal belief lurking in the background that compromises performance.

 

I find developing the skills to manage a trade to be the hurdle most retail traders have the most difficulty with. Even if he can get past the entry problem, he still has the management problem. I find this to be the problem, also, with professional traders.

 

You too...

100% agree - the people I have seen trade the best usually manage trades the best. Most people have no problems getting in, and I have seen many more impulsive/trigger happy (my own issue) rather than fear of pulling the trigger traders.

(I wonder if hindsight (false memory) has a lot to do with this - ;ie; they think I have seen this before I will get in early, when in fact what they have really seen is this before, but they forget that patience is worth it - sort of that thinking fast and slow idea)

Managing the trade once the money is at play is certainly and issue - I used to think it was because of the money, but i actually think its about control (I have a long winded completely uneducated theory about control and the desire to control and be right, much more so than fear and greed)

 

As to different mindsets - yep - the need to do things, to feel like we are right, to earn our money is a strange one.......think about it this way.....in many businesses you are paid by the hour, or the job, or a progression of acheivements.....in trading you push the button and the market does the rest. Maybe we dont feel that we earn the money, that we actually need to do things to earn that money. The need to meddle.

Not sure - I sometimes randomly think about these things and usually conclude that every one has their individual motivations that one size does not fit all.

Maybe lazy people make great traders if given a thorough plan with good (better than random ) entries. (I have always wanted to do an experiment with various people putting on different components of the trade - pip dream)

 

 

I have a question for you. I am speaking at the CLSA Forum in Tokyo later this month and my audience is fund managers, risk managers, CFO's, and CEO's of large companies and trading groups. What I have observed in the professional traders I have worked with is that either euphoria based trading or taking profits too early are the major concerns they bring to work on. What is your experience on this?

Rande Howell

www.tradersstateofmind.com

 

 

Whose concerns are these? You mention a lot of roles and each of these will have different objectives, ideas and incentives. A trader is completely different to a sales person/manager/rrisk manager/CEO - many are simply trying to protect their butts!

 

There used to be jokes about the floors that as a trader if you blew up, do it swinging big - talk the talk, trade large and act euphoric - why? Because the managers would then believe that they would pick you up when you are sacked, manage the risk, they know you can handle size (not everyone can, and yet firms often need this). If that manager gets you right, then they make a name for themselves, if they are wrong - its the traders fault.....There are lots of plays at work here, so I guess you might have to be careful who you say what to ...so......

 

In keeping the euphoria strictly to a trader.....is this the documented issue, or simply what they think is the issue or major concern?

 

What I have observed in the professional traders I have worked with is that either euphoria based trading or taking profits too early are the major concerns they bring to work on. What is your experience on this?

 

Well as for thoughts.....and these are off the cuff random to get the juices flowing....

 

Is euphoria maybe part of wanting to take profits early? The confirmation of being right, the high of success while forgetting the past/future losses that have/will occur. Assuming they are different......

 

Too many traders have pressures brought to bear by their superiors (wife/family commitments as well) that it is sometimes difficult to separate the real issue. Maybe they have had a bad week previous, maybe its the end of the year near bonus, how is their bonus calculated, what are their peers doing in terms of PL. etc; etc; So this needs to be taken into consideration.

 

Most euphoria I feel when I have been trading well, and when I have seen others trade well is after all is said and done - after the adrenaline (are these separate?) and the trades are closed and they think its a job well done - so I guess that if you are too euphoric to be getting a positive PL then you are likely to take profits early. (How many of us have a good day but now it should have been better, or vice versa)

In a firm a good manager probably needs to be a good macro trader - to know when to let a trader run something, when to rein them in and to reward them (the thorny issue) for a job well done. Unless of course the managers want a bunch of scalpers and quick profits......an individual trader may have different pressures. But they play a part.

What about relief to be out of a trade?

 

.....sorry digressing.....

 

Euphoria -.....over time Euphoria for an individual trade should decrease (but not for the market or process), Too many traders forget the next series of trade, or past trades and think only of the profit now....I would imagine these guys have not properly planned the trade - they got lucky maybe. (I remember having some great lucky trades and the euphoria is pretty high - you have to still have a policy of how to deal with them - do you always take PL or let it ride, or can you still manage the trade as it is. Its probably as damaging as fear.)

 

Taking profits - definitely related to euphoria and poor planning. Personally I think the more I read about others, and maybe this relates to my own personal preferences - this is more damaging than people think. (Unless of course this is the plan)

So assuming letting things run, either until the situation changes or a TP is hit is the plan, this is simply failure to adhere to plan......even option market makers would fall foul of this - not paying up for something when they know they should, selling 'expensive' options when they want to take profits too quickly - loosing their books (different these days as its more electronic)

Basically why do the work to worry about an entry if you are going to meddle with the planned exit. Either let it ride or actively manage, not TP just because.

 

Hope thats good food for thought and not too random. (I have specific trades and traders stories but they might not be relevant - apart form the one friend who ordered us to make him cut his position when he stood up on the desk with pumped fists because he got it right - his problem was that it usually signaled the end of the move when his euphria really arrived, he got it right but was just getting greedy. It worked - he hated us for doing it but thanked us after - some even took the other side if they liked the trade)

[SIUYA 11]

What I have observed in the professional traders I have worked with is that either euphoria based trading or taking profits too early are the major concerns they bring to work on. What is your experience on this?

 

just reading my prior response being a little random....specifically.... from what i have seen.

If these are actual issues as opposed to just concerns....

 

A euphoric trader usually is a gambler. they either need to change this or they will blow up quickly at some stage. (it might be years down the track or it the current market context changes)

 

Taking profits too early (dependant on system) is the opposite - they will slowly bleed. (As they say the big money is in the sitting)

[Niko 10]

What an interesting thread.

 

Definitetly "Deja Vu" :crap:

[Rande Howell 10]

just reading my prior response being a little random....specifically.... from what i have seen.

If these are actual issues as opposed to just concerns....

 

A euphoric trader usually is a gambler. they either need to change this or they will blow up quickly at some stage. (it might be years down the track or it the current market context changes)

 

Taking profits too early (dependant on system) is the opposite - they will slowly bleed. (As they say the big money is in the sitting)

 

What I've come to notice is that a trader works hard to develop his mind so he can trade effectively, starts making good money, and then begins a slow descent into the grandiosity rooted in unmitigated testoserone. He believes he has "arrived", which, from my perspective, is a dangerous belief to project upon the markets. In the resulting euphoria, he loses the perspective that allowed to to trade from a disciplined and impartial mindset. And he does become a gambler because he blinded himself to the destructive tendencies sneaking back into the committee of the mind. This is what I suspect happened at Morgan Stanley and the Whale. I try to instill a sense of vigilance in traders as they make the transition from break even to profitable traders. What they have to recognize is that euphoria is just another emotional state that creates a certain kind of thinking. Unfortuately euphoria produces a mind that believes with certainty that the good times are going to roll and begins to minimize the potential cost of risk. But it feels sooo good.

 

Rande Howell

www.tradersstateofmind.com

[SIUYA 11]

What I've come to notice is that a trader works hard to develop his mind so he can trade effectively, starts making good money, and then begins a slow descent into the grandiosity rooted in unmitigated testoserone. He believes he has "arrived", which, from my perspective, is a dangerous belief to project upon the markets. In the resulting euphoria, he loses the perspective that allowed to to trade from a disciplined and impartial mindset. And he does become a gambler because he blinded himself to the destructive tendencies sneaking back into the committee of the mind. This is what I suspect happened at Morgan Stanley and the Whale. I try to instill a sense of vigilance in traders as they make the transition from break even to profitable traders. What they have to recognize is that euphoria is just another emotional state that creates a certain kind of thinking. Unfortuately euphoria produces a mind that believes with certainty that the good times are going to roll and begins to minimize the potential cost of risk. But it feels sooo good.

 

Rande Howell

www.tradersstateofmind.com

 

Hard to tell with the Whale situation - was it an internal failing of processes of risk, a bullying bad trader (allla Corzine), or was it simply the blinded trader.

The differences between a 'retail' or sole trader v a corporate employed trader can be immense due to these extra constraints and different pressures.

 

You are 100% correct about the continual vigilance and I guess the euphoria is more often termed over confidence - master of the market sort of crap. Some firms encourage it - take on size, get bigger etc; etc; as opposed to keeping on eye on certain traders. Some traders are great in bull markets, others bears, and a good manager often needs to know this, work out when to unleash the right beast - While if the individual trader really believes it then yep they are likely to be destined for a fall.

Which is why DbP (just as a great example) and others impress the need to drill a good plan that is tested and adhered to - this way the trader is not the person pushing the buttons - the plan is.

Mind you this might not suit everyone and sometimes artistic licence makes the good trader using general rules - however - your point of vigilence is maybe a defining trait that is not often noted in the successful 'artistic' trader v the methodical one, v the unsucessful trader (using any method).

Too often I think that these things get said time and time again - the old trading truisms - "you are only as good as you last trade", "stick to plan", "dont get emotionally involved", "dont fall in love with a trade" ---- when they are merely really saying be eternally vigilant as to your own fallibility.

I read somewhere Soros used to always remind himself 'I am fallible" - so even if people say he is a power hungry so and so, blah blah blah - maybe when it comes to trading his great strength is the acknowledgement on a constant basis of his fallibility as a trader.......

 

makes you think - we have stickers everywhere reminding us - 'cut losses', 'be dsciplined', 'run winners' maybe we just need to have a sticker saying - "Remember you are likely going to be wrong" - embrace the negativity!

[MaksymGra 10]

Just wanted to say thank you for good read. :thumbs up:

[Guest OILFXPRO]

If a trader has a robust system , the fear of missing out will be taken care of and avoided , the system would not take those types of trades .There are many other system trades which produce better results.

 

Secondly patience to wait for the right opportunity is important , it is more profitable to pick high probability entries.I trade once a week , others trade 50 times a week ...impatiently burning their accounts.

[Rande Howell 10]

If a trader has a robust system , the fear of missing out will be taken care of and avoided , the system would not take those types of trades .There are many other system trades which produce better results.

 

Secondly patience to wait for the right opportunity is important , it is more profitable to pick high probability entries.I trade once a week , others trade 50 times a week ...impatiently burning their accounts.

 

"If" is a pretty big word. IF traders followed their rules in the heat of the moment, there would be many more profitable traders. The system is usually the least of the problem in trading, it's the space between the ears that causes the system to have problems. Until this is corrected, it really doesn't matter how robust the system is from my experience in working with traders.

 

Rande Howell

[Guest OILFXPRO]

"If" is a pretty big word. IF traders followed their rules in the heat of the moment, there would be many more profitable traders. The system is usually the least of the problem in trading, it's the space between the ears that causes the system to have problems. Until this is corrected, it really doesn't matter how robust the system is from my experience in working with traders.

 

Rande Howell

 

The success of a trader depends on the 9 inches between the ears.

 

The hard part is in understanding your psychology, because it’s true that the nine inches between your ears will determine your success as a trader , psychology is the second major reason.

[Rande Howell 10]

The success of a trader depends on the 9 inches between the ears.

 

The hard part is in understanding your psychology, because it’s true that the nine inches between your ears will determine your success as a trader , psychology is the second major reason.

 

It is really hard to observe the self because we adapt not to see what is right in front of the face, even avoid it. I describe the mind as a committee that runs the corporation called "you". The first problem is that the chairman of that committee has been asleep at the wheel. And as he wakes up, he discovers that the committee is a mess and in mutiny.

 

First he has to understand the forces at work in that committee. I use a structure that defines the different players, or forces, that constitute mind. This helps traders make sense of the internal struggles that go on in mind as it attempts to manage uncertainty.

 

It does take some work and change. But it does give the trader a way of understanding his/her psychology that opens the door to self development.

 

Rande Howell