Separating Fear from Uncertainty

[Rande Howell]

What does this post open or close for you as a trader?

Trading does not come natural to the human brain. For the vast majority of traders, it has to be learned. From an evolutionary perspective, just a few short years ago we were all cavemen. In your ancestor’s world there was no reason to separate uncertainty from fear. The world was a dangerous place and if you experienced uncertainty in your dealings with your environment, there was a good chance you were facing a mortal threat. Uncertainty became glued to fear and anxiety as a survival trait. And that trait got transmitted to future generations -- long after the usefulness of glueing uncertainty and fear together.

Your inner caveman still lives within you as you trade. Your limbic brain (caveman’s inheritance to you) still is still watching his environment (your trading screens now) and interpreting from an evolutionary bias that locks uncertainty and fear together – rather than distinguishing them from one another. This deeply embedded trait has also been uploaded into your psychology. This is the psychology of self that trades and experiences worry and fear when you are supposed to be impartially managing risk with your trading plan.

Separating uncertainty from worry and fear (more primitive parts of your survival brain) – caveman – is what is required for a trader to evolve from fear based interpretations of uncertainty to risk management interpretations of uncertainty. So if you're having difficulty moving one set of psychological skills that proved okay successful in one domain of your life to success in trading, welcome -- this is typical. There is nothing "wrong" with you. But it does indicate that the "you" that your brain has organized you as needs to be changed. And that new psychological skills will need to be developed to replace your inheritance from caveman. Otherwise caveman will continue to participate in your trading. That's all.

The mindset for the vast majority of traders has to be developed. Particularly the management of uncertainty and the meaning that becomes embedded tin he meaning making pathways of your brain (that's your perception). This is where you will find your self limiting beliefs about yourself. If you experience hesitation as you evaluate set ups for risking capital, if you are seized with fear as you try to pull the trigger, or if your heart pounds as you enters a trade (particularly when it goes against you), you are experiencing a biological predisposition that has shaped your personal psychology to avoid uncertainty -- that's your caveman trading along side of you, perhaps even taking over. It is the mindset that you take into uncertainty (that's trading) determines the probability of success.

Evolutionary and psychological bias, in the vast majority of traders, will have to be examined and changed for this to occur. It takes emotional labor, and that's the price for re-development of the self designed for trading. It's a great personal development adventure. Traders often invest years in learning to know the self and developing a psyhology that trades effectively. This process is unavoidable.

Where are you in the evolution of this process?

Rande Howell

 

[the_winner_11]

That is really interesting post. It was useful and nice reading it.
But to answer the question is rather difficult, just because everything is seen in a better way from the side but not internally. So it's not for myself to judge.

 

[Black Swan]

Whilst not 'word for word' you've stolen this musing from another source...

 

[Rande Howell]

That is really interesting post. It was useful and nice reading it.
But to answer the question is rather difficult, just because everything is seen in a better way from the side but not internally. So it's not for myself to judge.

There is no permanent destination in the evolution of a trader's mind. Generally at the start, there is a desire for a better life and more time. Then they fall in love with trading. They latter invest in their platform and methodology, believing that if they only find the right combination, they will find the Holy Grail.

Later they discover that they themselves are the Holy Grail. But it going to take a lot of work. It is this process of bring forth a new way of being in the world -- of understanding the uncertainty of trading and life -- that we move beyond the obsession with certainty and begin to accept probability. Our biology has to be tamed for the mind to master uncertainty. But if you're going to trade, it is a necessary step. It is this process that I'm opening up for observation.

Rande Howell

 

[Jack o'Clubs]

Whilst not 'word for word' you've stolen this musing from another source...

Black Swan clearly higher up the evolutionary scale then than Rande Howell.

 

[Rande Howell]

Black Swan clearly higher up the evolutionary scale then than Rande Howell.

I write my own stuff. Maybe a different tree. RH

 

[7Forex]

Forex trading is a mental game and we need improve ourself every day to be a better trader.

 

[data_editors]

Let's keep aside concerns of the source of this article - what I really like is the caveman analogy - I had not thought of trading that way - though oftentimes I would feel that life in general in modern time is not very different from those caveman days - only the tools and landscape has changed, nothing else.

Thanks to the originator of this post for tying up trading to the psychological throwbacks of the caveman days.

 

[JaredTendler]

I was really intrigued by the title of this thread, but was surprised to see that OP never made it clear what the difference was between fear and uncertainty. That difference may be obvious to some of you, but for me, I think it's very important how we define these emotions.

In my world fear is an accumulation of uncertainty and isn't a separate and distinct thing. Instead fear is just a more intense version of uncertainty. Intense because that uncertainty has accumulated over many years, and over many layers of uncertainty. But, they exist along the same spectrum and are two different things.

The spectrum of Fear:

Uncertainty accumulates over time and turns into worry, or doubt, and then worry and doubt, accumulates further into anxiety, further into fear, and then into phobia.


I think it's a mistake to even try to separate fear from uncertainty. The goal is use uncertainty as a signal to highlight that something isn't known. There are ALWAYS unknowns in the market. That's what creates the risk and thus the reward. The goal shouldn't be to eliminate uncertainty as a thing - the goal should be to use uncertainty as a signal to draw our attention to something that needs to be figured out. Once you spend enough time figuring it out and prove that knowledge is correct, you create certainty. Certainty is the antidote to uncertainty.

With regard to Fear, the goal needs to be to bring the fear down to size. Break it apart to find out the questions/uncertainty embedded within it. There are often many layers of uncertainty, and that's what causes it to accumulated over time and eventually turn into fear.

All of OP's comments about the limbic brain are true, but gaining control of fear, has much more to do with understanding the nature of fear, than just adopting a certain mindset of fearlessness or any other. Ultimately, you don't want to become fearless, because that would mean that you would eliminate uncertainty. If you eliminate uncertainty as a trader that means you're not learning. If you're not learning, you save whatever money you make now, because eventually your trading plan will lose it's edge in the market.

 

[Rande Howell]

Fear and Uncertainty need to be separated if you are to move beyond reactivity. Uncertainty is not made of fear. Uncertainty is simply the unpredictability or ambiguity found in life. What matters is the emotionally rooted mindset that engages uncertainty. Fear has a bias to avoid, which is what a lot of traders do when they experience uncertainty in trading. However, in regulating fear from hijacking mind, new emotions become possible. Fear can be transformed into reverence, vigilance, and concern. These emotional states give rise to a mind that is very capable of managing uncertainty and probability.
Rande Howell

 

[TheBramble]

I found your post enlightening. I always used to fear uncertainty, but was equally fearful; that I might be uncertain of my fears. How could I know if I was fearing the wrong things or if I wasn’t aware of things that I didn’t fear, yet should. So in a way, fearing the uncertainty of fear itself.

So one day, I put this to my shrink of almost 10 years said something to me that brought tears to my eyes . He said “Yo no hablo Inglés”.

 

[TheBramble]

qed

 

[Mike Kshemaraja]

Is somebody trying to sell something here?

In my view if you do not know how to trade, the right state of mind will only help you lose happily.

 

[Rande Howell]

Is somebody trying to sell something here?

In my view if you do not know how to trade, the right state of mind will only help you lose happily.

We are all proposing our observations here. Some are selling; some are buying.
Many traders are well trained in technically knowing HOW to trade in a vacuum without risk (simulation). And as long as they do not bring a mindset to trading that can act effectively in the face of uncertainty, their trading falters because they do not know how to manage mind under stress.

Rande Howell

 

[Mike Kshemaraja]

We are all proposing our observations here. Some are selling; some are buying.
Many traders are well trained in technically knowing HOW to trade in a vacuum without risk (simulation). And as long as they do not bring a mindset to trading that can act effectively in the face of uncertainty, their trading falters because they do not know how to manage mind under stress.

Rande Howell

Fair enough, I think you are right, mindset is a prerogative in trading.

Keep posting, I am following.

Mike

 

[DMayzler]

There is a great article in psychology today, titled 'MIND TRAPS: The fatal mistake of hanging on too long' if you google that you will get the article. It looks into loss aversion really but the central elements of the article can apply so accurately to the trading mindset needed to let go of loss and detach from our emotions when trading. If anyone does read it I hope it makes sense

 

[ZEN archer]

I always used to fear uncertainty, but was equally fearful; that I might be uncertain of my fears. How could I know if I was fearing the wrong things or if I wasn’t aware of things that I didn’t fear, yet should. So in a way, fearing the uncertainty of fear itself.

So one day, I put this to my shrink of almost 10 years said something to me that brought tears to my eyes . He said “Yo no hablo Inglés”.

 

[lynhappytrader]

There is a great article in psychology today, titled 'MIND TRAPS: The fatal mistake of hanging on too long' if you google that you will get the article. It looks into loss aversion really but the central elements of the article can apply so accurately to the trading mindset needed to let go of loss and detach from our emotions when trading. If anyone does read it I hope it makes sense

I've read some time ago and now that you mentioned, yes, you're right, it does apply to trading! Nice thinking.

 

[angelnish]

Here are 3 Steps in Dealing with Fear:

1. Embrace fear

Fear is part of human nature and everybody experiences it, so embrace fear and focus on dealing with it.

2. Identify the source of your fear

Did the funny tingling in your tummy come from valid reasons like a break in support and change in market sentiment, or was it just because you had a nightmare about your trade the night before? Learn to identify the good kind of fear from irrational fear so you can focus on acting on it.

3. Use fear to make better trading decisions

Once you pinpoint the source of your fear, make the necessary changes in your trades. This way you have turned your fear into an area of growth and improvement.

As super trading coach Brett Steenbarger says, "Confidence isn't the absence of fear; it's the knowledge that you can perform your best in the face of stress and uncertainty."

So...don't be afraid and apply this strategy in your trading life.

 

[thentic]

A bit deep. Don't understand.