Trading With Fear
In this series, we are discussing:
- The fear of losing money.
- The fear of being wrong.
- The fear of missing out (FOMO)
- The fear of leaving money on the table.
In the last edition the fear of losing money was discussed, this week we will discuss the fear of being wrong.
The fear of being wrong.
There must be many traders in the world who are still long in Gold before Friday’s drop.
How many times have you stayed in a losing trade, hoping it will turn around, so that you do not have to admit you are wrong?
That is not a trading system, that is ego preservation and is one of the most expensive habits a trader can have.
This fear of being wrong whispers to us, things like:
- I’ll close it as soon as it bounces.
- The market is overreacting.
- I know, it will come back.
- What goes up, must come down.
The fear of being wrong results in the stop loss level being widened as stopping out feels like personal failure. The result is not just a loss of money, but a loss of personal identity.
Most traders don’t struggle with risk but struggle with being wrong. The reason is because we are trained from an early age in school or society to associate being wrong with shame, punishment or rejection.
The market does not care about our egos. In trading in the zone, Mark Douglas says, “you don’t need to be right to make money, you just need an edge and the discipline to execute it”.
The result of the need to be right is emotional tension, which leads to hesitation, denial and erratic execution.
Until we disconnect our self-worth from the trade outcomes, we will keep sabotaging our edge.
The fear of being wrong is not just emotional, it’s neurological, every time we hit a stop loss a part of our brain registers that as social rejection. It is not because money was lost but because it felt like we failed and the result is that we say to ourselves, “I was wrong, I am an idiot”. Our brain hates that more than losing money.
People avoid losses, not because of logic but because the pain of losing money feels twice as bad as the pleasure of making money.
Even more dangerous, instead of accepting the loss and exiting the trade our brains go into defense mode, we started just fine but as the trade goes against us we look for information to prove ourselves right, that is known as confirmation bias, we ignore the red candle breaking the stop loss level and go looking for news, for hope, for signs that it is just a shake out, an overreaction, and it is not our fault, this is known as motivational reasoning. Psychologists have shown repeatedly that when our identity is threatened our reasoning gets hijacked. We are not analyzing anymore, we are defending, we are fighting not to be wrong. The market doesn’t punish being wrong, it punishes those who refuse to admit it.
“If you stare at the screen for long enough, you will see what you want to see”.
The solution.
The solution is not about becoming fearless, it’s about becoming emotionally irrelevant to the outcome. It starts with saying these words before every trade, “I’m not here to be right, I’m here to execute a trading system and process that works over time”.
When a stop loss is defined according to a trading system accept that it is not a punishment zone, it’s a place where your idea gets invalidated, not where your self-worth gets questioned. If the market breaks your stop loss it means that trade did not work out this time, and that’s okay, we log it and agree that it is only a cost of doing business. It’s data – not drama.
The position size of the trades should be so that a loss feels boring, because if we risk too much being wrong hurts. We will start avoiding the stop and that is when big losses happen and that’s when accounts are “blown”. Taking a stop must feel like brushing your teeth, its routine and then most importantly, protect your future performance from today’s ego. When we interfere with this trade to protect our pride, we will damage the next one and that is how consistency dies, not because the strategy failed but because our emotions rewrote the rules of the game.
Here is the main anchor, we can be wrong and remain profitable, we can be wrong and still be professional because the edge is in a series of trades and not this one single trade.
When we learn to stop clinging and to start executing, that is the day we become professional traders. We don’t have to be right; we must execute right. When our identity stops depending on the trade outcome, our performance finally becomes consistent.