Whether you like it or not, if you are engaged in trading there is never any certainty in the result of any given trade that you may take. Even the best traders, investors, market forecasters or even the ‘gurus’ on your favourite finance television networks cannot say with ‘certainty’ where the market is headed next year, next month, next week, or heck, even tomorrow.
So how can traders deal with the uncertainty that trading in the markets presents?
First off, it is important to note that there is a key difference between the feelings of uncertainty that we experience and the feeling of actual fear that can pose a significant barrier along our path to success.
An analogy that has been used before to best explain this is if one takes the example of a surfer riding a wave. The ocean and the individual wave are not impacted and do not have any bias towards the surfer being there or not. Obviously, the outcome of whether the surfer can successfully ride the wave is extremely uncertain, especially if they are a newbie surfer. The probability of them riding the wave will not increase until the surfer develops the necessary skills to be able to ride that wave. Even when these skills are acquired and whilst probability may increase on whether the surfer will be able to ride the wave, it is never 100% guaranteed as the ocean and its waves are hugely unpredictable.
Trading is exactly the same, in that this ‘uncertainty’ is the overriding factor in this career path. As human beings we crave a level of certainty in anything we do, this desire is unconsciously programmed into us, so in taking up trading, traders are already fighting against your basic programming. So how do traders react to the uncertainty? Typically, traders will deal with this uncertainty in one of two ways:
The first is through fear brought on because of the uncertainty experienced. If a trader views the markets through fear, then their thoughts, followed by their behaviour/actions are driven by this fear. All of their thought processes are driven from that feeling of fear. Traders will make decisions based on that fear, and will hesitate or conversely even impulse trade to relieve themselves from this stressful feeling.
The second way in dealing with the uncertainty is by focusing on the only thing that a trader can control – their process. If they can focus on executing their process, the first scenario above is almost eliminated by default. This is because their focus shifts on the only ‘certainty’ they can achieve from trading, and that is that they can execute their process ruthlessly. All traders must work to build and develop the discipline and courage to stick to their trading process in the face of this uncertainty. They need to train themselves and mentally rehearse the action of executing their process over and over again so that this behavioural trait can grow to overcome the negative effects of uncertainty on their minds.
The best traders are those who demonstrate the ability to consistently make good trading decisions even when faced with a lot of uncertainty. So what do they do differently?
The key here is to look further than simply making mistakes or focusing on any losses that they may take, and rather turn their attention to the probabilities that are playing out. If a trader has a well developed trading strategy and process, then they will know exactly what the probabilities of profitability are from their strategy over a given number of trades, and thus they are not swayed by the uncertainty of the short term results that arise. Further, the more time they spend focusing on doing the right things, the more their instincts and intuition will be developed to react to events in the uncertain environment (the market) in the correct manner.
This process will not happen overnight. Traders need to make a conscious decision to follow the correct course of action for a long enough period of time that this correct course of action becomes the default unconscious behaviour. Essentially, what I am saying is that to reap the rewards, traders need to put the work in!
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God bless, and happy trading!