Its no secret that trading can trigger fear or anxiety among traders. It doesn’t matter whether you’re a seasoned trader or if it’s your first rodeo, at some point, fear will grip you in the market. As an Apiary Fund Trader, how you respond to the provocation of fear and the choices you make are part of the development process you go through as a Trader.
At the Apiary Fund, our traders face fear daily. I see it. Some seek help by calling trader support. Others quietly try and deal with it on their own. Some abandon hope and stop trading. Sometimes the fear leads to a vicious feedback loop that seems to feed on itself. Regardless your response, the good news is that there is hope and a way to deal with fear in the market.
When I was a young trader, I was told that if I was going to be successful in the market that I would need to purge myself of emotions. So I tried. The problem was, they would not go away. I was doing a lousy job ridding myself of emotions, despite the fact that I was doing a better job of masking them! :)
Then, one day, I was talking with a friend trying to express the frustration I was having trying to get rid of my fear in the market. I explained that fear was causing me to make mistakes - sometimes big ones. I knew that when I was responding to fear that I was making mistakes, but I couldn’t seem to change it… I was being reactionary and instinctual - not rational. I explained that no matter how much I tried, I could not seem to discard some of my fears in the market. Worst yet, the problem seemed to be getting worse the more I focused on it and the more it happened.
My friend responded with something, a comment that has stuck with me ever since. He said, “Stop trying to get rid of your emotions. You’re human right?” I shook my head. “Well humans have emotions, you need to learn how to deal with it.” He explained that I needed to stop trying to be emotionless when everything inside me is wired for emotions. Instead, I needed to try and develop different ways of coping with the fear - ways that didn’t block my ability to think.
Check out this video below with me, Shawn Lucas, where I explain what works for me:
Since then, I have spent years reading and researching everything I could about emotions and top level performance. While there is little direct research on the topic and performance in the market - there is a lot that can be learned from other disciplines. In 2006, I started working with the Psychology professor on a project to map out common personality traits among traders. That research is now called the “Investor Profile.” Besides identifying different personality traits among traders, we discovered that different personalities deal with emotions differently. Aggressives and Analytical traders tend to have a fight pattern while Intuitives and Methodical traders tend to revert to flight or escape.In addition to learning how different types of people tend to respond to fear, I also learned that there are four common response paths to fear in the market that will either prolong or eventually resolve our fear.
These paths include:
- Fight - Fighting is one of the most common to response to fear. This may be a violent physical fight involving yelling, hitting, kicking, and other act of aggression. The fight might be passive resistance such as refusing to respond and becoming silent. Or it may be an administrative defense such as blaming the broker, the platform or taking your grievance to support.
- Flight - Another common response is to flee. This takes the form of looking away, running away, or simply ignoring the threat. In any case you are now avoiding the danger, at least for now.
- Freeze - Other times instead of fight or flight, we freeze. This may work well for a deer wishing to blend into the surrounding forest landscape and escape notice from predator. It does not work well when a deer freezes in the headlights of an oncoming car and it’s not really a good idea in the market!
- Focus - The fourth and arguably the most effective way to deal with fear is to focus your senses and attention, first on the threat, then perhaps on possible responses. In either case we become focused on solving the problem.
For me the good news was that the most common response to fear in the market often follow a well trodden response path and once you recognize how you are responding, that you can make course corrections. The following graphic shows the roads we travel most with fear and, best of all, the escape paths!
For me, the path of least resistance to fear in the market is to fight. I fight through blunt force methods. I will place trade after trade after trade and continue through the evening, then the next day until I finally “beat” the market - resulting in a composed pride and relief. In other words I tend to get caught in a vicious “fight” feedback loop - if I lost, then I would fight another round of trades with the market.
That was then. I still face fear in the market, but my response path today tends to move toward “Focus” first. I’ll get quiet. I’ll look for things that I might be missing. I try to step out of myself and look at the reality of the fear and gain a better understanding of the bigger (or smaller) picture. Then I may choose to fight or I may choose to flee or sometimes wait, but I make my decision with a confidence that void in my earlier years of trading.
One thing that helps me get onto the path of focus is to reiterate in my mind that success or failure never hinges on one trade. My rules provide structure to my actions in the market and if I am following my rules, then I will never be in so deep that I can’t climb out. Furthermore, if I am not following my rules, then the focus will help me realize my problem is not the market - it’s me and I need to change what I am doing.
I learned to get into a state of focus by asking myself questions when I am faced with fear:
- Am I following my position sizing rules?
- Am I trying to force my will on the market?
- Would I be better off in or out of the market right now?
- Am I missing something?
Your questions will need to be adapted to your most default response path to fear. You can use the map above to help you learn more about yourself. It will take time to learn who you are, and possibly longer to learn how to cope with the emotion, but, trust me, it is well worth your time and attention.