Fear of Uncertainty – Defining a New Normal

This is the first of a series of articles that cover the 8 forms of fear that I define as the Roadblocks to Your Trading Success. Each form of trading fear is explained so you can see if they resonate with you and your challenges in trading.

The object here is to define the fear that limits the possibility of your being a more successful trader. Many traders do not know how to diagnose the very problem that impedes their trading. Well, here you get that chance.

What you need to grasp about fear is that it constricts possibility. Because undefined fear causes discomfort, you try to avoid it as a way of dealing with it….that is how your biology will always react. And traders, caught in their mindlessness, will attempt to manage the situation. This mindlessness keeps them stuck in their suffering. The fear points out where you need change, yet most traders avoid the fear that could help them redefine their trading. It is a tragedy.

When you learn the skills of how to face your fears and grow from them, a whole new world opens up. The market neither wants to take from you nor wants to give to you. But if you trade from a state of mind rooted in fear, you will always see the threat of the market taking from you, rather than the opportunity to see what the market will offer you. Fear has to be managed to achieve this Trader’s State of Mind. Let’s take a look at this Fear of Uncertainty. Let’s see if you can relate to Steve’s dilemma.

Steve explains, “I’m actually a very positive and out-going guy. The glass is always half full to my way of thinking – except when I’m trading. It’s the craziest thing! In trading, I question my decisions and end up hesitating too long. Today I was looking at a set up and it met the conditions of my trading plan. Logically I had enough confirmation to pull the trigger on the trade, but a little voice in my head kept asking, “Are your sure? You need more confirmation. You gotta be certain.”

“Well, while I hesitated to clear up the uncertainty, the trade got away from me. It’s not the first time either. That voice of self doubt pops up in my trading all the time. And what’s weird is that it seems to come out of left field. I mean, I’m trading to plan – I’ve got the risk management down. I know in my head these are low risk trades, but I hesitate in uncertainty anyway.”

Steve is experiencing the fear of uncertainty. And it is a fear (a certain anxiousness) that he has lived with, but covered up outside of trading, for years. After trading for nine years, he knows how to technically trade his system. But until he learns how to regulate his deeply embedded beliefs about the need for certainty, his emotions will continue to sabotage his potential in trading. Not only is he coming up against the psychology of his beliefs, he is also getting hijacked by this biology’s mandate to minimize uncertainty.

Our human nature strives to make order out of chaos. Biological systems, such has human bodies, organize themselves to prevent the entry of chaos into the system. If the system is opened to the greater variability of the external environment, it is perceived as a threat to the survival of the system.

Think of cutting your arm, and you will see this principle in action. The closed system of the body immediately starts patching up the wound to keep the unpredictability of the environment out. Closing the system (bandaging the wound and healing), returns the body to the state of preventing chaos from interfering with the body’s need for predictability (survival).

The brain creates pattern to predict what will happen in the next moment, in the next trade, in the next economic cycle. This need to predict the future is deeply embedded into our emotional survival nature. We are wired to look for cause that creates a determined outcome – making order out of chaos. A great example of this comes from an experiment done with pigeons. Researchers threw a handful of grain into a flock of pigeons foraging on the ground.

Then they repeated the exact behavior of raising their hand to throw the handful of grain into the midst of the birds. The pigeons, seeing the hand raised, took on the exact body positions they were in when the first “manna from heaven” was thrown. The pigeons were wired to find a causal relationship between their whereabouts and the arrival of food – certainty. This is how powerful the need to find predictability in the face of chaos is.

Traders experience the fear of uncertainty in the form of hesitation. They are looking for the confirmation of the certainty that something is going to happen. In trading there is not certainty – in trading there is probability. In risk management the trader manages the uncertainty with the probability of success. The odds need to be in the trader’s favor. Unfortunately for traders, this is not the way our neuro-biology evolved.

Your brain wants certainty even if there is little probability of something bad happening. This is called negative appraisal. What you can count on is that your brain is a negative assessment machine. Evolutionally speaking, this trait gave our species a real advantage for survival. It kept probabilities of survival in our favor. The problem for traders is that this very hardwired trait makes it difficult for the trader to distinguish between fear and risk management.

To move from the biological mandate of deterministic certainty to the management of risk and probability requires emotional state management to overcome the body’s hardwired imperatives and the psychological mindset to manage risk. Our biological brain has to be calmed so that the fear associated with uncertainty does not overwhelm impartial thinking that is required for risk management.

How Do You Manage the Fear of Uncertainty?

There are 3 phases that you progress through as you learn to manage, then transform Fear of Uncertainty. First, you have to biologically manage the arousal of the emotion so it does not sweep the mind away into fearful thinking.

It is all over then. This is down by diaphramatic breathing as a way to disrupt the emotional state and to calm the arousal of the body. In the specialized from of diaphramatic breathing I teach, the body and mind are calmed down so that thinking can come back on line — rather than the reactivenss of fearful thinking. Then a specialized form of self soothing takes fear off line in the mind. This sets the stage for transforming the fear.

The second phase is centered on locating the internal dialog of the fear. In a calm state of mind you can hear the thoughts running through your mind. It is important to manage these. If left to their own devices, these thoughts will spell destruction to your trading.

There will be some psychological demons that will been to be found by becoming Mindful of them. This Mindfulness is taught as a way of observing inner thoughts and conflicts so we can start mananging them. Until you do this, they will manage your trading with limiting results and, as a result, your continued suffering.

Mindfulness is then used to discover very powerful internal champions that live within you. It is these that you seek to trade from. This is where the impartiality, the courage, the discipline, and the patience are found that create the Trader’s State of MInd. This is possible for everyone. And it starts by becoming away of the fear, approaching the fear, defining it, then re-organizing the inner game so that you trade from strength rather than weakness.

How does the fear of uncertainty apply to you in your trading? Find out more by taking the Trader’s Questionnaire. It will show you.

To learn more from Rande, be sure to check out some of his other articles at TradersStateofMind.com.