Everyone talks about uncertainty, and many of you realize that the only thing that is certain in trading is uncertainty. The problem is that most people understand it on an intellectual level (“yeah, I think in probabilities”), but in reality, where the rubber meets the road, most traders don’t really accept uncertainty.
How do you know when you’ve truly accepted uncertainty? You’ll know, when you’ve embraced the randomness of probability (each trade or individual data point is a unique occurrence with a 50/50 chance, even in a skewed probability distribution). When you begin to truly embrace uncertainty you’ll notice one of or more of the following also occur; you won’t be thinking or worrying about it as much, you won’t be doing as much ‘mental P&L accounting’; and the symptoms of tick-itis will also remit.
I coach clients to not be attached to the outcome as one particular strategy to deal with uncertainty. And the good news is that when you begin to truly embrace uncertainty you also begin to create a positive feedback loop where realizing that its not worth being emotionally attached to any one trade, or even a series of trades; making it even easier to embrace the uncertainty. Non-attachment to outcomes helps one deal with uncertainty, and embracing uncertainty reinforces non-attachment to outcomes. That’s how it works, folks.
Think about this question for a moment:
When you put money in a slot machine and you lose, how do you feel? Most people don’t feel that bad. But when you bet your money on a trade and you lose, how do you feel? Most traders say they feel upset, angry, frustrated, ripped-off, even betrayed (betrayed by the market, betrayed by their method, or betrayed by the person who taught them the method).
So, what’s the difference between the slot machine and trading? In slots, there is no judgment or ego involved (the need to be right is greatly diminished). However, in trading it is 100% judgment (you might be ‘wrong’). In a trade, our ego, our judgment, our sense of self-worth and even our personal status in the eyes of others (e.g. trading partners, family, etc.) is susceptible to feeling assaulted for each tick away from our intended target. But in slots we become a robot. Go to a casino and walk by the slot machines; everyone is glazed over, practically in a hypnotic state as they automatically (brainlessly as my wife puts it) dump more coins into the machine, pressing the lever and not getting very upset for lack of a pay-out. No judgment is on the line, there is no possibility of being wrong….the slot player recognizes the situation for what it is, pure unadulterated randomness.
Trading is not random, but you must fully accept, beyond intellectual understanding, the randomness of probability.
Thanks, that was a good, really good illustration. Remember I asked you a question: how to embrace uncertainty on emotional level? Now I know what you meant. Everyone has experience with a slot machine (or lottery) so it is easy to relate to and I hope will be easy to apply
@Alex
Thanks. I wanted to use an example that people can relate to; something that makes sense beyond an intellectual understanding. The degree that one has problems ‘thinking in probabilities’ is typically in direct proportion to the difficulty one has handling uncertainty. Other factors play a role as well, but this tends to be true for many.
Andrew Menaker
For me there are 2 major problems- attachment to the outcome(I as many others hate to be wrong) and illusion of control. With your help I think I have managed to overcome the first part, not sure about the second problem yet: it is hard for me to imagine a slot machine that allows you to pull out your quarter when you feel you might lose…
@Alex
I’m glad to hear that this is helpful.
When you speak of control I’m not sure if you mean control of the situation (as in controlling the market or the slot machine) or control of yourself? The market will move in ways that disappoints you all the time, no way to avoid that. And such moves will often result in negative emotion, sometimes quite strong emotion. We can’t eliminate emotions. But you can learn to control your action, or your re-action to your emotion. You can’t get your money back from the slot machine (and likewise, you shouldn’t engage in a revenge or impulse trade to get your money back from the market). Learning to control your actions usually requires more then will-power (believe it or not…) it requires that you know yourself well and your internal emotional patterns….this takes time and practice….something I’ll be talking about in my upcoming webinar.
Andrew
I’ll be there, and thank you very much again Andrew
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