In today’s episode, we are going to be discussing how to use uncertainty as an opportunity to get outside of your comfort zone and grab your life and trading by the horns.
As a species, humans hate uncertainty! In fact, all you have to do is look back to our prehistoric ancestors as proof!
Think about a caveman leaving the safety of the cave (which is the “certain”) and going out to forage for food. If the caveman came across a large and fierce animal that they’ve never seen before, the immediate reaction would be to turn and go the other way because they were uncertain if this creature would attack them and if their lives were potentially at risk.
The same holds true when you are trading because your subconscious brain cannot distinguish between the perceived danger to you caused by life or death situations or the fear of losing a trade or even the fear of being wrong.
Uncertainty makes us worry, it provides stress and anxiety simply because of all of the unknown possibilities of the things that can go wrong – which generally results in people viewing uncertainty as a bad thing.
But where does that get you? Stuck in the fear of the unknown!
Uncertainty is can be an opportunity or an obstacle and our goal today is to help you see it as an opportunity!
Pulling Back the Curtain on Uncertainty
Uncertainty is defined as:
- The state of being uncertain
- Something that is uncertain or causes one to feel uncertain
There are some things that are inherently uncertain and then other things that make us feel uncertain. Being able to separate and know the difference between the two is going to be helpful.
Facts are verifiable and observable, whereas states are interpretations of facts.
There are many different ways to interpret facts and we cannot prevent ourselves from interpreting everything that happens around us. However, we can become aware of our interpretations.
Two people can see the exact same event and interpret it as uncertain OR certain.
Then, we can begin to have a choice in how we interpret. This can have a lot to do with whether we live in a state of certainty, uncertainty, or somewhere in between.
The problem is the brain processes facts and beliefs through the same network, making it difficult to distinguish between the two.
- This is why we all can stare a fact in the face and still deny it. The truth is malleable to the brain
If you have a bias towards negativity, your brain will tend to interpret facts according to the worst-case scenario.
Your interpretation of uncertainty creates thoughts, which then create reality.
If you choose to interpret uncertainty and respond with fear, you activate fight or flight and it shuts off your prefrontal cortex, all rational thought ceases.
The problem is many facts are not always uncertain, but we make them so and panic about the worst-case scenario, which is just one of many multiple options.
The Role of Uncertainty in Trading
- As traders, anything that occurs outside of our control can cost us money and weigh on our psychology
- Regardless of trading experience, anything can and will happen in the markets
- Uncertainty usually creeps up for traders in the form of hesitating to take legitimate trading setups when they occur
- Traders that gravitate towards trading signals and external social mediums like Twitter and FinTwits are looking to outsource their uncertainty
- Uncertainty causes an internal conflict between the subconscious brain (which senses danger and triggers your fear response) while the logical brain is saying “ I want to be a trader” – this is why you hesitate to take your trading setups
Strategies to Help Traders Deal with Uncertainty
- Be very clear on your trading setup – make it as binary as possible
- Don’t overcomplicate your strategy
- Reframe the way you look at trading by affirming that your job as a trader is to follow the trading plan and not focus on your P/L
- Understand that you will never totally understand what is going to happen next and that you don’t actually need to!
- Build positive attitudes towards different market conditions that might arise and the different challenges that trading them brings
- Enjoying this podcast? We’d appreciate if you can drop us a rating and review on iTunes here
- Connect with our community online: Trade Pro Academy
- Catch up with our earlier episodes: Mind Over Markets Podcast
- Quotes from Rande Howell over at Traders State of Mind