Stuck in Fear-Based Trading: Mastering the Enemy Within

Articles on Trader Psychology by Rande Howell, Trader Psychologist




The Enemy Inside

There is a gremlin inside a trader’s head that keeps popping up at all the wrong times.  Just when you are almost there, when you are expecting to finally taste the sweetness of victory, the gremlin in you snatches success away from you again.  All that confidence suddenly comes crashing down, due to a blind spot in your awareness that stops you from seeing the enemy that arises when the money counts. You can nearly taste the new level of your potential that is within your grasp, but then you discover (yet again) that something is missing on your journey into trading mastery.  And there you are – stuck with considerable knowledge that cannot be delivered in the clutch.

Typically, traders deny the internal struggle aspect of trading and, consequently, they pay a heavy price for this omission.  Now, just to make sure we are on the same page regarding “The Enemy Inside”, let’s take a few common examples of when this gremlin casts seeds of self-doubt or over-confidence in your trading mind.  Have you ever hesitated to enter a trade that was a valid set-up?  If you have problems pulling the trigger, of course you have.  Do you remember your thoughts in the midst of trying to simply press the button on your mouse?  Self-doubt loomed over your mind like a dark cloud.  You ended up torn between fear of losing and the fear of missing out.  (This is when the internal struggle gets personal.)

Or have you ever chased a trade, only to find out that you walked into an ambush?  Do you remember the intoxication of the urgency to get into the trade?  That need to be right, to make things happen, and the thrill of the hunt when it overwhelmed a disciplined mind and forced a bad move on your part.  If you were not aware of your internal dialogue during such times, then you truly are blind to the impact of emotions and thoughts running amok in your mind, causing you to take regrettable action.  The gremlin, the enemy within, is alive and well in both fear-based decisions and the euphoria of over-confidence.  Either way, the gremlin owns you in both of these circumstances.

Here’s one last example of the enemy within.  Who among you has problems with FOMO (fear of missing out on profits)?  This is a huge problem in the trading community among those who have gotten their psychological entry problems under control.  When a trader finally sees that his trade is actually profitable, there ensues a pitched battle in the mind of whether to take those profits NOW (before they are taken away) or to give it a chance to reach your projected targets to exit.  Do you remember the angst?  Did you feel the fear and uncertainty?  How did you experience the powerful internal argument between getting out with a little profit vs. patiently waiting for the trade to hit targets?  The enemy within strikes again.  And again.

What Are You Going to Do About this Gremlin and Your Internal Struggle?

Have you had enough of this?  Nearly every trader experiences the same thing, but they keep it secret, hoping that it will magically disappear all on its own.  By all accounts, it doesn’t.  Instead of “fessing up” and courageously dealing with his/her fears head-on, the trader cloaks the problem in superficial talk about trading – thereby ignoring the problem.  And by keeping it secret, the trader gives this pattern (of not living up to potential) the enormous power to continue sabotaging the capacity to trade effectively on a consistent basis. 

It’s crazy, AND this is where traders stay stuck while their trading account continues to suffer.  Looking good is more important than being good.  Traders don’t talk about the hidden fears that drive poor trading because they want to maintain their rugged individualism and imagined toughness.  They want their talk to match up with their performance without internal change.  In truth, they hide behind the façade of rugged individualism, and in doing so, they effectively tie their hands behind their backs.  Consequently, they cannot fix the problem in their trading. 

It’s a vicious cycle that few figure out how to escape.  Nearly everybody is experiencing this very problem, but they won’t talk about it.  So they stay stuck in “almost there”.  By not learning how to face the discomfort of negative emotions, reactive and unproductive patterns of emotional response continue to dominate the trader’s mind when they engage uncertainty with real capital at risk.  After disrupting the trading mind, the enemy sinks back into the background, the shadows of the mind, and waits for another inopportune time to sabotage your trading mind – again, just when the money counts.

This is not something that is simply going to go away with experience.  In fact, the continued experience only cements the habit that you wish to change, because you are not changing the internal frame of reference.  It is an internal problem between the trader’s ears that has to change.  It is not the tools you bring to the game of trading that need to change.  It is the mind using the tools of trading that has to change.  This is the problem few traders want to solve.  Yet, it is the one that keeps the trader from achieving his or her potential.

The Three-Legged Stool of Trading

Why is it so important to deal with this gremlin (the enemy within)?  What can’t you just ignore it like everybody else is trying to do?  Ignoring or pretending not to see problems seems to work in other areas of your life – why not trading? 

Because there are three separate facets of trading that come together in the moment of executing a trade.  Platform.  Methodology.  And Psychology.  There is massive focus on platform and methodology in trading everywhere you look.  The way the industry talks about trading, you would think that having your platform operating smoothly and being able to manage risk by using a proven methodology would be all that is necessary for success in trading.  This is what most consumers of trader education swallow - hook, line, and sinker.  It all seems to work until the trader examines his or her trading account as a standard of evaluation.

Then, after a long period of unprofitable denial, they discover trader psychology.  Most training sidesteps the impact emotion and mind have on trading performance.  It almost seems that something must be wrong with the trader if they have to include emotional state management into a discussion of trading.  Yet when the dust settles, platform and methodology are useless if the trader cannot manage his emotions and keep his head straight in the heat of a trade. 

But the emphasis on platform and methodology helps everyone avoid experiencing the discomfort of the brain and mind engaging uncertainty.  And when the trader does not find success with a particular system, the trader moves on to another trainer, still seeking the outward formula for trading success.  This process goes on until the trader bleeds his capital dry or until he or she decides to take a deeper look at the problem.

Platform            Methodology            Psychology - is an integrated way of understanding successful trading.  If you are not developing the psychology that drives the function of platform or the risk management of methodology, you are missing a massive chunk of what is required to produce long-term, consistent success in trading.  Take your own experience into account.  Has having a solid platform and an effective methodology without developing the psychology of trading performance allowed you to achieve your goals in trading?  How much money has it cost you to ignore performance psychology?  Is it worth a little personal discomfort and self-honesty to solve this problem?  Until trading psychology is mastered, trading success will always maintain itself as a mirage – so close, yet so far away. 

 Taming the Beast Within

What is this gremlin and how do you awaken the “inner trader” in you that is poised and emotionally put together – the one that doesn’t get rattled when in stressful moments of trading?  To answer this two pronged question, first we need to look at the role of emotion in trading performance.

The major thing that a smart student of trading has to grasp is that the brain and mind that you bring to trading is not suited for the rigors of trading – no matter how much mind control you attempt to bring into trade management.  Your brain developed over eons of time for short-term survival.  It is mandated to control outcome, to control environment, and to keep safe.  It did this by developing the famous fight/flight response where the organism (that’s you the trader) either controls threats by aggression (chasing the trade, revenge trading, or forcing set-ups) or by avoidance (fear of losing, fear of entry, FOMO, etc). 

Any time the brain experiences uncertainty and tangible risk, the survival instinct of the fight/flight response is activated and your rational mind is hijacked for the duration of the perceived threat.  And all the actions necessary for taking action in trading are considered threatening to the emotional survival brain (often referred to as cave man brain) – so you can see the predicament. 

Part of you, when exposed to the threat of uncertainty, wants the safety of short-term survival.  This is called the survival instinct.  As an example, not getting in a trade due to fear does stop you from experiencing the potential loss of a trade.  The emotional brain, in its way of perceiving, has done a good thing in saving you in the short-term and then rewards itself with a shot of dopamine from the reward centers of the brain.  This cements the behavior into emotional pattern.  And before you know it, the trader has a fear of pulling the trigger every time the uncertainty of whether the trade will be a winner or loser is a real and present danger. 

This primal fear aspect of the survival instinct is represented in your mind by the sense of the internal struggle you have in making decisions under the duress of pressure.  All traders experience this internal struggle when they are exposed to uncertainty and real risk creates a dialogue in their mind.  This dialogue is between your self-doubt (represented by the fear of loss) and the critical voice dwelling as a fixture in your trading mind. 

This is the internal dialogue of the enemy within.  It lives in every trader.  Most ignore, deny, or otherwise avoid dealing with it.  This only gives it enormous advantage.  But not acknowledging it, you do not see it in operation as you trade and engage both uncertainty and risk.  This way, you only notice the internal dialogue of your fear when it has already sabotaged your trading mind. 

The first step in learning to master it is to recognize it in operation BEFORE it hijacks the trading mind.  It is this willingness to develop self-knowledge of the darker aspects of your mind that is the fork in the road.  Traders who refuse to observe the destructive forces that dwell in the mind are doomed by their self-created ignorance.  The survival instinct of your biology will continue to trigger and hijack the trading mind when engaging uncertainty and risk.  But by turning toward the discomfort of recognizing that the enemy really does live within you, you take a step toward mastery of the self that trades.   It is this self-mastery that is needed to rebuild the brain/mind from the survival-based strategy that it became through the pressures of evolution into the probability-based mind needed to manage the environment of uncertainty found in trading.

This is when platform, methodology, and the trading mind begin functioning as a single unit.  It is also where the trader moves from the fantasy-driven mirage of “almost there” to a re-developed mind suited for the management of probability.  This is the mind required for successful trading.
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