Fear of Being Wrong - Trading

You made a trade that went against you and you’ve been sitting with a loss on the books.  This was not supposed to happen!  There was no way it could work against you.  Decision point: Time to cut bait and remove this albatross from your neck.  Should feel relieved, right?  Instead, you feel remorseful and sad, as if a friend just died.   This trade was supposed to work out and now you’re stuck.  Instead of thinking about the next trade your head is not in a good place, you worry that any further trading will have the same negative outcome.  Your mind is completely twisted.  How can you ever make a trade when you are NOW convinced that next one won’t be a winner?

We’ve all been there, right?  But the fear of being wrong is a natural defensive response to emotional pain.  Along the spectrum of fear and greed we often find ourselves too fearful and worry about the future.  Nobody likes to be wrong but picking stocks, commodities, futures or options can be as much a guessing game as a hand of blackjack.  However, armed with good information, knowledge and tools we can cut down the odds of being wrong (doing your research and homework certainly helps).  But, with all the preparation a trade may still move against you! How do we reconcile this?

As an option trader, I expect to be wrong – a lot, and I’m okay with that.  In fact, I could lose 50-70% of the time and not even be too concerned.  Why?  Because losses are part of the game, and I accept it.  I will have my share of winners and losers, but right or wrong is not the main operative.  My winners may far outweigh the losers, and it only takes a big fat win to turn around your emotions – but you have to willing to take the next trade!

Heck, I’ve been wrong on a trade and made money, likewise I have been right on a trade lost money.  I used to fear being wrong, too.  In fact, there was a time when the pressure was so high that I broke my own risk management rules, trying to force a win or positive outcome.  We know how that ended, right?  Thankfully, I’ve changed my behavior and remain humble.  Being wrong is far different than being reckless.  Recognize that in order to win in trading you need to take some risk, each trade a separate event.

The more trades you take the higher probability that one will go awry.  It is simple math, when the outcome is binary (in this case, right or wrong).  I have never met anyone who has presented a perfect trading record to me over a sustained period of time (not even from a paper trading account).    Trading is not a game of perfect, and while we strive to be right we must accept that a correct outcome is not 100% guaranteed.  But don’t let it stop you – keep trading!  More importantly, LEARN from the trade, and learn about yourself in the process.

Mark Douglas’ ‘Trading in the Zone’ is one of my all time favorite books and touches every are of psychology surrounding trading.  Take a look at it.