Adaptation and Fear

This was originally going to be two separate pieces but part way through they seemed to become more and more related.They became more related because of the intertwined nature of fear and adaptation. Fear is often a failure to adapt to a given circumstance and often adaptation is forced upon through fear.

What began me thinking about this piece occurred whilst standing in the chemist at the weekend, whilst waiting for a prescription to be filled and being amazed by the amount of crap that chemists seems to have to stock I overheard a conversation. This conversation lurched between two languages Mandarin and English. Standing out the check out was your archetypal Chinese little old lady who was deep in conversation with the teenage girl who was ringing up her purchases. There is nothing unusual about this except the girl she was talking to would have been no more than 17 and would not have looked out of place in a 1980’s Surf Dive N Ski calendar. As with most conversations it swung between the two languages when one proved to be inadequate for getting an idea across and the old lady was clearly tickled pink that someone so young had taken the time to learn her language.

This young girl had clearly realised something that no conservative politician in Australia understands – Australia is not an island off the coast of England. Despite what people think it is big island anchored at the bottom of South East Asia and a good argument could be made for saying the top bit is geographically part of Asia. This is an example of adaption. Instead of learning a largely useless language such as French the mastery of which only enables you to sound like a pompous twat when you have sat through yet another completely incomprehensible French film and with which to impress your friends who really could give a shit. This young girl took on a language that looks more to the future than the past. But adaptation in most doesn’t occur because of fear. People don’t adapt because it requires you to let go of what you thought you knew and more towards something that is uncertain and ill-defined and if there is one thing that humans hate it is uncertainty. Uncertainty generates anxiety and anxiety is tiny step away from fear. Best to remain anchored in the present looking backwards than to look to an ill defined future.

Fear is a very effective and powerful enemy of the trader it is also not harmless as it has the capacity to overwhelm us. In trading we tend to run into a series of somewhat instinctive fears. My interest in this as a topic has been piqued by the current Mentor Program. Each program tends to have its own unique characteristic which in itself is an interesting phenomena.In one of the exercises that they have done to date the overwhelming emotion that shows through is one of fear and is is demonstrated in a fear of losing money. When faced with a winning position the most common idea presented is to take profit and run away – this is a sign of fear and it is the exact opposite of what you should do. But this strategy is simply a reflection of the tree fears listed below.

1. Fear of loss.
2. Fear of pain.
3. Fear of the unknown.

These are not uncommon emotions for the trader and everyone who has even dabble in markets understands that they can appear at any moment. To some extent they are justified in that we are taking a leap into the unknown and this quite naturally causes anxiety and tension. Despite what the Gann wankers and so called astro traders so we cannot predict where markets are going so we have to surrender to this uncertainty. Doing so is quite difficult particularly when you lack experience.

But the interesting this is that fear is generated in anticipation of these events.For the trader it doesn’t really exist in the present. However, our psyche doesn’t know this and it cannot distinguish between the fear of positions going the wrong direction and the ancestral fear we had of predators. To our minds they are one and the same.However fear does not exist in the present it is an anticipatory response. Traders create fear in their imagination either by looking back to previous events or by prequalifying the present fear by thinking forward.

My observation has been that fear enters the traders life in two ways.

The most debilitating is probably chronic fear  which you would most probably term worry or low level anxiety. My observation of this in my own career has been that it is of a relatively low intensity spread out over an extended period of time. It permeates all thoughts and actions on an everyday basis.

Chronic fear is a motivation eater and will stifle attempts to move forward. Some of the things that traders worry about are important, however most are not and the majority are out of control of the trader. The prime source of worry for the trader is the direction of price this is clearly out of the control of most traders. The chronic nature of worry or anxiety is that it does a good job of lowering your overall performance in both good and bad times. It seems somewhat strange to say that traders worry about good times. But there is often a nagging doubt when you close a position that you might have done so preemptively and you might have left something on the table. Contrary to popular belief trading is not a charity and you should leave nothing for anyone else.

Part of my solution to this problem has been to accept that that being human comes with certain foibles and the occasional bout of anxiety is one of them. They are part of the process and acceptance is a process of adaptation. Traders also need to learn that perfection is the enemy of excellence. If you are seeking every trade to be perfect and for each one to generate a life changing profit then you are going to be constantly disappointed.

Intriguingly acute fear doesn’t seem to have the impact upon me that chronic fear has. I would characterise acute fear as short term, intense and leading to an inability to act. This is the dreaded failure to pull the trigger this can be either a failure to take an opportunity leading to a potential loss of future profit or causing the trader not to engage a stop loss resulting in a catastrophic loss. This is classic deer in the headlights material.

All traders face a moment of truth but the failure to act is an anticipatory reflex. The trader is anticipating a negative outcome to the action that is yet to be taken.

Anxiety only exists in the past and the future.

All traders feel anxiety it is natural markets are unstructured and traders can only work with probable outcomes. Any trader who says they do not feel anxiety at some stage during the trading process is a liar or a fool both are equally dangerous.

All movement forward is a process of adaptation because the future is generally always different to today. But without change all your tomorrows will be exactly the same as your yesterdays.

PS: For anyone who wonders about the future of humanity given the seemingly overly narcissistic screen obsessed nature of the current crop of young people consider this. I happened to go back into the shopping centre where my observation of a bilingual conversation got me thinking and saw our young check out girl having lunch and whilst having lunch she was reading a book. Will wonders never cease.