(10/31/23) Trading Is a Mental Game: How to Win It

No matter who you are or what you do for a living, we are all victims of our fears, states Bob Lang of ExplosiveOptions.net.

This is especially true for traders and investors because trading is a mental game more than anything else. So how do you overcome those fears, even when it seems like the cards are stacked against you?

First, acknowledge that you are scared of the unknown, and this is why trading can be such a difficult task. The markets could be riding a strong bull trend, but you are still trading against numerous uncertainties. If you let fear guide you, it will be more difficult to manage your trades and portfolio. Fear of loss is real, and I have seen it ruin many traders.

What Is Fear of Loss?

In his book, Trading in the Zone, the late Mark Douglas writes that the fear of losing money is one of the four main fears traders and investors have. This fear is compounded by irrational decision-making, such as holding onto a losing stock for too long. When a trader’s capital is reduced due to poor decision-making, negligence or simply taking risks, they attempt to recover their losses—quickly.

It is not easy to overcome the fear of loss in trading. When you lose money, it is common to start worrying that you will never have a chance at redemption. Thoughts spiral, and eventually, you are consumed with worry about losing out on future trades and losing even more money.

We’ve all been there before. Even the most seasoned investor can be scared out of his socks if the uncertainties stack up too high.

Trading Is a Mental Game

Let’s look at how this mental game plays out in real life.

In 2022, stock markets were down sharply, and few other asset classes performed well. Many people lost money in their savings accounts, investments, 401Ks, and trading accounts. And there was nothing we could do about it.

As we turned the calendar to 2023, many people wondered if we would have another down year—or if we might see a recovery. There were plenty of certainties heading into 2023, none of them good: continued high inflation and a very aggressive and restrictive monetary policy put in place by the Fed. Could stocks rise in that challenging environment?

We knew that higher rates would be negative for equity and fixed-income markets. Even the most experienced investors wondered how to make up for losses from 2022. It was a very unsettling time, and we had to learn to live with it.

My Advice When Faced With Uncertainties

So here’s my advice when we’re faced with numerous uncertainties: