Embracing Doubt: Understanding The Essential Role Of Uncertainty In Trading Performance Psychology
Chicago, IL
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July 09, 2024 08:35 AM Eastern Daylight Time
By Gerelyn Terzo, Benzinga
When you trade futures and options, you may feel as though the weight of the world is on your shoulders. Depending on your buying power, one wrong move could cost you millions of dollars. At the very least, it will cost you something. However, no matter how many trades you make, or the level of success you attain, you will never completely be able to escape feelings of uncertainty.
Uncertainty is a part of trading. There are good bets and bad bets. As a trader, you will always experience some level of doubt associated with every single trade. If you’re new to futures and options, you may even doubt that you can make profits at all. However, rather than fighting this doubt, learning how to embrace it can help you eventually control it and use it to your advantage.
Even the most sophisticated traders can feel doubt when they trade, especially when they’re trading complex contracts like options and futures. A certain amount of risk is inherent with each trade, and it must be managed, while also managing outside forces like volatility, time and margin requirements.
What experienced traders know that you don’t could cost you. The sooner you become comfortable with doubt, understanding that it is a completely normal part of the process, the sooner you’ll recognize it for what it is and stick with your original trading plan.
Futures Broker EdgeClear is dedicated to bringing users to their highest trading and investment potential by harnessing the decades of industry experience that its leadership team holds. By combining their technical and practical trading experiences, the EdgeClear team is able to provide traders with a more sustainable trading journey. Below, we share insights from the EdgeClear team to help you manage uncertainty.
Understanding Performance Psychology
The first step to managing doubt is understanding that it is a component of performance psychology. This has to do with the psychological aspects of trading, not least emotions, that can sway a trader’s decisions and influence their results. Performance psychology examines the way emotions like doubt can affect your trades and profits.
When the stakes are high and the pressure is on, the last thing you want as a trader is for doubt to paralyze you. While it will surely creep in, performance psychology will allow you to maintain your focus in your decision-making process to increase your chances for success.
For example, one psychological technique is to develop what’s known as behavioral alpha, which involves silencing the mental biases like doubt that can interfere with your decisions as a trader.
You can achieve behavioral alpha by examining your decisions over a period of time — say 30-60 days — and categorizing them into relevant buckets like timing, size, scaling, adjusting, etc. Then determine how decisions associated with each bucket ultimately affected your performance, recognizing any mental mistakes that might have occurred as a result of mishandling emotions like doubt. Make the necessary adjustments so that you can overcome these weaknesses next time.
The Law Of Large Numbers
Uncertainty rears its head both in a trader’s mind and in the markets, as there’s no crystal ball guaranteeing future performance. A phenomenon that will help you understand the role of uncertainty in trading is the law of large numbers, which is akin to the law of averages.
Essentially, it suggests that when flipping a coin multiple times, the results will be close to evenly split between landing on heads or tails. Or as NBA phenomenon Michael Jordan shared, by missing over 9,000 shots in his career, failing over and over again is the very reason he succeeded.
In trading, the law of large numbers can be applied similarly. It suggests that even if you’re wrong much of the time, you can still be a successful and profitable trader because it’s not a zero-sum game.
Traders are playing a losing game if they believe they will always be able to experience certainty in the short term. It’s a mathematical impossibility. Once a trader learns how to stick with a trading plan and not let uncertainty knock them off their game, it can increase the probability of achieving the desired results, understanding that feelings of doubt and uncertainty are necessary for success.
Humans are wired to amplify the negatives or their losses more than celebrate wins. This means traders have a biological disposition to associate feelings of uncertainty with fear or losing. By focusing more on the positives, and remaining grateful for all the good decisions, a trader is less likely to let doubt take the driver’s seat.
Discovering The EdgeClear Difference
While traders must learn to become comfortable with uncertainty, that doesn’t equate to needing to always be in the dark. Instead, they can harness tools and innovative technologies like those offered by Chicago-based EdgeClear to help them navigate the markets with greater precision.
Through products like EdgeWatch, a dedicated analytics companion, you can harness actionable insights through unfiltered tick data to elevate your trading game. EdgeClear offers support through an experienced team that is responsive whenever you need it.
As a trader, you will feel uncertainty. But with EdgeClear, you won’t have to face it alone.
Featured photo by geralt on Pixabay.
A forward-thinking futures broker. Led by industry experts who understand the complexities of trading, Edge Clear combines the best of technology, service and risk control.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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