Thursday, June 26, 2008

The Fear of Missing is the Fear of Dissing

A reader recently asked me about a problem he was having with "the fear of missing". It appears that he front-runs his setups, getting into trades before he gets proper signals. This fear of missing opportunity has hurt his performance, as it has placed his capital at risk during periods of low opportunity.

At the very least, the fear of missing signals can result in poor execution. Instead of buying on pullbacks or selling on bounces, you chase the market higher or lower. The several ticks of retracement typically incurred add up to quite an opportunity cost over time.

I'll be addressing the fear of missing trading opportunities in detail in my new book. (One chapter will be devoted to the "ten most common problems" of trading psychology and how to deal with them using psychodynamic, cognitive, behavioral, and solution-focused coaching methods). For now, however, let me focus on one aspect of this fear: the fear of oneself.

Let's say you *do* miss a golden trading opportunity. What will happen? Fear is a response to perceived danger. Where's the danger? What's the threat?

Very, very often the consequence of a perceived missed opportunity is a bout of angry thinking turned inward. After missing the good trade, the trader launches into self-blaming and a beating up process that mixes guilt with self-directed hostility. "How could you be so stupid?" and "Look how much money you could have made!" are among the common self-recriminations.

It is in this context that the fear of missing is really a fear of one's own negative thinking process.

Let's face it: we *always* miss potential opportunity. If you don't hold trades overnight, you miss possible opportunity. If you don't trade your maximum size, you miss potential opportunity. The reasonable trader knows that it's not about taking every conceivable opportunity: that would be impossible. Rather, it's about limiting your risk, while taking advantage of the best opportunities.

But if the result of missing trades is going to be an avalanche of self-criticism, the danger is not financial risk, but the risk of feeling worse about yourself.

If you don't have a negative, self-critical thought process, there's nothing to fear in missing. We always miss the very top and bottom ticks; we always are away from the screen when something is happening. No, it's not about the markets. Most often, the fear of missing is the fear of dissing oneself. The links below, as well as the chapter on cognitive techniques from my Enhancing Trader Performance book, should be helpful in dealing with this problem.


Stilling Negative Thoughts

Breaking Patterns of Frustration in Trading

Trading With Emotional Intelligence