Thinking about the markets from the market’s perspective can remove fear from the equation by creating a belief that down markets are a necessary part of market behaviour in the future and just as tradable as low market risk periods.
If you think from the paradigm of your business, your job objectives or from your societal perspectives, you will have a core belief that all down markets are bad. Imagine if employers were paid an inconsistent amount of salary every month and some months you even had to pay some in! People in that situation would not be motivated employees—but they might be better traders, as they would be trained to endure drawdown. “Winners are grinners”, the saying goes. Have you met a winner who has not been a loser at some stage—even though they rarely talk about losses? Losing teaches you how to win. Losing puts winning into context, just as pain puts pleasure in to context; hate puts love into context and hot puts cold into context.
Imagine if people went to the football looking forward to their team losing!!! Reading this statement will seem foreign because people have a core belief that the reason they go to the football is to enjoy the feeling of being there for a win. Of course, this sets people up for feeling the total opposite if their team loses. Win and you feel happy. Lose and you feel unhappy ! What did you do? Nothing. The team did it all!! The outcome of an event over which you have absolutely no control has defined how you feel. If you changed your paradigm to that of being at the football to appreciate the high level of skill by both teams, witnessing a close contest, soaking up the atmosphere and being amongst the buzz, then perhaps you could be happy, regardless of the outcome. This is a simple example showing that how we think can define how we feel. The same event takes place; the only change is how we perceive the event.
Remember what we said about thinking from the market’s perspective? You think in terms of probabilities by thinking in terms of the probabilities of your edge. This becomes the focus, not how much money you have in your account. That is, you detach from the money and attach to the process to execute your edge. Achieve your edge and the money will flow. Focus on execution to achieve your edge and your account will take care of itself. Knowing that you have an edge researched in the market environment with a positive mathematical expectation means that you are thinking in probabilities. Then, you can simply focus on the process of execution.
Thinking this way can define away and eliminate:
• The fear of losing
• Feeling despair, frustration and anger during drawdown periods
• Living with ongoing fear of the prolonged bear market
It is our responsibility to ensure that we are in the best frame of mind to execute the next trade.