Have you ever, immediately after placing a trade, started worrying about it? Drawing from Dale Carnegie’s How to Stop Worrying and Start Living, this post guides traders to alleviate worry in their trading. Sounds good? Please read on.
The Book:
As the name suggests, “How to Stop Worrying and Start Living” is a book on how to reduce or eliminate worry in our everyday lives, which ultimately leads to a better life. It took several years to complete and was first published in 1948. The book offers many practical exercises and strategies for reducing worry, which remain applicable today, illustrated through real-life stories of how others have overcome this problem.
What is Worry and How can It Affect You?
Worry is the state we get ourselves into when we occupy our thoughts with real or potential problems. These thoughts are often repetitive and many times it is heightened in times of uncertainty.
Worry affects everyone differently. It can cause stress, anxiety, lack of sleep, irritability, anger, frustration, as well as other parts of a person’s well-being.
Bringing it Back to Trading:
What could make you worry in trading? I offer some possibilities below:
- A lack of knowledge.
- Stemming from the above, not having a clear trading plan / strategy.
- Taking on too much risk, often caused by a lack of knowledge or having unrealistic expectations.
- Trades that you need to work out because you have attached a certain meaning to them.
- The fear of being wrong or being unable to accept losses.
- Greed.
- When you trade with scared money.
- Struggling to deal with the uncertainty that comes with the markets.
- Wanting to predict the markets without any success.
Sounds familiar? I can add a lot more, but I’m sure you get the idea.
Advice from Dale Carnegie:
In How to Stop Worrying and Start Living, Dale Carnegie presents a formula to help you with worry, which he credits to Willis H. Carrier. In this section, I quote three steps – which comprise the formula – from the book, relating each back to trading.
Let’s consider a swing trader whose trades last from days to weeks. This trader tends to worry about taking losses.
Step 1:
Ask yourself, “What is the worst that can possibly happen if I can’t solve my problem?”
If this trader has a detailed trading plan, he / she should be able to answer this question easily for a single trade. Having on more than one trade at the same time must also be taken into account, because if he / she risk, let’s say, 1% per trade, having on 5 trades simultaneously, means the worst-case scenario becomes 5% (if all stop out). Then there is gap risk due to holding traders over night and weekends. This is very hard to put a number on, but a good idea is to factor it into the initial risk per trade, meaning you theoretically inflate your initial risk for each trade by some factor… it’s not perfect, but it’s a start.
These are the types of factors that need to be taken into consideration if you want to determine your worst-case scenario. Some you might be able to determine upfront. Others might be unforeseen… these you will have to account for as your trading progresses.
Step 2:
Prepare yourself mentally to accept the worst – if necessary.
Once you’ve determined the worst possible outcome – in this case, the maximum amount you can possibly lose, you have to mentally make peace and accept this as a real possibility. Remember, knowing your worst case should also help you deal better with taking losses on individual trades as they should be way less severe than your worst-case.
All this is easier said than done. Luckily, a lot of factors are in traders’ control when it comes to the max amount that they can lose in any given scenario. The rest is not up to the trader, this they must accept as a part of trading.
Also, accepting the worst-case scenario is not about giving up. Instead, it should be seen as the trader dealing with the fear of the unknown – the very thing that is making him / her worry.
Step 3:
Then calmly try to proceed to improve upon the worst – which you have already mentally agreed to accept.
Once you know and have accepted the worst-case scenario, you should be able to think more clearly, logically and rationally. This will allow you to improve on your situation, because the fear of losing doesn’t have an absolute grip on you.
This is even better when it comes to trading, because trading is not an once-off event. Trading is an ongoing endeavor with many areas in which you can always improve and get better. This is especially so if you commit to the following:
- Journal and review all you trades.
- Cultivate a long-term mindset.
- Persevere with a commitment to patience, discipline and hard work.
With the above in mind you will always and continuously improve your worst-case scenario of losses and accepting said worst-case scenario.
Finally:
The great thing about this is that you can apply this 3-step process in all parts of your trading that causes you to worry and stress. And not only in trading, but also in life, for which it was originally intended.
Thanks so much for reading. I hope this post served you in your trading. All the best.
Thanks and Regards,
Trading SOS SOS
