Avoiding the vague

A significant area of trading psychology relates to the influence of trading instincts. It’s those feelings or gut intuition a trader gets, driving their execution of trades in a particular direction. Common perception is that those instincts are acquired over time, as one gains more experience and relevant knowledge.

Trading instincts are themselves categorised into three groups, namely sensory derived bias, avoiding the vague, and tangibility of anticipation. Here we’ll be discussing avoiding the vague, an interesting behaviour that extends beyond the scope of trading and into daily life

Avoiding the vague essentially refers to avoiding the unknown. It relates to that fear one has of the unknown, thereby hindering action. It’s holding back on taking a decision because of the uncertainty that surrounds potential consequences.

In the world of trading, this angst may be to do with incurring unexpected losses. And this is a very valid fear indeed if one considers the high potential for losing capital in the process of entering and/or exiting trades.

Fearing the unknown is particularly prevalent amongst rookie traders who are still learning the ropes. This stems from a lack of experience and limited understanding of how financial markets operate.

In the case of a veteran trader, the fear is likely to be less common due to their expertise and years long practice. But it’s not to say that it doesn’t exist.

Mitigating the fear of the unknown

As we’ve already mentioned, there are various reasons for a trader to experience this avoidance of the vague.

As with any new activity, knowledge is key. Without it, one is operating blind, exasperating anxiety and uncertainty around unanticipated outcomes.

One of the ways of overcoming these feelings is to engage in some form of trading related education or learning.

By acquiring information consistently, you’ll be better able to understand the markets and the factors impacting them.

In addition to conventional learning via blogs, books, guides, seminars, or webinars, a trader should also monitor economic news and events.

Bias is a complicated monster in that it can become so ingrained that it forms the underlying basis for beliefs or attitudes that may lack rationale.

Bias also leads to a resistance to change, resulting in financial decisions routed in opinion rather than fact.

In the context of trading, a trader may choose to blindly follow one source of information or news source, unwilling to consider other perspectives or conduct independent research.

This potentially risks narrow-minded decision making and overlooking valuable insights.

Everybody has a level of risk they’re willing to tolerate.

In trading, every trader has a risk tolerance that serves as the underlying basis for trade decisions.

The risk they’re willing to incur is usually aligned with their budget, i.e., how much money they’re prepared to lose.

Sometimes this fear of loss may become debilitating, however.

So much so in fact that the sheer notion of losing money hinders the trader from making any type of decisions, leading to missed trading opportunities.

Lack of trading related knowledge

As with any new activity, knowledge is key. Without it, one is operating blind, exasperating anxiety and uncertainty around unanticipated outcomes. One of the ways of overcoming these feelings is to engage in some form of trading related education or learning. By acquiring information consistently, you’ll be better able to understand the markets and the factors impacting them. In addition to conventional learning via blogs, books, guides, seminars, or webinars, a trader should also monitor economic news and events.

Inherent bias

Bias is a complicated monster in that it can become so ingrained that it forms the underlying basis for beliefs or attitudes that may lack rationale. Bias also leads to a resistance to change, resulting in financial decisions routed in opinion rather than fact. In the context of trading, a trader may choose to blindly follow one source of information or news source, unwilling to consider other perspectives or conduct independent research. This potentially risks narrow-minded decision making and overlooking valuable insights.

Fear of loss

Everybody has a level of risk they’re willing to tolerate. In trading, every trader has a risk tolerance that serves as the underlying basis for trade decisions. The risk they’re willing to incur is usually aligned with their budget, i.e., how much money they’re prepared to lose. Sometimes this fear of loss may become debilitating, however. So much so in fact that the sheer notion of losing money hinders the trader from making any type of decisions, leading to missed trading opportunities.