Finance and Forex Trading Forum

Anonymous · Guest

The Ugliest Word in Trading and Investing

By D.R. Barton, Jr. of International Institute of Trading Mastery and Dr. Van Tharp the Traders Coach.

Click here for Dr. Van Tharps 2008 USA and International Trading Workshops Schedule

"Maturity of mind is the capacity to endure uncertainty." John Finley

There is one concept that is so powerful that it makes every trader and investor, from the haggard professional, right down to the wet-behind-the-ears newbie tremble in their Crocs.

The same word strikes fear in the hearts of engineers, doctors, soldiers, scientists, ball players, weather forecasters and even lawyers.

It is at the heart of every discomfort you've ever felt when trading.

It is UNCERTAINTY.

Uncertainty is the thing that we, as humans, are least equipped to deal with. And without a doubt, the one constant in every good or great trader that I've worked with is their ability to deal with uncertainty. The good news for all of us is this: there are many useful (i.e., successful) ways to deal with uncertainty and the havoc that it brings into the world of trading.

Why Uncertainty Is So Central

The markets can be characterized in many different ways. One of the most useful ways that I've found is to understand the markets as the reflection of mass psychology. A concept that I've coined is this:

"The market is not a problem to be solved; it is psychology to be understood."

If I approach the markets in an effort to evoke "scientific certainty," as one e-mailer put it, or to solve a mathematical equation, I'm setting myself up for disappointment. The nature of the market continues to change, and it defies any effort to put it in a box.

It's much like understanding the actions of another person. Even with my closest friends, the best I can do is to understand their tendencies, what they are likely to do in any given circumstance. And how they react to the exact same stimulus may vary from time to time based on their current emotional state or other input that I can't discern at the time.

Uncertainty is so important because it is perhaps the central controlling concept in our decision making process. The greater the uncertainty, the tougher the decision; as uncertainty is removed, decisions become much simpler.

Over the next few weeks we're going to look at how traders deal with uncertainty and some useful tools that you can use to improve your trading.

We will look at quantifying uncertainty, ignoring it, transferring it and living with it. And I would love to hear your stories on dealing with uncertainty. If you've had an experience dealing with uncertainty that provided a great learning experience, a vexing question, or just a good belly laugh, please forward it to me at drbarton@iitm.com . Let me know if I may use the story (either anonymously or credited) in a future article.

Good and good trading mentoring with the traders coach, Dr. Van Tharp!