Overcoming the Fear of Loss: 5 Steps to Get Unstuck

The Entry Points

Stevie Swai

Trader Scott and I were talking just last night about the time my trading came to an abrupt halt and my account started ‘trending sideways’ so to say. I wasn’t winning nor losing, I was simply stuck in a rut. After a couple of really profitable months, I made a string of losing trades which greatly affected my confidence and instilled a lot of fear about losing even more of my hard earned profits. I allowed my fear of losing to outweigh my desire to win which actually made me lose more thus contributing to even more psychological angst.

I guess it wouldn’t have been so bad if I didn’t rely on trading as my only source of income, but I do, so using my profits to pay bills and live on from an account that’s trending sideways further exacerbated the problem. I need to see daily growth, not daily depletion, which is what started happening due to my fear of losing. It’s interesting how my fear of losing just created more loss.

And poor Trader Scott, my wonderfully patient mentor. I don’t know how he found so much grace to deal with my emotional ups and downs for weeks on end. Thank God he did though and with a little tough love, his words and support got me through as I worked on my mindset to get unstuck from my rut.

This got me to thinking about others who may be having the same experience, those of you who have started your trading journey and may have hit a wall or are facing the fear of losing more money.

I have always said that I’ll take Heaven or Hell, I just don’t want to be in limbo. Limbo, non-movement, is the ultimate clamp on freedom. There’s no worse place to be, especially when you’re trading. Making mistakes and losing is part of the learning process, so as long as you’re getting something out of the decision you’ve made, like a good lesson learned, it is worth making the mistake. At least you moved which always sets up another play.

And by moving, even if it’s a bad move, a flow of energy is released which frees up our psychology a bit. For example, on Friday, I went against my better judgement and got into a trade I should have never entered. I sat in it for 10 minutes and knew it wasn’t going anywhere because there was no ‘set up’. I was down $58 and decided to get out because sitting in something all day just to watch it trend sideways is not a good enough reason for trying to win back $58 dollars. So just cutting my loses quickly and moving on to another trade with a ‘set up’ more than made up for the $58, and put a nice profit to boot in my pocket.

So the point is to simply keep moving and don’t let the fear of losing paralyze you. I found the article below to be quite inspirational. It’s not so much geared toward trading as it is toward life in general, but it can certainly be applied to us traders. I hope you enjoy it.

Just remember that we are here for you and we want to hear from you. We want to hear about your trades, whether they are profitable or not. We want to help you over those bumps in the road and help you out of the potholes you may get stuck in so please don’t hesitate to ask for help.

 

By Lori Deschene

“Death is not the greatest loss in life. The greatest loss is what dies inside us while we live.” ~Norman Cousins

Of all the things that scare us, loss can seem like the most terrifying. At times, I’ve thought about it with such dread that it’s felt overwhelming.

Whenever I quit a job I hated in that past, I felt stuck between two loss-related fears: the fear of losing my passion by staying, and the fear of losing my financial security if I walked away and didn’t find something else.

Whenever I considered leaving a bad relationship, I felt paralyzed by two similar fears: the fear of losing my chance at fulfillment by staying, and the fear of losing the comfort of companionship if I walked away and didn’t find someone else.

I haven’t only worried about the potential for loss as it pertains to big decisions. I’ve worried about losing people I love, pleasures I enjoy, and circumstances that feel comfortable. I’ve dreaded losing my youth, my health, and my sense of identity.

And then there are the everyday losses: If I don’t do this, will I lose someone’s respect? If I don’t do that, will I lose my own? If I don’t go, will I lose some as of yet unknown opportunity? If I don’t stay, will I lose my sense of comfort and security?

I might even go so far to say that whenever I fear something, loss is at the root of it. I suspect I’m not alone.

Loss Aversion

Economists have identified loss aversion as a major factor in financial decision-making, in that most people would rather avoid losing money than acquire more. The psychological impact of losing is thought to be twice as powerful as the pleasure of gaining.

According to Ori and Ram Brafman, authors of Sway: The Irresistible Pull of Irrational Behavior, we often make poor decisions simply to avoid loss.

One example they offer involves Captain Jacob van Zanten, once a well-established and respected pilot who headed the safety program for KLM—a Dutch airline marketed as “the people who make punctuality possible.”

In the spring of 1977, on a flight from Amsterdam to the Canary Islands, van Zanten learned that a terrorist bomb had exploded at Las Palmas airport, where he was supposed to land. Along with a number of other flights, his was diverted to a smaller airport 50 miles away.

After landing the plane safely, he started worrying about a number of problems that would result from failing to take off soon.

The government had instituted a mandated rest period between flights for pilots, which meant he could be imprisoned if he took off after a certain hour. Staying overnight meant putting the passengers up in a hotel, which would be costly for the airline.

Waiting much longer meant losing time, money, and his reputation for punctuality.

Ultimately, van Zanten took off in a thick fog—despite knowing the risks, and not receiving take off clearance—because it seemed like a now-or-never moment. He didn’t see the Pan Am 747 across the runway until it was too late—and 584 people died as a result.

The pressures and potential consequences of lost time piled up, and van Zanten acted against his better judgment, hoping to evade them.

Loss Aversion in Everyday Life

We all make irrational decisions everyday simply to avoid losing.

We buy things we don’t need (or groupons we won’t use) because a sale’s ending soon. We grab an item of clothing because there’s only one left and someone else might take it—even if we aren’t really sure we want it. We keep gym memberships we aren’t actively using if we know we won’t be able to get that same rate again.

And then there are the bigger things.

We turn down opportunities that could be rewarding to avoid the risk of losing something else that feels good enough. We use our time in ways that feel unfulfilling because we fear losing time on a decision that might be wrong. And we fail to invest in ourselves, even though we’re aching to expand, because it can feel painful to part with our money.

I waited months to create my Tiny Wisdom eBooks because it would require a large investment. If I hadn’t taken that risk, I wouldn’t have earned the money I’m now using to revamp the site, and take acting classes—something I’ve wanted to do for years.

We can’t ever know for certain that a risk will payoff, but we can choose to recognize when the fear of loss motivates our actions, and make a conscious effort to overcome it. If we don’t, it can severely limit our potential for growth, happiness, and fulfillment.

Overcoming the Fear of Loss

I first recognized this fear, and it’s associated irrational thoughts and behaviors, when I felt devastated after a man I wanted to break up with broke up with me first.

I realized I didn’t make the decision myself because I preferred a bad relationship to being single. I also understood that I would have been far less affected if I’d made the choice to walk away, and that my feelings completely transformed because I felt out of control—like I lost something, and it wasn’t my choice.

Since then, I’ve developed a little system for identifying this fear when it takes hold—and a few practices for overcoming it so that it doesn’t overcome me.

1. Ask yourself, “What am I scared of losing?”

This may seem like an obvious question, but I’ve learned that it’s all too easy to go through our days, making choices, without recognizing the underlying feelings that motivate them.

Whenever you have a choice to make, recognize in what way you’re motivated by the fear of losing something, whether it’s comfort, security, control, money, companionship, or something else.

Once you understand what you’re scared of losing, you can…

2. Ascertain if you’re seeing the whole picture.

There was a time when I worked 60+ hours/week to hold onto a job I didn’t even want. I was the last remaining US employee after a massive layoff, but I didn’t feel ready to lose that job.

After several months of working long hours from home, I realized I’d never feel ready. It wasn’t until I finally got laid off that I started planning for this site.

My logic was faulty—that it was best to stay with the sure thing, because I wasn’t ready to do something else—because the reality was that I needed the time and space to figure out that something else.

In other words, loss was necessary to set me up for gain; it wasn’t the other way around.

If you’re making a decision, or avoiding making a decision, based on the fear of what you might lose, ask yourself if you’re losing more by not doing what you really want to do.

When you attempt to see beyond the fear, you’re better able to recognize if you’re keeping yourself stuck—and if you’d benefit from letting go of what you think you need.

3. Use loss aversion as motivation to pursue what you really want. 

In a post on Money Ning, Emily Guy Birken suggests we can benefit from the fear of loss by charting our progress toward a goal. Just as we don’t want to lose time and money, we don’t want to lose momentum.

If you hang a large calendar on your wall, and put a star on every day when you do something positive—like exercise, practice a new hobby, or send out a resume for a new job—you’ll create a psychological need to keep that streak going.

Birken writes, “Your disappointment in seeing a day without a gold star is greater than your happiness at any single day’s work.”

Of course, you have to know what you really want first.

4. Regularly assess your intentions and motivations.

This ties into the last one. Sometimes we think we want something because we’ve wanted it for years—and then we feel scared to lose that dream and all its related rewards.

But sometimes, as we grow and learn about ourselves and the world, our wants change.

A friend of mine racked up massive debt studying law, only to realize a couple years into her career that it didn’t fulfill her as she hoped it would. She’d built her whole life around this possibility—and she had close to $100,000 in student loans.

She could easily have felt stuck, as if she’d lose too much if she walked away. But she did anyways. She moved to Chile and became a Pilates teacher, and though she ultimately realized she’d need to return to law for a while longer to pay off her debt, she’s released the emotional fears associated with pursuing a different path.

And because she’s experienced the joy of doing something else, she now has a compelling motivation to do it again: She knows what she stands to gain is greater than what she stands to lose.

If you’re forcing yourself to do something and a part of you feels it isn’t right, ask yourself, “Do I actually want this right now?” There’s a chance you do, and you’re just feeling frustrated and discouraged—but there’s also a chance you don’t anymore. Only you can know for sure what you really want.

5. Change how you see the inevitability of loss.

The reality is that loss is inevitable.

We will all lose relationships, situations, and states of being that we enjoy and love. Even if we practice non-attachment, on some level we will get comfortable with people and circumstances.

You could say that this is what makes life beautiful and meaningful—since nothing lasts forever, each moment presents unique possibilities worth fully appreciating and savoring.

Or you could say this is what makes life tragic—that everything is fleeting, and eventually it all slips away.

How we choose to see things dictates how we’ll experience them. Would you rather see everything as precious or pointless?

If we can choose the former, we can recognize that every loss provides opportunities for future gains—new relationships, experiences, and ways of being that may fulfill us in ways we can’t possibly predict.

Of course, this can only happen if we trust in our ability to recognize and create these new connections and situations. We all have the potential to do it.

Some losses feel devastating when we experience them—and sometimes, the gain isn’t proportionate to the loss.

But somehow, we survive in the wake of almost every storm. Whether we thrive is up to us. That’s a choice we need to make proactively, not in response to what we fear, but in response to what we genuinely want to feel and do in this life.

So I leave you with this question: Why are you afraid of losing? And are you ready to trust in yourself and your abilities so that you can get unstuck?

About Lori Deschene

Lori Deschene is the founder of Tiny Buddha and Recreate Your Life Story, an online course that helps you let go of the past and live a life you love. Her latest bookTiny Buddha’s Gratitude Journal, which includes 15 coloring pages, is now available for purchase. For daily wisdom, follow Tiny Buddha on Twitter, Facebook & Instagram.

12 Comments

  1. Thanks for the interview link. Interesting that the interviewer wasn’t familiar with Wyckoff.
    Didn’t get much out of the above Tiny Buddha article. So I visited that website, skimmed through a dozen posts, and concluded that the above article was better then the ones I read.
    The relevant section for me is “..without recognizing the underlying feelings that motivate them.” We have to manage greed and fear when trading – okay. Extend that past trading, though, and we start using hope and beliefs to manage truths, and avoid feeling our feelings. Which is what that website is all about.

    • The article was shared to hopefully help traders who are a bit stuck in neutral due to their fear of losing. Losing is a part of trading but it cannot overpower the desire to win. Anyway, thanks for visiting our site. Are you new here? Welcome. Your username is inspiring. Thanks you for sharing your thoughts with us.

  2. Thanks for this Stevie. I enjoyed it. It made me consider the mental and emotional gymnastics I go through sometimes when I trade, and I probably would fare better if I could recognise the mental pitfalls in the moment. Easier said than done, currently, I feel!

    • You’re welcome Chris. I find the mental part of trading the biggest barrier also. They can be quite paralyzing. I still have my struggles with them. As you said, ‘it’s easier said than done”. I find just sticking to a plan is best. For example, deciding when to get out of a losing trade. Deciding first about how much you’re willing to lose: 5%, 7%, 10% ? Once you decide, you must stick to it. That creates discipline.

  3. Muffed the entries on HMNY on Friday and MNKD on Thursday by a few pennies and seconds because of lack of confidence after my longs got hammered overnight. Paralyzed and not in the fight just compounds the loss.

    Kudos to you Stevie for maintaining your mental discipline.

    • David-I will respond in more depth in a bit, but in the meantime can you send in a chart with your exact buy points and exit points. We want to help you with this,

  4. For HMNY and much the same for MNKD, put in an early limit order for 17.50 with a plan to exit around 20.17, in retrospect Ok but when the momentum moved down fast… got spooked and canceled the order. After the bounce placed another order at 17.17 seconds late and never came back down to fill.
    Maybe should have split the order to begin with, just guessing.

    https://www.tradingview.com/x/KtxtaqH4/

    • David, your plan was very good, and yes with a super active high range mover, cut back position, average in maybe – on Friday I did and intraday video (lost in the ether, didn’t save it correctly) about HMNY, INFI, PZRX, NUGT. The only 2 stocks I was totally focused on at the open for daytrade were INFI and HMNY. Did not trade HMNY at the open (which again was awesome), did trade INFI well, small loss in PZRX. As far as HMNY, there were 2 specific trades which setup – granted it’s a 1 minute chart, so mainly daytrade-focus. First arrow Thursday is SOS/upthrust as often is the case. Tells us a bit about a heads-up. Second arrow right off the bat EA, then new low spring, then the retests. Later in the day, one of my favorite trades learned from trading OEX way back when, the afternoon trade setup, the retest of the highs, #3 arrow the beginning of the setup, #4 arrow, 3rd push down into spring. Your parameter to exit is back to retest highs of the day. and I was talking to Stevie at the time of the retest, told her it’s time to sell. Parameters had been hit, pure mechanical in and out.

    • What’s the time frame? 1 minute yes minor SOW, but overall a bit bigger picture, the retest and top put in at the previous little upthrust is “normal”, and my view is consolidating. That area was just a really good spot to exit, even if it kept pushing higher. And just waiting to see if a specific/high probability setup occurs. It will be watched again tomorrow, but there will be a few others. I love these small stocks, no margin needs to be, or should be used.This stock is incredibly active, with ZERO margin necessary. Take that S&P futures.

  5. These little companies burn through cash, something to watch for with HMNY is news of a private placement or offering of some kind in the pipeline, maybe a buying opportunity ?

    • Correct, always an issue with these stocks – always. I talked about it with my DVAX position, used the offering to buy more shares. ITCI also had a share offering, and hit the stock. The question is, are the companies a piece of crap, and insiders using the runup to dump, or is the company legitimate, and will use the proceeds to build the company and their prospects. You’d think if HMNY wanted to do an offering, they might have tried much higher, but it takes some time.

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