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Developing Uncertainty Tolerance

Recently, we posted a couple of articles on cognitive-behavioral adjustment ideas for traders. Cognitive-behavioral therapy (CBT) is a tool generally used by patients suffering from anxiety and other personality disorders to overcome their conditions, but CBT can come in handy for binary options traders as well. As a trader, you are constantly striving to improve and correct mistakes in your thinking and behavior so you can become better at what you do. One concept discussed in CBT for patients with anxiety may also be applicable to you as a trader, and that is uncertainty tolerance.

Trading is a Business of Risk

While uncertainty is an unavoidable part of life for everybody, investing is an area of life where the consequences of things going wrong are particularly pronounced. In our day-to-day lives, we often pretend that we are more certain than we really are about our health, relationships, jobs, and so on. But as a trader, you are not given that option. Every day, you are required to confront your own uncertainty head-on. After all, all those trading strategies and risk management plans are there in place to try and help you profit reliably despite that uncertainty. But no matter how sound your stratagems are, trading will remain a business of risk.

Some traders handle that fact just fine, but they are a minority. Most traders struggle on some level with the fear that they will lose money, or that they will miss a key opportunity to win. You may be able to cope with uncertainty in most areas of your life just fine, but may struggle with uncertainty in trading. Or you might be one of those people who has a very low uncertainty threshold all around, and who has a hard time tolerating any uncertainty at all, in which case trading can be even more challenging.

Why is Uncertainty Intolerance a Problem in Trading?

There is nothing worse in trading than being oblivious to uncertainty; that is not the same thing as having uncertainty tolerance. If you are aware of uncertainty in your trading, that already puts you ahead of most. But if you cannot cope with that awareness, you can start having serious problems. Here are some situations which can develop from uncertainty intolerance:

Do any of these behaviors sound familiar to you? Maybe you recognize some of your own habits here, especially if you have a tendency toward anxiety and high stress in the rest of your life. People with uncertainty tolerance often sabotage their own success.

If you suffer from uncertainty tolerance, it is easy to feel like you are at the mercy of the fates. And for that reason, you may feel helpless to do anything about your low tolerance threshold. But uncertainty intolerance can be modified, like many other thoughts and behaviors. You cannot do that by eliminating uncertainty, because that is impossible (that is the trap that keeps uncertainty tolerance going). But you can start reducing your intolerance methodically through CBT.

How do you do it? Start by making a list of trading behaviors and behaviors in the rest of your life that are connected to uncertainty tolerance. Rank them with the highest-anxiety behaviors at the top and the lowest-anxiety behaviors at the bottom. Your list might look a bit like this:

Start eliminating the behaviors on your list, starting at the bottom and working your way up. When you behave “as if” you are doing better, you start teaching your body and mind new habits, and you may also start seeing positive results you have been denying yourself through self-sabotage. This can lead to positive changes in your thoughts, emotions, and perceptions. Try asking other people if they notice any behaviors you may have missed, and add those to your list if you recognize them as well.

Also learn how to recognize your unhealthy assumptions about risk and uncertainty, and gently correct those assumptions. Some assumptions that may be driving your intolerance could include:

The key is to question these assumptions and look for their irrational basis. You could address the three assumptions above like this:

Write down the poor assumptions as well as the corrections, and read them regularly. Keep them somewhere you will see them often, like in your trading plan. Over time, review them to see if your feelings have changed.

One final step that is very important is to write down the outcomes of your exercises. The results are important, and if you do not take the time to look at them closely, you may not notice your own progress. Ask yourself if things turned out all right despite your uncertainty, and check to see if your win percentage has increased since you started forcing yourself to pull the trigger and stay in your trades. Also analyze how you are handling your trading losses, and whether you are better at coping with losses than you may have given yourself credit for.

Click here to check your personality as well.

It will be challenging at first, but the more of a push you make, the more momentum you will build. Eventually, your healthier new habits will become ingrained, and you will start to become more tolerant of uncertainty. As you watch your trading results improve, you will build confidence, and finally be able to move forward in your binary options journey.

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