An understanding of probability and adapting an acceptance toward ambiguity allows for more disciplined investing/trading decisions and executions.
It takes profound understanding of mathematical probability to conquer fear of market movements and take on invested positions with confidence. The fear often stops market players from opening positions at optimal levels and taking profit too early.
Natural instinct describes ambiguity as scary and detrimental, yet a deeper glimpse into the numbers reveals otherwise. Order exists out of chaos, just not in the manner most would expect.
Accepting a World without Certainty
Upon scrutiny, nothing seems to offer absolute certainty. As much as society attempts to push the pretense, the weather, popular trends, and economic shifts still remain utterly random. When it comes down to it, past trading performance does not dictate outcome of the very next invested position.
To overcome fear of failure, it takes recognition that losing trades do not determine subsequent results (given a profitable strategy), and that immediate outcomes occur arbitrarily. To exist harmoniously with the unpredictable nature of worldly events, particularly those of the financial markets, requires an acceptance of uncertainty.
Quantifying Probability
Ambiguity, in the world of financial markets, involves two potential outcomes for each trading decision. The role of emotions plays a large part instinctively, and it takes conscious effort to think quantitatively; yet it is the only way to conquer fear of uncertainty.
Probability theory will not likely ever offer any certainty from ambiguity, but it allows for improved expectancies. Once embraced, understanding becomes the next step. Measuring randomness and analyzing findings often reveals underlying player motivations and unexpected influences. Deep insight toward numerical probability allows for “expected anomalies”, and hence fewer issues of anxiety or fear.
With adequate knowledge and management, the said investors could formulate a strategy to exploit inherent positively expected returns. This entails an acceptance of complete randomness in the short term, yet a confident result in the long run with statistical certainty. The mind takes some adjusting to become accustomed to this perspective, and it comes with rewards.
Conquering Fear of Uncertainty
Fear of potential losses causes interruptions in “pulling the trigger”, and it often ends in missed opportunities for optimal returns. The market does not stand still and wait for individual traders to recover from crises of faith. It takes single-mindedness to focus only on the long term outcome along with short term risk management.
Flawless execution requires laser concentration, sticking to the game plan. It requires courage, conviction via an acceptance of short-term chaos, and understanding of long-term expected performance.
