How Successful Traders Manage Fear of Risk and Loss

The answer to the underlying question of fear can be seen in the differing conditioned behaviors, regarding fear of risk and fear of loss, between unsuccessful and successful traders.

In referring back to ‘seeking what every successful trader has in common’, I am reminded of Charles Sanford, former Chairman of Bankers Trust, who gave the very insightful speech on how the successful view the fear of risk, excerpts of which I have loosely recalled here. I include this because it also serves as such a good example of ‘reframing’ a conditioned belief, and the benefits of proper mind training.
From an early age, we are all conditioned by our families, our schools, and virtually every other shaping force in our society to avoid risk.
My first observation is that successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than something to be avoided. Such people understand that taking calculated risks is quite different from being rash. The paradox is that playing it safe is dangerous. Far more often than you would realize, the real risk in life turns out to be the refusal to take a risk. In other words, the truly most threatening dangers usually arise when you shrink from confronting what only appear to be the most threatening dangers. What is widely regarded as playing it safe turns out not to be safe at all. As Heraclitus, the Greek Philosopher said, some 2,500 years ago: Nothing endures but change. Most of us have come to agree with this, but its consequences still deserve some reflection. Obviously, if change is the fundamental rule of life, then resistance is folly -- doomed to defeat.
In other words, in a world of constant change, a world where Heraclitus said you can never step into the same river twice, taking risks is accepting the flow of change and aligning ourselves with it. Remember the paradox: Risk only looks and feels like endangerment. For those who understand reality, risk is actually the safest way to cope.
To take a risk is indeed to step into circumstances you cannot absolutely control. There, again, is the paradox: In a world of constant change, risk is actually a form of safety, because it accepts that world for what it is. Conventional safety is where the danger really lies, because it denies and resists the world. I trust you understand that when I say risk is actually safety, I'm talking about a certain sort of risk. I'm not advising that you leap off tall buildings in the hope that the operation of constant change will reverse the law of gravity in mid-flight. I'm speaking rather of a sort of risk that actually aligns you with the direction of change and that the task then becomes learning how to take risks properly.

To be more specific, I believe firmly that the sort of risks that put one in a position to control one's lot in a world of incessant change are the risks that attempt to add something of value to that world. To create value, to focus one's efforts on increasing the fund of that which is worthwhile, involves risk. And yet, paradoxically, it provides you with the greatest control over a changing world and maximizes your chances to achieve a truly meaningful personal satisfaction.
This is a good opportunity to add a piece of ancient wisdom: Do not merely seek to follow in the footsteps of the successful. Seek what they sought.

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