Fear in Trading: Lessons from Boxing Great Cus D’Amato.

In my work as a Trader Performance Coach I draw a lot of inspiration from other fields which offer valuable insights in to the mindset and mental aspects of trading. Sport offers many such examples, though few offer more than boxing. Cus D'Amato had a near 50 year career developing great boxing talent. His résumé included many greats of boxing, Rocky Graziano, Floyd Patterson, Jose Torres, and the fearsome Mike Tyson. D'Amato as a coach knew that boxing was not just physical, it was also mental. He knew the difference between good and great was as much down to mastering ‘the inner game’, (how you are), as it was to mastering the outer game (what you do). In this sense trading is no different.   

One aspect of 'the inner game' which all traders can relate to is ‘Fear’. I've been a trader, and I know how fear can take hold of you, paralysing you, making you doubt yourself, making you do the most stupid of things. Fear manifests itself in many forms: Fear of losing, fear of missing out (FOMO), fear of regret, fear of failure, fear of looking stupid; the list could go on. It is with this in mind that I turn to the following quote from Cus D'Amato. As you read through it, try substituting the word ‘boxing’ for ‘trading’

“Boxing is a sport of self-control. You must understand Fear so you can manipulate it. Fear is like

Cus D'Amato

fire. You can make it work for you: it can warm you in the winter, cook your food when you’re hungry, give you light when you are in the dark, and produce energy. Let it go out of control and it can hurt you, even kill you….Fear is a friend of exceptional people.”

As a coach working with traders, I am often told by traders that they ‘just need to eliminate or conquer fear and then they'll be a great trader'. There is a misconception that fear can easily be overcome: Do a Google search on ‘Fear in Trading’ and you will notice how nearly all the responses are about ‘overcoming fear’ or learning ‘to conquer fear’. But fear is an inherent part of you, the best you can do is understand that it will always be there, always be with you, and that you need to work with it, not against it. Fear is a neuro-chemical response intended to keep you alive, you do not control fear; if anything, it controls you. One of my most successful clients, was a trader who asked me to help him 'cure his loss aversion.' Today this trader makes far more money than he ever made, and has done so for a few years now. At the root of loss aversion is the fact that we fear negative outcomes far more than we enjoy equivalent positive outcomes. In trading, and investment, loss aversion biases and distorts our judgments and affects our behaviours. Is this trader any less 'loss averse' these days? Not a jot. But he does now appreciates that fear and loss aversion are part of his make-up, he understand how it distorts his judgments and has adopted new strategies and practices which mean that he can work with his fear: He has learned to 'roll with the punches'. And thus I seamlessly segue into the next two D'Amato quotes. Again try replacing the words ‘boxing’ and ‘fighter’ for ‘trading’ and ‘trader’. 

“Fear is the greatest obstacle to learning in any area, but particularly in boxing…Boxing is something you learn through repetition. You do it over and over and suddenly you’ve got it. …However, in the course of trying to learn, if you get hit and get hurt, this makes you cautious, and when you’re cautious you can’t repeat it, and when you can’t repeat it, it’s going to delay the learning process…When they…come up to the gym and say I want to be a fighter, the first thing I’d do was talk to them about fear…I would always use…the same example of the deer crossing an open field and upon approaching the clearing suddenly instinct tells him danger is there, and nature begins the survival process, which involves the body releasing adrenalin into the bloodstream, causing the heart to beat faster and enabling the deer to perform extraordinarily feats of agility and strength…It enables the deer to get out of range of the danger, helps him escape to the safety of the forest across the clearing…an example in which fear is your friend.”

“The thing a kid in the street fears the most is to be called yellow or chicken, and sometimes a kid will do the most stupid, wild, crazy things just to hide how scared he is. I often tell them that while fear is such an obnoxious thing, an embarrassing thing…nevertheless it is your friend, because anytime anyone saves your life perhaps a dozen times a day, no matter what (or) how obnoxious he is, you’ve got to look upon him as a friend, and this is what fear is…Since nature gave us fear in order to help us survive, we cannot look upon it as an enemy. Just think how many times a day a person would die if he had no fear. He’d walk in front of cars, he’d die a dozen times a day. Fear is a protective mechanism….By talking to the fighters about fear I cut the learning time maybe as much as half, sometimes more, depending on the individual.”

This last passage is profound for me, and brings up a matter rarely raised in the trading psychology

literature; how people feel others see them. I know lots of traders whose careers are haunted by what they think others are thinking of them. Yet so often it turns out in actual fact, the only person thinking about them is themselves. As if to emphasise this point further; in my coaching I use some powerful assessment and analysis tools, one of which measures a person’s degree of ‘Risk Tolerance’. Often people seem disappointed when they are not as high on the Risk Tolerance Index as they thought they might be. The irony is that in our work (I talk collectively here in terms of myself and my colleagues at Alpha R Cubed) we have not yet found Risk Tolerance to be a reliable indicator of trading success. There has been some interesting correlations between success in types and styles of trading, but not overall. (I will be talking about this particular tool at an event in December being held at KPMG in London: Details can be seen here).

One of the aspects I enjoy most about coaching traders, is the joy people they feel when they reach levels of potential they didn't realise they even had. Fear is not always the primary inhibitor holding them back, but it is amazing how often it rears its head in some form. I've seen some extraordinary improvements through participation in our coaching, previous articles highlight these here and here. Naturally the traders are hugely grateful, however I like to remind them, that if they are now more successful, it is because they always had the potential. My job as a coach was to act a catalyst to help them achieve that potential. One thing I do not do is help them do is remove their fear, but I do help them understand and contextualise it. This is enormously powerful.

I will leave the final word on the subject of fear to the late great Cus D'Amato:

'Now, when they go in and face the opponent and the bell rings, for the first time…they’re facing reality, and suddenly a relative calmness comes over them. Relative. They’re still scared but it isn’t that terrible intimidating unknown thing….However, I should add that at no time does fear disappear. It’s just as bad in the hundredth fight as it was in the first, except by the time he reaches a hundred fights or long before that he’s developed enough discipline where he can learn to live with it, which is the object, to learn to live with it…” 

Steven Goldstein is a Performance Coach working with Traders, Banks and Hedge funds at AlphaRCubed Ltd: To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.

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