Loss aversion is the type of fear that most significantly influences the daily decisions of a Sports Trader.
This phenomenon has been known for a long time, theorized in 1979 by Nobel laureate Daniel Kahneman and Amos Tversky, a psychology professor at Stanford.
In an article titled “Prospect Theory: An Analysis of Decision under Risk,” it is explained how the impact of a loss has a greater emotional weight on the player compared to the emotion of a win.
This feeling is quite common for those who, for their profession, make a multitude of decisions: an error or a wrong decision weigh much more than a correct one.
We live in a society that instills a fear of making mistakes and condemns errors, causing an excess of frustration, guiltiness, and shame in those who make a mistake. Making mistakes is often perceived as “failing,” which is why error is often condemned, primarily by the one committing it.
Fortunately, the American mindset, rather than the European one, guided my learning journey and personal growth.I encountered a significant difference in methodology and culture regarding how errors are approached: across the Atlantic, learning happens through “trial and error,” and error is not only not discriminated against but is considered necessary for learning and achieving the goal.
In my journey towards professionalism, I had to grapple with this valuable lesson and build an entirely new relationship with errors and the inevitable losses that follow.
Learning From Mistakes
Conventional wisdom imparts its lessons, but adapting is not always easy.
After several years of professionalism, I would specify that it’s only when you stop being afraid of losing that you truly start to win.
So, How Did I Confront Loss Aversion?
Following Igor Sibaldi advises: by becoming greater than fear through knowledge.
Firstly, I began by distinguishing two types of errors:
- Those caused by me (wrong evaluation / technical error)
- Those not directly attributable to me (linked to the concept of variance)
To tackle errors related to the first category, attributable to my erroneous evaluation or a wrong technical move, I worked on three different aspects: a rational approach, a psychological approach, and a practical approach.
Rational Approach: Error Analysis
In 2011, I began documenting every single move I made in a database, integrating it with last year with qualitative and quantitative descriptions. This way, I can identify the most common technical errors, categorize them, identify patterns, and find targeted strategies to limit them.
The percentage of technical errors out of 100 moves has significantly decreased through a rational effort to codify it.
For instance, I discovered that a specific category of repetitive errors was due to movements executed too close to the beginning of the event.
I managed to reduce this category of errors considerably (which I call “Last Minute Error”) by programming a morning routine that led me to choose daily movements in a portion of the day much farther from the event’s start (usually in the evening). This way, I give my intuition and mind time to weigh the choices with more appropriate timing.
Psychological Approach: My Inner Judge
I attempted to weaken the power of my harsh inner judge. I have always been torn between rationality and the natural tendency to be an unforgiving judge of myself.
Rationally, I know that making mistakes is part of the process, but I also want to be perfect and infallible.
In my case, the blame for my attitude lies with my inner judge, that little voice inside me that scrutinizes, analyzes, evaluates, decides the objective, and imposes reaching it.
Sometimes raising the bar stimulates progress, but setting it too high can become counterproductive. It’s a matter of balance.
I’ve always wanted to win: to be the top of the class, in sports or in any competition, even a playful one with friends.
But over time, I’ve understood that no one forces us to be perfect, except something inside us that we must deal with.
No one is perfect, I’m not, and I don’t want to be. I make mistakes, sometimes many but I have a great quality: when I make a mistake, I learn.
Once I established this very clear and decisively with my inner judge, my relationship with it immediately changed, with loss, and consequently, my performance improved.
Being aware that I can’t be perfect makes me calm, and this calmness ignites intuitive faculties that fade under pressure.
Practical Approach: No Play
I implemented a simple rule that reminds me not to underestimate any move, even if it’s economically insignificant.
Until some time ago, occasionally I allowed myself some small movements, which I called “relaxing.” In practice, during long periods loaded with tension or particularly dense in activity, I liked to make some movements with symbolic economic value for the sake of enjoyment.
In essence, I played occasionally. A little, but I played.
Economically, everything was sound; the fluctuations were trivial against my money management policies, yet psychologically, something was amiss.
The right side of our brain, the part that experiences emotions, is not rational and doesn’t distinguish between economically insignificant movements and significant ones.
Losing is losing, and making a mistake is making a mistake.
When I understood this simple dynamic, I decided to preserve the psychological balance related to professional movements by “relaxing” outside of work, with a walk, a swim, or any other activity unrelated to Sports Trading.
In conclusion, to perform at your best as a Sports Trader, accepting and managing the possibility of error is crucial. It benefits decision-making processes and the approach to the profession.
Once you’ve learned how to do this, you can translate this ability into your private life as well. A significant benefit.
