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Becoming a Better Trader – Managing Stress

Becoming a Better Trader – Managing Stress

Paul Robinson, Strategist

Stress management is important is an overlooked facet to trading many traders overlook. Trading is often considered a stressful business, and yes, it is a difficult business, but a lot of what makes trading stressful is self-inflicted. Large doses of stress have significantly negative impacts on cognitive functions, not to mention it’s just not good for your overall health and well-being. If not properly managed it will lead to burnout. There are strategies, which are discussed below, that can be implemented to mitigate stress in both the short and long-term.

Whether you are a new trader building a foundation or an experienced trader struggling (happens to the best), here are 4 ideas to help you Build Confidence in Trading

Unrealistic expectations are often at the heart of stress and anxiety. The pressure to perform at a certain level can become a burdensome weight. It causes poor risk controls and other bad habits that undermine profitability.

It is important to set realistic goals based on the process of trading and not the outcome. This means focusing on what you can control, like risk parameters and trade rules, and letting go of what you can’t control, like whether a trade works or not.

Setting monetary goals for specific time-frames is a pitfall many traders fall in. For example, saying you will (want) to make X amount in the next month. This sets one up for frustration, as the market may not be conducive at that time for trading and lead to disappointment when one fails to reach the pre-determined goal. It can also leave you missing out on good opportunities if you meet your goal very early on in the period and you take a conservative approach to protect your profits. It is best to focus on doing the right things and then let everything else sort itself out.

Trade with risk parameters that you are comfortable with. Trading is difficult enough as is, no need to further complicate matters with fear due to taking on too much risk. Everyone has their own tolerance for risk, so stick to what works for you. Make sure you are also trading with capital you can afford to lose. It’s better to trade a little too small than too big. More on Risk Management strategies.

Learning how to handle the inevitable drawdown is another key to mitigating stress. Drawdowns aren’t fun, but losing is just part of trading. First, you have to accept this fact. Even the best go through periods of losing. However, sometimes a drawdown will get uncomfortable and the best thing you can do is put down the shovel and stop digging a hole. Get flat, relax, then figure out what changes need to be made. Once ready when you return back to trading you should do so slowly before ramping back up to normal size. In depth conversation on how to handle drawdowns.

Poor planning leads to indecision and stress. When you aren’t clear on what you want to do it causes anxiety, this should be obvious, but yet traders still often times don’t have a plan and as a result experience unnecessary amounts of stress. Your plan doesn’t need to be a book, but a couple of pages or so that outline your rules and parameters for risk and preferred trade set-ups. Check out this video on how to create a trading plan.

Most traders gravitate towards one style of trading versus another, and so it is important to stay within your comfort zone while still maintaining flexibility for changing market conditions. If you are a trend trader then overweighting towards trend strategies may work best, or maybe you are a range trader, then overweight towards range opportunities. The bottom line is that the more comfortable you are with a style of trading the more confident you will be in making trades.

The Becoming a Better Trader series in one location, check it out.

Stress management should be part of your every day, every week routine. Mange the time spent watching the market each day. This is especially important for preventing burnout while maintaining a fresh perspective. If you find yourself attached to the screens, staring at the market all the time, learn to walk away. Go for a walk, have a conversation with someone, go to the gym, work on a project, anything; the point is that you need to be able to walk away from the market. Don’t sneak in looks on your phone either, this doesn’t do any good in getting the necessary separation you need to stay fresh.

Journaling is an excellent outlet for reducing stress, in addition to identifying strengths and weaknesses in your trading. Be careful though when ‘venting’ not to be overly critical. Too much negative self-talk will end up doing more harm than good. Do it daily, or every few days, whatever the case get in the habit of writing down your thoughts.

An alternative, but highly effective way to manage stress, is through meditation. Yes, meditation. In addition to it being effective at managing stress, it helps develop self-awareness and you learn to create a ‘stop-gap’ between your impression of an event (like a bad trade) and your reaction to it, so you approach things with a more even keel. The benefits are hard to put into words. There are many different types of meditation, Mindfulness, Zen, Transcendental, and so on; not so much about the technique as it is that you are doing it.

In conclusion, trading isn’t an easy endeavor, but it doesn’t necessarily have to be a highly stressful one. There are plenty of challenges, but many of them we tend to make more difficult on ourselves through our thoughts and how we handle certain aspects of the trading process. With the right remedies, like the ones discussed in the video, traders can become properly equipped to make stress from trading only a minor issue to deal with.

For the full conversation, please check out the video above…

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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