Updated from its original posting on 2013-04-05
Trading stress can wear you down if you’re not careful, so it’s important to know how to deal with it. Here are three steps to help you handle trading stress:
1. Acknowledge it.
Acknowledging your stress is the first step to overcoming it. You have to openly admit to yourself that you are feeling threatened, anxious, or overwhelmed.
After acknowledging your feelings, observe how you react to stress. Does the stress make you panic? Does it lead you to make impulsive trading decisions? Do your palms get sweaty? Take note of your emotions, thoughts, and actions, and write them down in your trading journal for future review.
2. Calm down!
Have you ever made a trade decision out of sheer panic? If so, then you’d probably agree with me in saying that stress can often lead to bad trading decisions. When your mind is swamped with too many emotions, you’re likely to have a difficult time clearing your thoughts and focusing on the factors that are really relevant to your trade.
If you find yourself in this situation, take a deep breath and step away from the charts for a while. Use this time to collect your thoughts and isolate the emotions that could be clouding your decision-making. You might also want to listen to classical music to help you meditate and think clearly. Pip Diddy swears by his strategy of taking a short nap, as he wakes up feeling refreshed and more focused.
3. Identify the source of your stress.
What’s causing you to feel stressed? The sooner you can identify the source of your stress, the sooner you can address and/or eliminate it.
By locating the source of your stress, you can determine if your anxiety is properly grounded. Ask yourself the following questions:
- Have the market conditions changed in a way that invalidates my trade idea?
- Have risks increased?
- Given the current situation, should I even feel stressed at all?
Sometimes, it just takes an objective assessment of the situation to clear your mind and put things in the proper perspective.
In some cases, determining the cause of your stress can also help you avoid it in the future. For instance, if you find that you’re often overcome with fear and tend to make impulsive decisions when trading the news, you may consider closing your trades before major events in the future.
Stress is a typical part and parcel of trading as the risk of losing is always just around the corner. What’s important is that you are able to react to stress in the proper way; that’s really the only thing you can control. After all, stress can lead to good or bad results depending on how you respond to it.
Stress can be negative for trading if you allow fear to cripple you or cloud your judgment. On the other hand, it can be positive when you use it to become more alert and focused on the challenges in front of you.
Don’t allow yourself to fall victim to trading stress. These tips I’ve discussed can help you combat stress, take control of your emotions, and focus on your trading better.