Updated from its original posting on 2012-06-15
Have you ever been unnecessarily over conscious about your trading that it affected your performance negatively? Then you, my friend, have just experienced a classic case of stage fright or performance anxiety.
Performance anxiety usually occurs when you scrutinize every single detail of your trading decisions too much, to the point that each action becomes subject to criticism. This behavior (which is also experienced by athletes, artists, and students) usually has a crippling effect on overall performance as the pressure to achieve a certain goal can cloud one’s judgment.
As traders, we are constantly subject to the pressure of making profits that we sometimes lose sight of the importance of sticking to the trading plan or practicing proper risk management. Here are some tips that can help you overcome performance anxiety in trading:
1. Forget that perfect trade.
My favorite trading psychologist, Dr. Brett Steenbarger, noted that the most common source of performance anxiety is perfectionism. Traders who tend to be preoccupied with catching the best possible entry and exit points, maximizing their profits through position sizing, and never losing a trade end up being disappointed with themselves when they fail to meet these goals.
Instead of looking for that perfect trade setup or never losing a trade, remind yourself that there’s nothing wrong with just going for the profitable trade and that the market won’t always go your way. A controlled loss or ending up with fewer pips than you ideally could’ve is not the end of your trading career.
2. Focus on the process, not the profits.
Forgetting that perfect trade may be difficult for some as this could be misinterpreted as lack of ambition. If this holds true for you, then it might be better to set goals based on the process and not on your profits.
For instance, you can give yourself points for sticking to your trade plan, for cutting your losses, or for pressing your advantage. At the end of each trading day, you can ask yourself the following questions: Did I execute my trades the way my system said I should? Did I make the proper adjustments? Did I manage my risk properly? If you answered yes to all three questions, then you deserve two thumbs up! If you wanna be perfect, focus on executing good trade/risk practices and processes perfectly.
3. Take baby steps when increasing your risk.
Another root of performance anxiety in trading is when you greatly increase your risk per trade instead of adjusting it gradually. This usually happens when traders gain confidence in their trading and decide to put more money on the line in their next trades. Without any accompanying adjustments in your trading psychology, this could also magnify the pressure even if you’re taking your usual setups.
To illustrate, put yourself in the size 14 shoes of an NBA player about to take a free throw during the last seconds of a tied game. You’re about to take a shot that you’ve made probably a thousand times before, yet the pressure to not miss the basket is also a thousand times greater than usual. Even seasoned players still choke during these moments, and it’s not surprising that traders can also commit more mistakes when they’re more conscious about how much is at risk.
To avoid this, you can increase your risk at a more gradual pace instead of doubling or tripling it right away. It could also help to remind yourself that the only thing that’s changed is the amount you’re risking yet you’re still taking your usual setups and still following your same old trade plan.
4. Step away from the screen.
Performance anxiety manifests itself in overtrading as well.
It shouldn’t come off as a surprise. The internal pressure of making money sometimes blinds our rational thinking. Instead of sticking to our trading plans, we just let our emotions get the best of us. Overwhelmed with the need to make up for our losses, we may end up taking one trade after another and before we know it, we’ve already lost so much money!
The most obvious solution to this problem is to step away from the screen once you’ve hit your maximum trading loss.
Remember that there will always be a tomorrow for those who choose to preserve their capital today. For those who don’t and blow their trading accounts, well, there’s always Hollywood.
5. Get a life.
When your world revolves around trading and the market is just not going your way, you’ll probably feel that your world is collapsing. This makes those who trade for a living and who have little else going on for them especially vulnerable to performance anxiety.
So don’t put all your eggs in one basket. If you do, chances are, you will only subject yourself to unnecessary stress. Find yourself a nice laid-back hobby or engage in adrenalin-pumping sports. Do something that you will enjoy and provide you with an outlet of distraction for those times when the markets go against you.
At the end of the day, don’t beat yourself up for feeling like a choker and allow yourself to be overcome by performance anxiety. If you feel it coming on, just step away from the screens, relax and remember that perfect trading performance and trade setups don’t exist. Backtrack to the realistic expectations you have set for yourself ahead of time, and you’ll be surprised at how keeping your goals in check can turn your trading around!