Trading can be very stressful. In fact, it is one of the most stressful jobs one can take. And the reason is simple: traders deal with uncertainty every day. The market is always on the move, and a trader needs to process all the data that is coming from the market. Watching the market print new price bars on the chart alone can make a normal person dizzy, but a trader, despite all the trading stress, has to consistently use all the data to make correct trading decisions, knowing that any mistake would cost him money.
On top of that, the trader is competing with everyone else in the market, some of whom are better equipped with the knowledge, trading capital, and emotional resilience. The trader has to battle everyone else to survive before even getting the chance to make money — he is constantly in a stressful situation.
Hence, as a retail trader, maintaining your cool and composed any time you are in the market is more like a utopian desire. Nevertheless, you need to be in the right frame of mind to be able to make good trading decisions and stand a chance of beating the market. It, therefore, follows that you should know how to handle trading stress, which is why we want to discuss it in this post.
These are what you stand to learn from this piece:
- What trading stress is
- Why trading is stressful
- How to know when you are stressed
- How you can handle trading stress
What is trading stress?
Trading stress is that feeling of anxiety, panic, lack of control, or exhaustion you get when trading the market. It is very easy to feel overwhelmed by the trading process — reading up the economic reports and other news of financial importance, setting up the chart, analyzing the price movements to find tradable opportunities, placing trades, managing the open positions, and making further research to develop more trading strategies or improve the current one.
As if the work you put in is not enough, you are never sure of what you are going to get out of the whole thing. You can study your charts for as long as you want and analyze all the economic data you can lay your hands on before placing a trade, and that trade can still be a loser. So, the uncertainty of the outcome of trades, on its own, can trigger enormous anxiety — and this is when you are doing what you are supposed to do.
Now, there’s always the possibility of making a mistake, and any mistake in the market can lead to uncontrollable losses. And there is also the aspect of anticipating the excitement and thrill that comes with winning a trade, and when it is taken away, sadness, anger, and boredom sets in.
All these and many others are situations that stress your brain and keep you feeling overwhelmed and subdued when you are trading. And when you are in such situations, you are more likely to commit a trading error that can worsen the whole thing. You may experience the kind of loss that would leave an indelible scar in your brain, which obviously would trigger fear and panic when next you are in the market.
With the fear comes more trading errors, such as hesitating to place a trade when your set up occurs and then chasing the trade when you see that it is moving in the right direction, taking your profits too early, setting your stop loss too close to your entry point, or widening your stop loss as the price is getting to it. The effect is more losses and more panic.
There is even a more annoying situation, where the market action seems to get you confused and encourage more trading errors. The price can just go to the stop loss you put well beyond a price swing low/high, hit it out, and turn back to your anticipated direction and even pass your expected profit target. It feels like someone is watching your activities and looking to hurt you no matter what you do. Nothing can be as distressing as that feeling of being hunted.
But you know what, all these are only going on in your mind. It is your interpretation of the market actions that is causing the anxiety and panic, worsening the exhaustion your brain cells are already getting from information overload. Nobody is specifically hunting you. With the right mentality, attitude, and action, you can handle the usual brain exhaustion and execute your trading the way you planned.
Why is trading stressful?
We are biological beings, so our bodies react to stimuli from the external environment. And as you know in life, too much of everything is bad. But how does this relate to trading? Well, the information from your charts, economic calendars, and Newsfeeds are the external stimuli which your brain reacts to by processing and interpreting the information to come up with trading decisions, like whether or not to enter a trade, where to put a stop loss, when to move the stop loss to breakeven, and many others.
This process requires fast thinking, which consumes a lot of brain energy and leaves the brain exhausted and stressed out. If the brain stays in that state for a long time, it will protest by releasing stress hormones, such as cortisol. An elevated level of cortisol in the system helps the body to produce glucose, which the brain needs to replenish its energy reserve. But the problem is that cortisol’s effect doesn’t end there. It can reduce the ability of the brain to process more information, induce anxiety, and even leave the brain in a confused state.
But it is not just about information overload, brain exhaustion, and the effects of cortisol. They are the baseline. Your specific trading activities and their consequences leave their marks on your brain as well, and those can generate manifestations of stress. For example, a huge loss, a profitable trade turning to a loss, or the market hitting you out and turning to move in the expected direction can have an effect on your psychology. It creates an opinion — no matter how erroneous it is — in your mind, such that when you perceive a similar situation in the market, your brain associates the current situation with the previous experience and triggers your body to release adrenaline.
Adrenaline is the substance your brain uses to prime your body for a flight or fight response in an emergency situation. With the release of adrenaline, your body is in a state of panic, and you are more liable to make trading errors in a bid to avoid the previous experience. If the previous experience was a huge loss, you may be afraid to place a trade when you see your trade setup; if it was a profitable trade ending as a loss, you will take profit early; and if it was the price knocking you out and turning to move as you initially expected, you would widen your stop loss or not even put it at all.
But the thing is that the consequences of these actions often leave you more frustrated. When you don’t take your trade out of fear, the price will move as expected, and you start regretting not taking the trade. Similarly, taking profits early will leave you regretting that you left profits on the table, while widening or not using a stop loss will lead to a disastrous loss. So, you end up with more stress — a vicious cycle.
Moreover, the adrenaline released during your panic moment also causes the release of cortisol, which as you know can put the brain in a state of confusion and reduce its information processing ability. Persistently high levels of cortisol can cause brain rewiring, making it more vulnerable to stressful situations.
How do you know when you’re having trading stress?
The problem with stress is that it can easily creep in without you noticing it because the signs are quite subtle, and the worst part is that you can get used to it such that it feels like your new normal, while at the same time, it is accumulating and taking a heavy toll on you. Before you know it, you may end up with a burnout — which is described as a state of emotional, mental, and physical exhaustion caused by excessive and prolonged stress.
So, you must know the common warning signs of trading stress, as they can manifest as subtle changes in your body, mind, and soul. Those signs are commonly classified into emotional, physical, mental, and behavioral.
The common emotional signs of stress include:
- Sudden mood swings
- A feeling of disconnection from people
- A negative attitude toward life
- Depression or general unhappiness
- Anxiety and agitation
- Easily irritated or angry
- Feeling overwhelmed
- Loneliness and isolation
The common physical signs include:
- Aches and pains
- Frequent colds or flu
- Rapid heart rate
- Diarrhea or constipation
- Chest pain
- Loss of sex drive
The common mental/cognition signs include:
- Constant worrying
- Being anxious or having racing thoughts
- Inability to concentrate
- Memory problems
- Poor judgment
- Seeing only the negative
The common behavioral signs include:
- Withdrawing from others
- Being lazy or hyperactive
- Procrastinating or neglecting responsibilities
- Eating too much or too little
- Using alcohol, cigarettes, or drugs to relax
- Sleeping too much or too little
- Nervous habits, such as nail biting or pacing about
- Sleepless nights
The ways you can handle trading stress
The truth is, there is no one-size-fits-all method for handling trading stress. What works for one person might not work for another. One thing is certain though, controlling trading stress starts with acknowledging that it is there and looking for the right solution. Below are tips that can help you to manage stress when trading the markets:
1. Trade with the money you can afford to lose
Take away that natural attachment we all have for money by trading with an amount you can afford to lose. In doing this, you will feel less pressure when you are trading because you know that if you lose the money, your lifestyle won’t be adversely affected. The price movements will no longer feel as threatening as they use to.
But this does not mean that you should be careless in the market and bet all your trading capital in one trade or start trading without a stop loss. The effects of those risky trading habits will still leave you frustrated. Using your disposable income to trade will make it easier for you to focus on executing your trades and not on the outcome.
2. Always have a plan
You should have a plan for everything. From how much you put in every trade to how much profit you retain to grow your account, you should have everything clearly started. Moreover, you must have a trading strategy that specifies the criteria for entering a trade, where you place your stop loss, and where you take profit.
There should also be a plan for trade management — whether you practice set and forget or manage your trades actively. If the latter is the case, you must specify when to move your stop loss to breakeven and how you trail your profit.
When you have everything written down, your job in the market will only be to implement the plan — identify the market situation and take the action your plan stipulates for that situation. This way, you reduce the amount of work your brain needs to do when you are in the market, thereby preserving the brain cells from exhaustion.
3. Don’t multitask
The brain is more productive when it is focused on one thing at a time. What this implies is that you remove all forms of distraction when trading. You can’t be trading and reading a newspaper or checking social media. Focus only on the chart in front of you. There will be time for newspapers and social media later.
Another way to look at it is to focus on one market at a time. Don’t open the chart of EUR/USD, DAX 30, S&P 500, Gold, and WTI Crude at the same time and expect to focus deeply on each one of them. Your brain will suffer from information overload and get exhausted.
4. Express your feelings
After taking that huge loss and you are feeling bad, don’t just stomach that feeling. It can be really dangerous as that bad energy must find a way to express itself, and it could be in the form of revenge trading, which will further worsen your situation.
The best line of action is to hop on a trading forum and let that feeling out. Discuss what just happened with other traders in the forum. Chances are that there are many traders who are going through the same thing or have experienced it in the past.
5. Identify the source of the stress
Identify the main cause of your trading stress. Is it because of the uncertainty in the market or that you have a losing streak or one huge loss? Could it be that you don’t trust your trading strategy, or you are risking too much money in each trade, which makes you very much attached to the outcome of each trade?
Whatever the source of the stress, identify it and tackle it. If your problem is that you are too attached to the money at risk, reduce the size of your trades to an amount you are comfortable with.
6. Focus on the Controllable
There are many things you cannot control in trading. For example, you can’t control where the price goes, so you can’t control the outcome of your trading. However, there are things you can control, such as your risk amount, your trading strategy, and the ability to execute your plan — focus on those things you can control.
One thing that you have to know is that trading is a probability game, and there is no way to know the outcome of each trade. Once you have a strategy that has been proven to make money, you only need to execute your trades and forget about the outcome. In the long run, your edge would play out and make you money.
7. Lower your expectations
Don’t expect so much from the market. In fact, don’t even have any expectations at all, because when the market doesn’t offer you what you expected, you might feel betrayed by the market, thereby putting yourself in a stressful state.
Simply focus on executing your trades consistently and taking whatever the market offers you in each trade. Trading is a long-term journey, and the road can be quite tortuous. Lowering your expectation reduces stress.
8. Accept that there will be losses
Every trader loses at some point and even gets streaks of losses. There is no way to avoid losses in trading, as losing is part of the game. So, you have to learn how to accept the losses without feeling stressed about it. The first step to accepting your losses is to make sure that your strategy has a positive expectancy by testing it on a demo account to confirm that.
Another thing is to have a good money management strategy. You should not risk more than 1% of your trading capital in each trade so that your losses can be kept small. With these two, execute your trades with consistency so that your edge can play out over time. This way, you know that your losses will become a part of the whole sample that would cumulatively give a profitable result at the end.
9. Practice mindfulness exercise
Mindfulness exercises, such as yoga, meditation, mindful walking, and deep breathing, help you to relax both your mind and muscles. They can also make you more aware of your body and feelings so that you can easily identify when you are having trading stress.
Interestingly, you can do some of these exercises in the morning before going to your trading desk. A 15-minute meditation every morning can do your mind a great deal of good. Even at the heat of the trading, a deep breathing exercise can help to calm your nerves.
10. Make use of Emotional Freedom Technique (EFT)
Also known as psychological acupuncture, EFT is a way to relieve emotional distress and pain by tapping a finger at specific areas of the body. But, first, you have to identify the issue you want to reduce, and in this case, it’s stress.
There are five steps to EFT:
- Acknowledging the stress
- Checking the intensity of the feeling
- Establishing the phrase you intend to repeat during tapping — for example, even though I feel stressed, I completely accept myself
- Tapping the recommended places seven times: eyebrow, side of the eye, under the eye, under the nose, chin, beginning of the collarbone, under the arm
- Checking the final intensity of the feeling
11. Take a break
It helps to take a break from trading. This is especially important if you are having a streak of wins or losses because you are liable to make trading errors in those situations. If you are winning, you may use too much leverage or overtrade, and if you are losing, you may revenge on the market.
Take a walk, go to meet friends, hop on a trading forum, or do any other thing you feel like. The important thing is to step away from your screen for a while.
12. Reduce coffee intake
Coffee can help you sometimes to stay alert and be able to concentrate better, but it can also make you hypersensitive and even paranoid. You can begin to panic at the wrong moment. This particular side effect of coffee often manifests when you are stressed as caffeine worsens the effects of cortisol on your brain.
13. Exercise regularly
The importance of exercise on your brain function cannot be overemphasized. It helps to open up the blood vessels in the brain so that the brain can get better nourishment and oxygen. Moreover, when you are exercising, your brain releases endorphins which make you feel good.
There are many forms of exercise you can do. Running is a good one, but you can also do brisk walking. If you want, you can enroll in a gym. A 30-minutes moderate-intensity exercise can do a lot of good to your health.
14. Maintain a Healthy Work/Life Balance
It is important you maintain a healthy work/life balance, as issues in your family life can affect your trading and your trading stress can easily be carried on to your interactions with your loved ones.
Make sure you spend time with your loved ones. You should have time for trading and the time for family life. When it is the time for family life, go be with them, have fun, and forget about your trading woes.
15. Make Time for Some Relaxation
You shouldn’t be trading all year long. You must create time for vacations. Visit new places or countries with your family and have some quality time. It doesn’t matter whether everything is okay with your trading or you are going through a rough patch; make out time for a vacation. A three-week or four-week vacation wouldn’t affect your profitability, instead, it will do you a world of good as you will come back refreshed and ready to start again.