The two words have become forever linked to each other, largely due to the stereotypical image of what a trader is and how a trader acts.
You know the stereotype. The 20-something testosterone-fueled Alpha Male who sucks down a Red Bull every 15 minutes and lives off adrenaline. His days are spent maniacally screaming and bullying his way through Wall Street trading rooms while his nights are spent partying ‘till dawn.
Of course, this exaggerated stereotype is hardly realistic of what a successful trader behaves like. In fact, it’s probably the complete opposite of how a successful trader acts in reality. Successful traders are more likely to work in calm, quiet settings (often from a home office) and live a typical family life in Suburbia, U.S.A.
Still, erroneous stereotype or not, “trader stress” is a very real problem. Anyone who has ever tried their hand at trading (especially trading for a living) knows all too well what a tremendous level of stress trading can induce. It’s a level unmatched by just about every other profession in terms of intensity and consistency – that is, it hits hard and lasts long.
The good news is, stress doesn’t have to be a part of trading. There are very real ways to defeat trader stress. And when you do, your performance as a trader and happiness as a person will improve dramatically.
I suppose every trader who has been in this game long enough has come up with some type of formula for slaying the trader-stress dragon. Here are my five simple steps, which have helped me eliminate trader stress. If I ever find myself stressed out by the market, I can go back to these five steps and determine precisely which step or two I’m ignoring. I then correctly implement the step I’m ignoring and I’m a new man.
Step 1: Set Stops
I know, I know, Step 1 isn’t exactly groundbreaking. We all know how important it is to trade with predetermined steps. Stops are like safety nets for the tightrope walker, insurance plans for your property, or [insert your cliché of choice here].
Yes, the importance of setting stops comes directly from Trading 101, but you’d be amazed how many people violate this first commandment of trading. Many a trader will keep their stop vague, fluctuating with the market or their mood. They will usually move their stop as their position nears it, defeating the whole point of having a stop in the first place.
Whether your stops are mental or pre-programmed orders, they need to be EXACT and they need to be IRONCLAD. No vagary and no bailing on them at the last minute.
Step 2: Visualize Your Worst Case Scenario
For traders, the “worst case scenario” at any given moment is having a position turn against them and hit their stop. When this actually happens, it’s really not that big of a deal. You either book your profits or cut your losses. Either way, you close the trade and move on to the next.
Like most things in life, the ANTICIPATION of this so-called “worst case scenario” is much worse than the actuality of it occurring.
Each morning, you should visualize “what if” the market goes against you today and your stops get hit.
By doing this consistently, you’ll remind yourself it’s really not that big of a deal to close out a trade. Thus, on a day when it actually happens, you’ll be able to deal with it without panicking or stressing out.
Now I know some of you will see this step as an exercise in negativity. After all, aren’t we all taught by the volumes of self-help literature that we need to visualize only positive things occurring?
To that I say, get real. There’s no room on Wall Street for fairy tale thinking. The same is true of most professions. Do I want a surgeon to operate on me who hasn’t mentally prepared himself for worst case scenarios?
Mentally prepare for the worst. You’ll find that it not only helps you make better decisions in the heat of the moment, but it also drastically reduces your stress in “surprise” situations.
Step 3: Make Peace With What You Can’t Control
The root of all stress is fear of what we can’t control. And let’s be honest, there’s a lot in life we have very little control over.
The key to reducing stress is to make peace with the things we have no control over and focusing our efforts on those things we truly do have control over. You may have no control over a specific event, but you always have control over how you react to that event.
In trading, you have NO control over what the market does. Accept that. Make peace with that.
You’re like the surfer who can’t force the ocean to give you the wave you want. But, you can choose to be patient and ride the perfect waves when they come along.
As a trader, the ONLY thing you can control is how disciplined you are in your entries and exits. That’s it.
If you have the discipline to exit a trade as soon as a stop is hit, you’ve WON on that trade – regardless of whether the trade itself made you money or lost you money. You’ve won because you made the correct choice and reacted properly.
Step 4: Remember That All Good Trades Must Come To An End
Nobody exits at the very top.
When a stop gets hit, it usually means you’re exiting with less profit than you would have made if you had exited the day before. That’s how trading works. Live with it and expect it.
You can’t be surprised and confused to see a trade come to an end. Would a firefighter be good at his job if every time the fire alarm rang he got surprised and angry?
Step 5: Relax And Enjoy The Ride
Life is all about choices. As a trader, you CAN choose whether or not to be stressed out when you trade.
The stereotype about how stressful trading is doesn’t have to be true. The choice is completely up to you.
Some traders make stress and anger a central part of the game. They feed off of it. They enjoy it or think it’s “just the way it is.”
But other traders are calm and relaxed. They enjoy the fact that they have the opportunity to make a fortune playing what is ultimately a mental game with other willing participants.
The difference isn’t about one’s personality; it’s about one’s choices.
You can trade in a state of stress and anxiety or you can trade in a relaxed state. But make no mistake about it, the choice IS yours.
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