Emotion, Stress & Trading

I was recently asked by a member to share my thoughts on how I manage the high stress levels and how you keep emotion out of the mix. I will get to the the stress handling in a second, but let me start by addressing “keeping emotion” out of it.

While many traders say they can keep emotion out of their trading, I believe when it comes right down to it they’re being disingenuous. Unless those same traders really employ a completely robotic trading system which requires absolutely no supervision or control, that simply cannot be true. This is one of those things that I’ve seen many traders say to impress others, but in reality it just isn’t possible or even realistic.

When you have real money on the line and have also invested your own time and energy beyond that, emotion will play a significant role in every decision. After all, none of us are trading robots! We all have feelings and egos and therefore our trading and investment decisions will be impacted from those even in subtle ways that you may not even realize. The key is to learn how to use those emotions to your advantage. For some of you, trading completely contrary to your logical fears is an excellent way to make big money in the markets. Just look at all of the people who went short hoping for Hindenberg Omen type crash in August and who’ve been fighting it every step of the way!

As far as coping with stress, we all have to develop our own methods. But, this is what I’ve learned over time. For me, stress comes primarily from three things:

  1. Not having a plan and being out of position in a challenging market

  2. From not staying on top of my work and not sticking to my rigorous routine (usually from unforeseen events like technology issues or personal issues that all of us experience from time to time)

  3. Stress and pressure I place on myself in hitting my daily, weekly, and monthly goals especially when I’m not performing up to my expectations

So, how do I cope with these? Here are a few thoughts

First, I try to always have a game plan in place, hopefully with a number of potential scenarios in mind. Then I evaluate each scenario and trade accordingly.

I’ve become fairly good at it and the market doesn’t usually surprise me. And, even when it does, that too is valuable information that I can often use to my advantage in some way.

Second, I try to stick to a routine as much as possible no matter what happens or is thrown my way. Case in point, if you looked at what I did on the day of the infamous flash crash and compared it with yesterday, my routine would have looked exactly the same. The market may do some crazy things from time to time, but my work routine doesn’t usually vary. As my wife would tell you, you could set your clock to it!

While it is true that I work a lot of hours, I also do what I can to get away and build that into my regular routine. For example, when I’m not at my desk, the last thing I think and talk about is the markets. For that very same reason, most of my close and dear friends have nothing to do with the market. While many people as you can imagine want me to meet up with them to talk about stocks and the markets, but honestly I try to avoid whenever possible. I do that not because I don’t want to help out or be friendly, but because what precious little time I spend away from the trading desk I don’t want to spend talking about work. I do that enough already as it is!

Although I truly love what I do for a living, I try my best to have a life away from it and having a number of hobbies you really enjoy can be tremendously helpful. In my experience, traders who make the markets their entire lives won’t last very long. You have got to have some balance in your life to keep stress at bay and frankly to achieve the level of performance you desire!

Finally, while I’m very much a goal-oriented person, through experience I’ve learned when to back off and not beat myself up for mistakes and periods of routine poor performance. After all, that’s part of this game and you’ve got to expect it. I know my patterns well enough to understand that in every month on average, there will be one week that my performance will stink. In addition, most weeks I have at least one to two losing days on average. Knowing this and expecting it, helps me keep stress at bay. Market conditions play a much greater role in our performance than many traders are willing to recognize. There are times the you will not do very well and it isn’t because you are doing something wrong or that you lack some specific skill, but that conditions are just simply awful. Part of good trading is knowing when those times are so you can back off. Likewise, when conditions are great, you’ve got to fully capitalize on them!

Well, that at least offers some perspectives on how I manage the things which cause me the most stress. Unfortunately, your stressors probably come from other and different sources than my own. If you’re feeling stressed and out of whack, the first step I think is simply to spend time figuring out the source of it. Once you identify the source, no matter what it or who may be, then you have to figure out ways to work around it or at least soften its impact on you. But, awareness of what the source of your stress is, is often the most challenging part.

Go to top