Archives of “anxiety” tag

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How do *your* coping efforts work for you?

  
  Education
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Take a look at how well you trade after a position has gone against you. Do you trade better after a drawdown or worse?

How about after you have a few winning trades, days, or weeks in a row? Do you trade better or worse? Breaking down your performance as a function of recent performance will tell you a great deal about how effective you are in coping with risk and reward.

The other excellent indicator of whether your coping is working for you is your emotional experience during trading. If you find that anxiety, overconfidence, frustration, and stress are pushing you into poor decisions, you know that you’re not coping well with the uncertainties of markets.

Finally, it is helpful to identify the sequences of coping behaviors that you utilize when you’re making good decisions and the sequences when you’re trading poorly. Knowing how your individual coping responses come together to form coping strategies can help you cultivate your coping strengths.

Tracking how you deal with challenges when you are at your most effective enables you to create a mental model of that coping that you can call upon during periods of high stress. We cannot avoid the stresses of trading, but those do not have to generate distress and biased decisions.

Solution focused approach

  
  Education
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focusedWhat did we do differently on those successful occasions?

* I have planned the trade well in advance with research; it is not a spontaneous trade, so I’ve had time to think clearly about what I want to do.
* I have a clear profit target in mind based on research and refuse to waver from that target unless the market takes me out with a predefined stop. I consider myself a person of integrity, so I tell myself that I have to show integrity and loyalty to my trade idea and target;
* I don’t follow the position tick for tick. Either the trade will hit my target or it will hit my stop. I make a conscious effort to let go and not micromanage the trade;
* I keep myself calm and clearly focused by purposely getting up from my chair, doing some stretches, breathing deeply, and getting away from the screen. I keep myself in a state that is incompatible with anxiety;
* I rehearse constructive self-talk during the trade. I tell myself that I’ve done my preparation and established my edge. Any individual trade can go against me, but if I take all the good trades I can, eventually I’ll benefit from good odds and a good risk-reward ratio. If I lose money on the trade, I’ll figure out why and what that might be telling me about the current market. (more…)

Trading Thought

  
  Education
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Know what your tolerance for risk is.Traders who are able to make smart decisions can beat the market. However, the greatest hurdle to doing so is overcoming the emotional traps that cause traders to make bad decisions.The reason we succumb to our emotions is because we are afraid of losing. It is the risk we take that creates emotion; take too much risk and you are likely to make bad decisions.Therefore, you need to know what your limits are. What dollar amount of risk causes you anxiety? If you can not make a trade with out fear then you are taking too much risk. For some, that means never trading since they simply can not handle the risk of financial loss. However, over time and with success you will begin to build up your tolerance for risk, just take it one step at a time.

8 Trading Tips

  
  Education
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1. Know that you can’t control the markets: but you can be well-prepared.

2. Set aside time to prepare: Block out an hour before the markets open through the first hour of trading to make final plans for the day and focus only on your markets.

3. Generate a Trading Plan: Create a Trading Plan and stick to it! Having a plan in place can ease your mind, give you direction and help focus your efforts for profitability. It allows you to control how you will use your trading time.

4. Take a deep breath: You know you can’t control the markets so take a deep breath knowing what you can control – your trading decisions – and don’t let emotion or anxiety get in the way. You can also take a few moments to clear your mind with relaxation and meditation exercises.

5. Turn off all potential distractions: Avoid all potential distractions. When your day starts, make sure you don’t begin it with a potentially distracting activity like Twittering and checking email. Start with a focus on the markets and on how you will perform today. You will feel good about yourself for being well-prepared.

6. Stay positive! There is plenty of research proving the power of positive thinking and general thought on one’s life. Creating a positive approach right from the start of the trading day will have a positive influence on your trading during the rest of the day.

7. Separate emotion, anxiety and the facts: The one reason people feel like trading failures is because they allow their emotions and anxiety to control their actions rather than sticking to the facts of charts and information.

8. Admit that you will win some and lose some: Not everyone can win every time in the markets, but allowing yourself to accept that you will win some and lose some will help you brush off any emotions and anxiety that you feel so you can focus back on winning.

Cold Truth About Emotional Investing

  
  Education
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Consider an excerpt:

WSJ: What do you mean by emotional finance?

PROF. TUCKETT: What we try to do in emotional finance is start with the fact that the future is unknowable. The key thing about uncertainty is that it inevitably generates feelings. Because it matters to you, because your money’s on the line, so to speak, you’re bound to feel emotionally engaged.

WSJ: Some people think pros are more rational than individual investors.

PROF. TAFFLER: Although most of the fund managers we interviewed saw part of their particular competitive advantage as remaining, as they described it, unemotional or rational, in practice they were just as emotional as anyone else when they started to talk about the stocks they had invested in. There were lots of examples where they referred to them almost as if they were lovers.

If you’re entering into an emotional relationship with a stock, an asset or a company that can let you down, this leads to anxiety, which is often not consciously acknowledged. But it’s there, bubbling beneath the surface.

WSJ: The fund managers told stories about their investments. What was the role you found that storytelling played in their decision making? (more…)

Dr.Elizabeth Lombardo, Better Than Perfect-Book REVIEW

  
  Education
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BETTER THAN PERFECTPerfectionism as it is usually understood can be a terrible curse, especially for a trader. It leads a person to act out of fear rather than passion—and sometimes not to act at all (why bother? I’ll botch it anyway). The perfectionist has both an “incessant drive to control the future” and “the unsatisfying feeling that, no matter how hard [he tries, he] will always come up short.” (p. 7)

In Better Than Perfect: 7 Strategies to Crush Your Inner Critic and Create a Life You Love (Seal Press, forthcoming September 23) Elizabeth Lombardo, a clinical psychologist and author of the national bestseller A Happy You, tackles the problems perfectionists create for themselves and suggests ways to overcome them.

For the most part Lombardo’s solutions involve reframing attitudes and motivations. Take the fear/passion dichotomy. “When you are fueled by fear, you focus on what you don’t want. Your goal is to do everything in your power to reduce the possibility of an undesired outcome. … Just by switching your perspective from one of fear to one of passion—working toward a desired outcome instead of avoiding an unwanted result—you can begin to feel more motivated, engaged, positive, and hopeful.” (p. 50)

Perfectionists are inclined to compare themselves to others and to judge themselves negatively. Of course, it’s not only perfectionists who do this; they are simply more intensely competitive. As Lombardo says, “Perfectionists don’t just want to ‘keep up with the Joneses,’ they want to kick the Joneses’ butts!” (p. 185) Well, that sounds more like trader talk; maybe a dose of perfectionism is actually a good thing, at least professionally. Lombardo admits that “many champion athletes, prominent scientists, and celebrities demonstrate perfectionist traits.” (p. 6)

(more…)

How bear markets affect our decision making

  
  Education
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READ THIS NOWAs of this Friday, the S&P 500 has gone 980 days without a 10% decline, according to Birinyi Associates, the fifth-longest such stretch on record. This past week’s nervousness, set off by the insurgency in Iraq and the surprise defeat of U.S. Rep. Eric Cantor, is thus the perfect pretext for investors to think about what they will do when the market takes a serious beating.

For, sooner or later, it surely will—and those investors who have honestly prepared for it will stand the best chance of surviving unscathed. In a downturn, you won’t be the same investor that you are now—unless you rely on rules and procedures, rather than willpower alone, to regulate your behavior.

New research shows that the kind of stress brought on by a collapsing stock market fundamentally changes how people make financial decisions. (more…)

The Secret To Success

  
  Education
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Never forget: This very moment, we can change our lives. There never was a moment, and never will be, when we are without the power to alter our destiny. – Steven Pressfield

One of the greatest powers of Resistance and procrastination is that they compound themselves over years and decades. They can build to the point where they make you feel as if you have no control over your own destiny. They make it easier to just give up and be normal.

Pressfield reminds us that we are always in possession of the power to change the course of our lives. At any single moment of our lives, we are capable of completely altering the way things are going. 

After years of allowing the Resistance to hold us back in our trading, the chances of ever achieving trading success might seem bleak. It is important to keep in mind that we always possess the power to change that. We can beat the Resistance and procrastination through diligent and consistent work.

That is the one and only secret to trading success. It is also the one and only secret to success in just about any other field you might want to pursue.

Fear

  
  Education
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  fear-daytrading
 

One of my favorite bits of trading advice was given 85 years ago by Jesse Livermore in Reminiscences of a Stock Operator: 

“The speculator’s chief enemies are always boring from within.

“It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope… to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to.

The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.” (more…)

10 Ten Reasons Traders Lose Their Discipline

  
  Education
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10-Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;

6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;

2) Not having a clearly defined trading plan/strategy in the first place;

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

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