Did oil prices ruin your trading plans this week? Adverse events, such as foul weather in the Gulf, are just one of the many sources of stress an active trader must contend with. If you’re not careful, you can feel overwhelmed. When you are “stressed out,” you may not be able to think clearly, and when your thinking is fuzzy, you won’t read the markets objectively. As John Percival notes in The Way of the Dollar, “danger points in trading come when we’re under stress.” It’s essential to do whatever you can to stay calm while trading.
It’s useful to practice stress prevention. Scientists have shown that stressful emotions can build up, and if not released occasionally, a person can be overloaded by stress. Laboratory animals placed in stressful situations, for example, die if the stressful events are continuous and enduring. Thus, it’s essential to have a routine to release stress and let your mind rejuvenate. You can’t completely remove stress from the trading environment, but you can prevent the stressful aspects of trading from making you feel overly anxious and fearful. Here are some tips on how to develop an effective stress reduction plan:
First, avoid caffeine. Many people feel that caffeine keeps them alert, but many times, caffeine will elevate your nervous system to the point that you feel on edge and ready to panic. It operates in the background and makes your nervous system hyper-alert to the slightest form of stress. Trading is stressful enough; you don’t need to pre-elevate your nervous system, only to feel extra nervous when you face an unexpected adverse event, such as a dramatic jump in oil prices.
Second, exercise regularly. Many successful traders view exercise as a key component in creating a calm and relaxed mindset. It’s vital that you regularly release tension that builds up during the trading day. Exercise ensures that pent-up frustration and tension are released, and do not build up to influence subsequent trading decisions unexpectedly.
Third, minimize background stressors. Daily hassles, such as minor arguments, traffic congestion, or feeling over-extended can add up to be as equally stressful as a major life event (such as the death of a loved one). Try to minimize these hassles, and don’t ignore them by trying to pretend they aren’t important enough to deal with immediately. They can accrue and cause you great strain in the long run.
Fourth, don’t exceed your trading skills. If you are new to trading, don’t put extra pressure on yourself by trying to achieve trading goals that you can’t possibly achieve. For example, keep position sizes small and have clearly defined risk limits. If you push yourself beyond your skill level, you’ll not only feel extreme anxiety and fear, but you will probably unnecessarily deplete your account balance more rapidly and end up experiencing even more debilitating feelings of stress.