How to Manage Your Emotions When Trading

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You know that feeling only too well. Your emotions are swelling, the adrenalin is pumping and you may or may not be about to make the best deal of your career. If only you could think a little more clearly, find a little more head space to work through the consequences properly. But you can’t and so you haven’t.

Recognise this scenario?

I’m sure you do. Because market trading is one of only a handful of careers where emotions can swing from soaring highs to angry lows in only a matter of moments.

It’s why, of course, so many traders can’t last the distance. Unable to cope with the constant pressure, the intensity of emotion and the weight of consequence when things don’t go according to plan. And it’s why, of course, some thrive. Those who live for the drama, the reward and riding that emotional rollercoaster with ease.

Taking Back Control Of Your Emotions

Emotional control does not come easily to everyone. Even for those (including myself) who appear to coast along the waves of emotion, there are very often underlying issues that aren’t obvious to everyone around them. They may include the kinds of methods needed to help keep a lid on things, including alcohol and substance abuse.

But there are other ways to control emotions, ways that will still allow you to benefit from the highs and the adrenalin without compromising your long-term mental health.

For a start it’s important to state that feeling pressure is not always the enemy. There are times when it can prompt action in order to change whatever is causing the stress points. But for the most part stress is not helpful.

Behavioural expert and author Alfie Kohn says: “The psychological premises here are thoroughly misconceived. Just because you think that people, especially young people, ought to be able to tolerate and even benefit from stress (or failure) doesn’t mean they will. And just because you think this confers advantages—regarding their future resilience or current performance—doesn’t mean that’s true.”

So very true.

The Difference Between Stress and Pressure

So if we believe that stress, in particular, doesn’t necessarily benefit the trader in the short, or indeed the long-term, how can you learn to manage those feelings in day to day life?

Thankfully there are plenty of answers out there. Answers that provide daily coping strategies and with luck, avoid instances of burn out. All too common in traders and anyone working in industries where the stakes (and the rewards) are high.

When it comes to pressure, there are two kinds to deal with: internal and external.

Looking at external pressures, this might mean your workload, the goals that you’re expected to reach, the manager breathing down your neck and the overly competitive colleague. These external pressures are real, tangible and inform the way you feel day-to-day.

Less tangible are the internal pressures. These might be feelings of inadequacy, frustration and worry that you’re not living up to the expectations others have of you.

Both are equally valid and both can lead to intense emotions in and out of work. Emotions that can affect your decision making and performance. Knee-jerk reactions are very common mistakes to make in the heat of the moment and can lead to severe long-term consequences.

Making the Right Changes

The key to managing your reactions to both internal and external pressures is preparation. Sure, some of you reading this may agree or disagree. However, the key to making successful changes lies with you in making the right decision and commitment to change.

With some forward planning and some mapped out responses, it should become second nature to react in ways that are more appropriate and healthier.

First of all, find some general relaxation techniques that will help you to think more clearly when you’re under stress. We recommend these deep breathing exercises from verywellmind. Sure, you’ll have to make time to carry them out but consider it an investment in your overall performance and one well worth making.

Second of all, consider creating your own personal play book. A set of rules that are specific to you and the way you work. These rules might include your personal risk/exposure levels. Seeing them written down on paper can help remind you of what you are prepared to risk and help avoid those knee-jerk reactions we talked about earlier.

Listen to your body. If you’re feeling off your game, don’t try and push through. Step back for the day and take time to re-focus before you attack the work again. While you might think a great deal or two will make you feel better, you also run the risk of feeling worse if things don’t go to plan.

You might also consider keeping your trade size in check. Lowering your size might not leave you with the massive wins but neither will it affect your emotions so strongly if you do make a loss. It doesn’t have to be a dramatic reduction but enough to help you feel fully in control when you need it most and avoid taking risks that are outside your comfort levels.

Finally, you may want to think about setting up a trading plan to formalise that set of rules you have around your trading conditions (ream more about the “30-Day Trading Transformation” self coaching book if this is what you need).

This will require you to delve into your analytics a little more closely but if you’re used to making more spur of the moment decisions, a trading plan can be a useful tool for helping you spot patterns in your own behaviour. Think about your favourite trade set-ups, the ones you feel most comfortable working in and how you can create these scenarios more often than not.

The Science

Don’t make the mistake of confusing pressure with stress. A little pressure, for example a looming deadline, can be a good thing and motivate us to get the job done.  Consider the Inverted U theory put forward by psychologists Robert Yerkes and John Dodson.

In it they describe an upside-down U-shaped graph with boredom and low pressure at one end of the U and high stress and anxiety at the other. The bottom axis reads pressure while the vertical axis is labelled performance. The top curve of the U is where a person’s best performance happens, somewhere between low and high pressure. The sweet spot if you like.

Stress comes when pressure gets too much and does not lead to a boost in performance.  To some extent you have little control over the external pressure exerted on you but you can help to control your response. When you are feeling stressed, try these techniques:

  • Accept that you don’t have control over some elements of your work life and that’s ok
  • Be assertive, without being aggressive when it comes to expressing your beliefs and needs
  • Look after your body, exercise is great for both physical and mental health
  • Explore mindfulness and meditation techniques
  • Set boundaries. If you’re not comfortable doing something. Don’t do it
  • Sleep. Don’t underestimate how much this can affect your emotional control
  • Steer clear of too much alcohol, avoid drugs
  • Have a life outside work. Whether that’s spending time with family or on a hobby
  • Listen to your stop signs. When it’s off time, it’s off time. Don’t check emails late into the night

And once you have these factors in place in your life, what difference can you expect to see on the trading floor.

You’ll surprise yourself with how calm you can feel when facing increasing risk over a trade. You’ll find yourself with better resources within yourself. The adrenalin will still flow but you’ll be better equipped to ride it out and make decisions that lead to longer term gains. You’ll find it easier to step back and evaluate a trade with a calm and focussed mind and better set up conditions that you find more comfortable to trade in.

In yourself you’ll feel healthier mentally and physically too, if you choose to devote a little time to taking care of your body.

Staying on Top of the Mental Game

Looking after and managing your emotions as a trader may not be something that feels like a priority. In a fast-paced environment it can very often be the last thing you think about, lurching from one high-pressure moment to the next.

But even if it feels like something that doesn’t come naturally to you, consider the benefits taking control of your emotions is going to have on your professional capabilities.

Be that person who keeps a cool head, who always seems to make the right choice to minimise loss, even if that means backing down when others would do differently.

Be that trader who can stand back and coolly evaluate a situation even as the pressure ramps up.

Be that trader who, at the end of the day, can switch off and enjoy a life outside of work that refreshes and motivates them to wake up and do it all over again the next day.

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