Stress and anxiety is universal and quite a common phenomenon among traders. To an extent stress is good as it releases adrenaline and increases focus and alertness but if it goes beyond that it can be harmful.
Some classic stressful trading behavior :
1.) Some traders increase their risks while in stress.
2.) Some experience paralysis in action like they don’t get out when they should or don’t get in when they should.
3.) Some trade under-capitalized due to fear.
4.) Some traders don’t let their profit run and bail out too soon due to fear and to taste the feeling of winning as early as possible.
5.) Some traders let their losses run too long and don’t cut losses on time.
6.) Some traders don’t set any goal in terms of what they want to earn in an year or a quarter or a month or even in a trade and they depend upon the market for their output.
The thing to note here is that one’s response to stress is repetitive means that one tends to do the same thing while under stress unless one actively and consciously tries to change that.
Below are the ways to keep stress and indiscipline in check:
1.) Be honest with yourself. Masking the stress causes more damage than the stress itself.
2.) Identify the emotion of stress and time your stress period. Realize when you are in stress and analyse your behavior and start counting the time to measure that how long you remain in stress.
3.) Keep a trading journal. Analyse your wins, losses and trading behavior.
4.) Set a goal and not let fear or greed take you over. Goal setting is very important. You must know your target and stick to that rather than going with the market flow.
5.) How much you want to earn must be rationally correlated with how much risk you should take in a trade. For example if you want to earn Rs 1 Lac in a month and there is a trade where you can make Rs 50,000/- keeping the risk in check then you should not stretch the risk just because you want to make Rs 1 Lac.
6.) This point is in extension to the previous point. If you want to earn more money in a trade that you are sure of, then instead of stretching the price target and venturing into more risk you should increase the bet size or the number of bets.
7.) A trader should never correlate the losses and profits. Generally what happens is that if a trader incurs some loss on a trade then he tends to take more risk in other trades by increasing the size of the bet or by stretching the target price of the bet to cover up for the losses that he made in another trade. This is a classic sin. Keep every trade separate. Never let feeling of revenge creep into your head.
8.) Be humble. Know that the market is bigger than you. You cannot control the market but you can definitely control your response. So try to be as rational and emotionally detached as possible.
9.) Know yourself. Know your beliefs and thought process. Understand your definition of possible and impossible. Understand your pain limits and work on them because at the end your trading depends upon who you are as a person.
10.) Increase your trade sizes in incremental fashion. Don’t over-trade as that causes anxiety which in turn causes irrational behavior.
11.) Learn to stretch your limits and pain thresholds but don’t overstretch.
12.) Meditate, visualize and relax. Visualize yourself doing good trades. Make details in your mind before you trade. Imagine what can go wrong and visualize yourself handling that situation peacefully. This will prepare you when the actual situation happens. Identify your mindset when you’re on a winning streak. Switch into that mindset every time you trade. Your mind will automatically make you confident and which in turn will make you take right decisions.
13.) Keep position size in a limit that does not make you lose sleep otherwise decision making will tend to be emotional and not rational.
14.) One must also choose his trading partners carefully if one wants to work in tandem with someone else. Communication must be the foundation of the partnership. Make sure that the strengths of the partners combine into a bigger strength while the weaknesses should cancel each other out and not the other way round.
15.) Last but not the least, learn as many moves as possible. Learning is a life time process.
Hope the information provided in this article will help you in your trading journey. For more such posts please visit our blog section.
Author of this post is a Certified Equity Research Analyst, Certified Investment advisor and conducts training courses on Fundamental & Technical analysis.