Thursday, April 19, 2007

The Most Common Problem Traders Face

There's one problem that seems to be universal to traders, whether they're professionals trading in large banks or funds or part-timers trading from the home: performance anxiety.

Performance anxiety afflicts even accomplished individuals in sports, performing arts, and games of skill such as poker and chess. It occurs when awareness of the performance--and especially the outcome of the performance--interferes with the actual act of performing.

Performance skills have generally been honed to the point of automaticity. This is especially true of performers in high-speed activities, such as race car drivers, fighter pilots, baseball batters, and short-term traders. When the performer becomes self-aware and focuses attention on the outcome of the performance, this leads to efforts at conscious control of the automatic activity. The result is a disruption of performance.

A great example is the basketball player who is shooting a free throw in the last seconds of a game with his team down by a point or the golfer who has a putt to win a tournament. Aware of the importance of his shot, he carefully aims the ball and does not deliver his natural stroke. In the financial world, a trader will overthink a trade, missing a great opportunity when it doesn't set up exactly right. Heightened awareness of risk interferes with the pursuit of reward.

What causes performance anxiety? Sometimes a single poor performance or set of performances create the view of a "slump" in the performer's mind, leading to efforts at correction that only exacerbate the problem. Other times, changed circumstances can generate the performance anxiety. Being hired by a new firm and wanting to impress everyone; having one's trading size raised considerably and becoming aware of the new risk; giving birth to a child and now feeling more pressure to bring in money--all of these can shift the mindset of the trader. The result frequently can be seen as a change in the trader's mood.

The traders' questionnaire I posted a while back is one way to assess a disruption of mood. Performance anxiety can become debilitating, not only because it inhibits performance, but because it affects global well-being and the accurate assessment of risk and reward.

One of the poorly recognized aspects of performance anxiety is known as secondary anxiety. This occurs when a person becomes aware of their own emotional arousal and becomes anxious about being anxious! It is a major dynamic behind panic disorder, but it also frequently plays an important role in sustaining performance anxiety. A trader can become threatened by even the normal fight-or-flight responses generated by activities that involve risk and uncertainty. Once those responses are perceived as threats, they generate further anxiety, which in turn becomes even more threatening. Many times, performance anxiety is the result of just such a downward spiral.

There are many effective psychological techniques for mastering performance anxiety. But before I offer some of these in my next post, I would like to ask readers to comment to this post or email me with their own favorite techniques, including links to relevant posts on trading blogs. Performance anxiety is one of those normal, developmental challenges that all traders face at some point in their careers. What has worked for you? How have you gotten past the jitters, self-doubts, and mental interference? I'll collate responses and then offer a few techniques from the research literature in psychology. My email address is at the end of the "About Me" section on the blog home page.


Charles Delvalle said...

Generally, when im hitting a losing streak a start bringing my exposure down to a point that makes me feel less anxious about losing. So if i invest 20% of my portfolio in an investment, ill start investing 10%... or even 5%... whatever level makes me feel comfortable.

Eventually i'll win and start feeling better about my trading. At that point i increase my exposure again until its back to normal.

Great article.

David said...

Hi Dr. Brett-

As a trader and beginning skeet shooter, I am amazed at the parallels I am seeing between effective shooting and trading.

Overcoming performance anxiety is a major task that every shooter must accomplish in order to improve their game. Lanny Bassham, an Olympic shooting coach, talks about shooters developing a "mental program" that they run before each shot. The purpose of the program is to occupy the conscious mind while the subconscious is triggered to action, and allowed to take over to complete the shot. The program should be consistent, simple, and tailored by each individual. The program starts when the gun is loaded, and could include any number of steps, such as visualizing where the shot will be placed or what the target will look like when it breaks.

Letting the subconscious take over is the key. I continue to re-learn this lesson with every missed target, as the cause can usually be traced to over trying and making a conscious effort to break a target. I find that if I am able to quiet my conscious mind, and let the shot just happen, the targets break easily.

The applications to short term trading are obvious. More info available at

Thanks and really enjoy your blog.


bhong said...

Hi Dr Brett
I have three that I like to use.

1. is Atenolol or Inderal. These are short-acting Beta-Blockers and have been shown to be helpful in musicians, public speakers, etc. They work by reducing heart-rate, blood pressue, sweating, and tremulousness. Tremulouseness is very difficult to control and is especially noticeable in musicians and public speakers.

2. is meditation and, when I have access to it, biofeedback. Also great at reducing heart-rate and autonomic arousal.

3 is thorough preparation. Rehearsing aloud my presentations and reviewing them so thoroughly that they seem to flow automatically. As you know, speaking to a crowd of judgemental physicians can be a nerve-wracking experience. But making yourself THE EXPERT IN THE FIELD on that day and rehearsing so thoroughly that the presentation just flows is one way of forestalling interruptions and criticsms.

For your example of the basketball player in the last minute, the usual recommendation is not visualization, but running wind sprints until you're exhausted and the heart is really pounding. Then, like an Olympic biathlete, training yourself to become AWARE of your heartbeat and timing your shot to that brief period in time when your heart is at rest. This is a variation of my third point whereby you train yourself to perform under the most stressful scenarios and develope the confidence that YOU ARE THE MASTER at that point in time.

When you are mentally relaxed (meditation, biofeedback and the knowledge that you are thoroughly prepared) you not only reduce or eliminate performance anxiety, but the experience can become enjoyable. Then, the next time, your recollection of the "fun" you had the last time can carry you forward.

Hope this helps

traderdan1 said...

Dr. Brett,
What helps me with performance anxiety is how I frame my success rate. I try to relate my trading success rate to that of a baseball batter who is only successful on average 25-30% of their at-bats. I've played baseball for quite a few years and with this as my reference point it really helps when I find myself in a trading rut.


AnaTrader said...


As your invite is more to professionals, I have turned to my mentor with your post.

Here is how he, as a professional and also a fund manager, copes with performance anxiety:

I cope with anxiety on a number of levels:

a) Firstly I have learnt to recognize when stress
is upon me. Through meditation and by doing
a body scan every 60 mins or so when trading,
I have learnt to recognize the signs of stress.

I also watch my self-talk: I look to catch certain key
words (e.g. I should have), because they tell me
that stress is upon me.

Finally if I catch myself, while trading, focusing
on the future or past, I know stress is here.

It's important to emphasize this focus on the
past and/or future is not part of a learning or
planning process; rather it's an aspect of 'spinning
my wheels' so I won't have to face the discomfort
thrust upon me by the situation.

b) Once I recognize that stress is here, I use
breathing techniques to release stress and focus
on the present information the market is providing.

Also, I have found Peter Steidlmayer's admonition (to
focus on the present tense information the market
provides) to be an excellent way to hop out of my
head and thus the stress.

Finally after trading, I review the causes of the stress
and take action to remedy the situation.


As a novice trader, I cope with some of his ways eg listening to piped meditation music, which was part of my basic course, whenever.
I also do self-talk a lot, which helps, as your past posts indicate many times.

Jeff said...

Hello Dr. Brett, My way of trying to cope with the anxiety you are describing, and which I am experiencing lately (a newborn child) is doing trading simulation for awhile, using a paper-trading account. My broker (IB) provides a paper trading account with a very realistic look-and-feel. The idea is that I'm more likely to be consistently successful with paper trading. This success – so I hope – will in turn lift my confidence and alleviate my performance anxiety somewhat. I will then be able to get back in the "flow" and trade for real. Hope it works.

KC Equity Trader said...

Your emotions are huge in trading. I try to keep everything mechanical and know that if teh trade goes the other way it hits my stop and the trade is done with a short loss. Always live to make another trade.

Dinosaur Trader said...


Thanks for this post. I'm one who is a bit immersed in the problem you discuss.

You mentioned that having a child could lead to such stress and in my case, there seems to be a real correlation between the birth of my first child and my trading slowing down. I think it made me much more conservative because I felt like I had to suddenly "provide" for another.

Anyway, I'm looking forward to your posts on how to deal with these issues. Those who have gone through it know how important a topic it is.

What I've done recently is drastically cut the size of my positions that I trade with. Then, I trade most of the ideas that come into my head. That way I'm actively trading but keeping any losses to a minumum.


mdbllbr said...

My anxiety related to trading mostly come from being unable to antecipate market trends. When I feel that way I stop trading and start research looking for ways to improve my trading process until I fell confortable again and i'm sure I won't make the same error again. Actually I'm a macro economy and trading related info junky. I have six monitors in front of me and I use three real time info providers and I read at least ten papers each day without mention tens of blogs and sites on the internet...
Sometimes when I read about new indicators or new models my anxiety increases because I feel I should be doing that... Obviously not everything is possible because of the resource constrains and not everything that is out there is good but I don't feel good again until incorporate that new thing in my trading process or reject it because its not good. Your blog has been usefull and always remaind me of thinking about what I'm doing wrong.
The only thing that trading has in common with other sports is that you have to antecipate events in order to win. There's no way to improve trading only by practicing only way to go is improve your decision making process. Maybe only chess played at high speed can be compared to trading.

Woodshedder said...

I started taking atenolol for high blood pressure. While it is probably not the answer for those trying to reduce stress while trading, it certainly does stop the heart pounding/racing heart that can happen while trading. I've found that a pounding heart can also set into motion other biological processes, like fight or flight syndrome.

mayimrabim said...

Great post !This really hits home.
It is a huge eye opener. I was a successful consistent trader who always hit singles and doubles ($1000-$3000 a day)for 48 months in a row without having a losing month (1999-2003).Then one day I struck out I lost $38,000 in one stock and had my first losing month as a trader ever. since then I have not had two consecutive winning months and infact have only had a handful of profitable months since then. I am still loooking for the road back to consistency. No matter how close I get I always find a way to screw it up even if it is on the last day of the month. Or I give back the month with just some silly unimportant trade that turns into a disaster. It is like I subconciously look for these situations just so I can mess up.
Any suggestions?

Eric said...

im a trader with 10+ years experience:

My assessment is you think you "deserve" to make 1,000-3,000/day because you did it in the past and have some pride about it.

However, you currently what can you do? The market always changes/you need to change and start over mentally and work harder keeping that beginner's mind and dropping that pride that has you "boasting" about your consistency and past performance.

Lastly, do you really still want to trade and work extremely hard? I too went through great months only to have blowups or emotional meltdwons. I determined this was a self-sabotaging loss of discipline derived from anger towards myself for not taking greater risk AND most importantly i did not want to be trading and wanted to get away....

In conclusion: you were a winning trader so you can be again. Take 1 week off/assess if you still want to do this/IF "yes" set smaller goals of say 500/day until you get the discipline back and start working harder and not resting on your laurels


E said...

I find it helpful to think it through and post to a friend or two or on twitter.

The process keeps me objective about both sides, and forces me to post something relevant rather than focusing on my fears.

I also believe one of your articles written a number of years ago is highly appopriate: Trading is about mental warfare; reacting and quickly processing information rather than just being about our emotions.

Today's reversal was a classic example of that process.

Bottom line for me is honor stops and keep size appropriate.

Great post today regarding trading mastery.


David L. Spurr said...

I see a lot of similar paralells between golf and trading. Golf requires precise technical movements to be sucessful. Often times, good golfers get into slumps because they are not in the zone. They are not relaxed. Trading requires the same sort of crazy "zen" zone tendencies. I find that it's helpful for me to remember that traders need an edge; however, the edge's success depends on whether or not other traders come into the market to support the edge (buy it up or sell it down). Traders tend to get into this blame thing. We need to take the trades that exhibit an edge - and then set risk parameters and watch to see if it works out or not. Emotions need to be removed from the equation.

DG said...


An excellent website. I am a professional trainer specializing in exactly what you write about: how to master your reactive process. I would like to send you an email but cannot find your email address (?) Please advise or tell me where to find it.


Flowtastical said...

Do it on the simulator!

Alot of times I feel like I'm disabling a bomb when I'm trading. If I'm wrong it (my account) blows up.

Simulated bomb explosions don't hurt. Try it.