Saturday, January 30, 2010

A Technique for Defusing Trading Stress and Anxiety

My recent post on moving beyond fear and anxiety emphasized the difference between experiencing threat and allowing that threat to color decision-making.

A very simple technique that I use in my own trading for containing stress consists of several steps:

1) Observing the Stress - Openly acknowledge to yourself that you're feeling fear and threat. The idea is to become the observer of your emotions, not the person who is lost in those feelings;

2) Reducing the Stress - Take a few deep breaths and focus your attention. It is difficult to lose control and perspective if you're under control physically and cognitively;

3) Identifying Why You're Stressed - Locate the source of your threat. In my case recently, for example, a trade had gone my way and then stalled. I was afraid that we'd see a sharp reversal that would eliminate my profits in the trade;

4) Questioning the Source of Stress - I double down on my market observations. Is anything happening in the market right here and now to lead me to abandon my position? I look at correlated indexes, sectors, and asset classes; I look at buying and selling sentiment. If the picture has not substantively changed, I tell myself that the rationale for the trade has not changed;

5) Facing the Threat - I actively tell myself that I can live with the scenario of losing my paper profits. It will be annoying, but not catastrophic. I also remind myself that I will feel much worse abandoning a good idea for no reason other than fear than incurring a stop at breakeven due to a rogue market move.

In other words, my technique involves distancing from my feelings, establishing control, and reworking my self-talk to regain perspective. This kind of self-talk is really the coach in me talking to the trader in me. When the technique works particularly well, I can even use my anxiety to remind myself that others must be feeling the same way--and add to my position at exactly the time I'm tempted to bail out. That transforms fear into opportunity.



Market Monkey said...


Fantastic post. I completely "get" where you're coming from.

Some time ago, I made the crucial shift from focusing on Technical Analysis to focusing on my thought process as it relates to trading (which I think is a microcosm of life...balancing fear/greed, risk/reward, avoidance of pain/pursuit of pleasure etc etc)

So I've been taking the cues from my own experience, the most important teacher IMO, along with authors on the subject (you, Mark Douglas...) and have been keeping an "open diary" within my blog- talking to myself in the 3rd person and anybody else who is interested in the things I've learned. Please take a look if you get the chance.

The results have been significant.

Thanks for the role you played in getting me from passive "knowledge" to true deep understanding of what this is about and where we ought to be focusing the best part of our energy if we want to be around for the ong haul.


eric said...

Hey Doc,

Do you have a Easy button?

positiontrader said...

Great Post!! And very aptly timed :)