Saturday, January 24, 2015

Best Practices in Trading: Using Biofeedback to Manage Trading Stress

The body's flight or fight response that we know as stress is often a reaction to perceived threat.  When we care about an outcome that is uncertain--and especially when we perceive a threat to that outcome--our bodies mobilize for action, with adrenaline pumping, muscles tensing, and heart rate accelerating.  That is an adaptive response for dealing with physical threats, such as avoiding an oncoming car, but often gets in the way of careful, deliberate action when the threats we perceive are coming from the trading screen.  It is ironic that, just as we most need to be grounded in the rational activities of our frontal cortices, we typically activate our motor areas and risk acting before thinking.

How we react to perceived plays an important role in determining whether stress brings distress.  Today's best practice comes from Daniel Hunter, who outlines his use of biofeedback in dealing with trading stress.  Readers will recognize biofeedback as a tool that I have emphasized both on the blog and in books, as it's a great way for us to become aware of our stress responses and deal with them proactively rather than reactively.  Here's what Daniel has to say:

"I am a scalper in the forex markets, so anxiety, excitement, and apprehension can creep into the trading day.  I combat this with a device that measures heart rate variability.  The device I use is the Emwave2.  It has an earlobe attachment that I use during trading.  I use it along with the computer program provided and have a visual, real time status of my current state.  If my emotions start to waver and my breathing starts to change, it alerts me, often before I realize my state.  With breathing exercises, I can bring my emotions back under control and focus on what is actually happening in the market.  It is also a fantastic practice before bedtime, as you fall asleep faster and your quality of sleep is much improved.  It is basically an objective meditation monitor."

Daniel also mentions that considerable research supports the use of heart rate variability feedback in controlling stress and enhancing well-being.  Because the monitor gives us real time feedback about whether we are in or out of our performance zone, it serves as a tool for mindfulness.  Once we are aware of our stress responses, we can channel them in constructive ways and prevent them from driving our next trading decisions.  If we choose to trade, we choose to operate in an environment where there is risk and uncertainty.  That ensures that we will experience stress.  Our challenge is to turn stress into a stimulus for self-mastery:  to control our responses rather than allow them to control us.

Further Reading:  Three Uses of Biofeedback for Traders