A key to understanding trading psychology is the recognition that trading is a performance activity. Like sports or performing arts, we practice and prepare and then comes the performance event. It's natural to have some jitters before the big moment and sometimes in the middle of performing. That is why this form of stress is known as performance anxiety. There are medications that can be of assistance in extreme cases of performance anxiety, such as beta blockers, but the majority of people can benefit from a simple psychological technique known as stress inoculation.
Inoculation, of course, is when we inject ourselves with a weakened form of a virus and activate our body's immune system. This then helps us fight active viruses. In stress inoculation, we use guided imagery and cognitive therapy to anticipate stressful events before they occur--and then to imagine ourselves coping successfully with those. So, for instance, before a big public speaking event, I might visualize my audience and mentally rehearse the beginning of my talk. I might follow that visualization with a scenario where audience members seem uninterested in the topic or imagined situations where I lose my place in the talk. With each stressful situation, I walk myself through how I would handle it. Like with medical inoculation, this arouses our psychological defenses--our coping abilities--so that we're prepared for difficult situations in real time.
This technique requires regular practice, but can be a regular part of daily preparation for active traders. We can imagine our position going against us and getting near our stop; we can visualize not getting filled at our desired level; we can imagine negative thoughts that might intrude during the trade; etc. During each mental scenario, we vividly imagine how--specifically--we would handle the situation. By the time trading actually begins, we've been there and done that. It is difficult for frustrations to get the better of us if they cannot surprise us.
In my next post, I'll share how this technique--and other stress management methods--can be integrated into our ongoing development as traders.
Further Reading:
Three Causes of Trading Stress and What to Do About Them
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