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“Stress is when you wake up screaming and you realize you haven’t fallen asleep yet.” (unknown)
There are many and various reasons for stress to negatively affect the stock trader’s bottom line. Notice I assume all traders experience stress! Stress is a natural part of trading and all traders have and will experience it from time to time under various conditions. However, the way we manage the stress will affect our success more so than the way we seek to control its frequency. Let’s look at some of the signs and solutions of trader stress and in so doing ask ourselves whether or not we pass the stress test we so often face.
THE SIGNS and SOLUTIONS OF TRADER STRESS
What Have You Done For Me Lately?
Obsessively searching for a new trading system after a loss or string of losses can cause stress. If you have been trading a system for some time and you have become comfortable with its potential for consistent profitability you should have also become comfortable with its recurrent draw downs. Losses should be considered an essential ingredient in a trading plan. Golfers expect a ball in the water from time to time, a Nascar driver accepts wrecks every few races, and an entrepreneur occasionally expects to loose money on new business ventures. These are expected and planned for. Mark Douglas, in his highly regarded book entitled TRADING IN THE ZONE lists five fundamental truths for the probabilistic trading mind-set, one of which is that “there is a random distribution between wins and losses for any given set of variables that define an edge” (121). We must accept that losses and winnings are distributed randomly! To think otherwise would create a false expectation. When that expectation is not met stress steps in and causes us to question our methods. The remedy? Accept the risk and the potential for a losing trade knowing that it is inevitable. In fact, we should be surprised when a loss does not occur and we make money on the trade! Do not question the system, just expect that no system is perfect and the stress of failed expectations will not rise with each losing trade.
Water Doesn’t Boil If You Watch It!!
Obsessively watching the trading screen can cause constant stress. Depending on the time frame used to trade, obsessing over every tick of the market will accomplish little. In fact, the trader who watches his screen like a hawk is allowing all the noise in the small charts to drown out the obvious potential of the bigger charts. If a trader makes a decision to enter the market on the 60 minute chart based on support from the Daily chart, then why should that same trader allow a 5 or 10 minute chart pullback to influence his decision to exit the trade? He should stay focused on the bigger picture–the 60 minute chart and the Daily chart! When I was growing up (before microwaves), my mother would prepare many meals in boiling water. I could not wait for dinner to begin cooking as I stared at the water, waiting for it to boil. My mother would then say, “the water won’t boil while you are watching it.” The trade will not work as well when watched obsessively, and, guess what, your stress level will simply rise with the boiling. Walk away and allow the trade to work. If trading on a 60 minute time frame walk away for a few hours; if a daily time frame, watch it once a day. Also, place sell orders immediately after entering the trade. We would all be surprised at just how many trades would be successfully managed when we are not there to see it happen!
You See What You Believe.
How many times do traders say, “this market is way oversold” only to trade against the move while watching the market continue to go higher (as has happened for the last several weeks), or the trader believes “a bottom is in” for this reason or that, only to see new lows week after week and day after day, all the while holding on to his bullish position believing that the market can’t go down forever–or can it? Stress is created when the trader believes that he can find tops and bottoms and trade them accordingly. Oh, if it were only that easy! The best traders do not time market tops and bottoms. They do not have to! The best traders trade between tops and bottoms and let others stress over where the top and the bottom may be. We should all trade according to our charts and let the charts direct our beliefs. If we trade with our beliefs, we will look everywhere in our charts for confirmation until we find another reason to stick around. By then, however, we will most likely have lost all our money. Was it not John Maynard Keynes who said “the market can remain irrational longer than you can remain solvent”? Stick with the trading plan and the charts you use while kicking Mr. Ego out the door. He could care less about our trading account or our stress level!
Traders are tested every day in the markets. Are we failing or passing these tests? The very best traders are in control of every aspect of their trading from money management to stress management. We would be wiser and healthier if we did the same.
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