Trading Psych: Combating Stress

Work harder. Be dogged after a failure – be persistent and push harder next time until success comes. Never give up. Never show a weakness. Everyone has heard these tried and true axioms of success. And these axioms have proved to be true in other endeavors outside of trading to the point that they have simply become the bedrock of “success” thinking. They seem so self-evident that few question whether they are also effective in the performance of trading.

Why? It is natural to assume that attacking a problem by brute force and finally forcing your will upon outcome will work in trading as it has in other endeavors. This approach has great appeal for males with their testosterone-driven perception. Yet after the smoke clears for the umpteenth time, this kind of thinking produces persistent draw-downs in a trader’s account. What’s the disconnect?

Stress – Facing the Challenges of Life

First, let’s define stress. For our purposes here, stress can be defined as your response to the challenges of life. Any time you experience uncertainty, the body/mind is triggered to a stress response and the body and mind are placed on alert for the duration of the stress or challenge. In the not-so-distant past, stressors or challenges were fairly short in duration (but intense) and the body adapted to this. Finally, these short-term adaptations to challenges were so successful that they were burned into our DNA. So they became automatic, reactive biases built into our very nature.

While the high alert status of the stress response allowed your ancestors to deal with a particular challenge (being threatened or approaching predators), eventually the body calmed down because the uncertainty – the threat of real predators – was gone. Life was good again. The body and mind then naturally fell back into homeostasis (calm state of mind) until the next challenge appeared in the environment.

The takeaway for the trader here is that the act of trading produces the very circumstance that triggers the stress response. And the brain/mind built for survival in a world of danger cannot distinguish the difference between the challenge to an uncertain future while being confronted by a saber-tooth tiger and the challenge of an uncertain future that confronts a trader every day.

And until the trader can separate the two (biological threat and psychological discomfort), the body is always going to overwhelm the mind when it senses danger. Trading requires the smart management of stress (emotional intelligence) because it is unavoidable. What matters is the skills that the trader brings to the management of uncertainty and the challenges that are inherent in trading.

Stress is Your Friend or Enemy – Depending on How You Use It

The relationship between stress and performance has been studied since the early 1900’s. Reduced to a graph, it looks like a bell-shaped curve. And essentially what was discovered is that stress is good up to a point. It keeps you focused, alert, on-task, and concerned about your current situation. It also produces a highly flexible state where the organism (the trader while trading) can respond thoughtfully to changes in the environment. This “good” stress is called eustress and it is the cornerstone of a peak performance mind.

Then, after this period of eustress responding to the stressors of life, performance drops off dramatically. However, when stress is prolonged without effective coping skills for its management, the good stress of eustress becomes the bad stress of distress. Concentration levels go down and mistakes go up. The mind becomes confused and reactive. The distress will build (unless effective intervention is made) until burnout occurs and you are no longer capable of performing to the best of your abilities.

As you have probably noticed, this scenario is common among traders. Particularly when they are trying to push themselves through the management of uncertainty with brute strength. So up until a point, working harder, being persistent in the face of failure, and never giving up did help. But without the addition of new, more effective, coping skills, this approach leads to distress. And distress leads to compromised thinking that shows up in your trading account as drawdowns.

Fundamentally what is required is a new approach to understanding stress and its management.

Failure as a Path to Improvement

I’m not saying that you should stop being persistent. Instead I’m asking you to come to a new understanding of what persistence is. Persistence is not doing something over and over again until you force your will upon the markets. I know many traders who have tried this approach and have truly traumatized themselves as they keep running into the same brick wall over and over again expecting a different outcome. It doesn’t happen that way.

Once you learn how to regulate emotional intensity by breath and relaxation training, you will get to the door of the mind. And it is the mind where you find the beliefs that you are projecting upon the markets. It is these projected beliefs that you produce the results that you see in your trading account. So failure can help you to isolate the belief about your capacity to manage uncertainty that has been holding back your success in trading – if you have the openness to learn from your mistakes.

The trait of persistence helps you to find the self-limiting beliefs behind your lack of performance. These are not the beliefs that you talk about. These are the operational beliefs behind your performance in the face of uncertainty. These are two very different things. You can fool yourself and other people, but you cannot fool your trading account for long. After luck runs its course, you discover that the markets don’t care. If you insist on bringing ineffective beliefs to the management of uncertainty, the markets will allow you to burn capital.

The more you project ineffective beliefs upon the markets about the management of uncertainty, the more you experience the stress of trading as distress, rather than eustress. It’s not about working harder, working more, trading more, or pushing yourself – it is about the beliefs you bring to the management of uncertainty.

Once you realize and truly accept that you have to give up control of the outcome in trading (certainty), trading becomes the microscope to aid you in discovering the operational beliefs behind your performance in the challenges of trading. Mistakes show you the way. You are no longer using persistency as a bull-headed denial of reality. Instead you are using feedback from your failures to point out the beliefs behind performance.

Personal performance is the one thing that you can control in the management of uncertainty found in trading. It is here that you find the real beliefs about your capacity to manage uncertainty. This is what you have been avoiding having to face. Yet no matter where you go, there they are. They are waiting for you to discover them and change them so that you can re-organize the mind that you can bring to the challenges of trading. It is here that the worry-based mind of distress in trading is transformed into the concern-based mind of eustress.

It is your choice. The markets are not capable of caring. If you insist on bringing ineffective beliefs to the performance of trading and refuse to learn, then so be it. And the new reality is that the mind that you bring to the management of uncertainty is the only thing that you can control. When you begin seeing trading as your teacher, then you have opened the door to learning how to manage stress in trading.

To learn more from Rande, be sure to check out some of his other articles at