Is Trading Stressful

Trading the financial markets could be considered a high pressure environment. Some people might even say “Trading is stressful”. But according to Hendrie Weisinger world renowned psychologist and author of Performing Under Pressure: The Science of Doing your Best When It Matters Most, there are differences between the terms stress and pressure. He asserts that if you can correctly define whether you are experiencing stress or pressure, you will be able to implement the most apt procedures for recovery.

Stress

Stress is when you have too many demands and not enough resources to meet them. The lack of resources could refer to time, money or energy. Without adequate resources to meet the demands on you, you will experience stress. It’s when you feel overloaded and overwhelmed because you have looming deadlines without enough hours, money or energy to meet them.

Stress can be satiated when either the resources increase, or the demands lessen. It’s how we perceive the pressures on us, and it’s primarily an internally generated response. Stress hormones are released neurologically to wake us up and focus our attention on the task. Cortisol and adrenaline are secreted to gear you for action and to combat the threat at hand. It makes you prone to a fight, flight or freeze set of responses.

Even in today’s modern world, your fight, flight or freeze emotions govern so much of your behaviour. Often when you’re presented with a threatening situation, you’ll either try to fight your way out of it, you’ll run away, or you’ll freeze. These responses are a part of RST – the ‘Reinforcement Sensitivity Theory’ in psychology. But let’s face it… these responses are useless when it comes to responding to a threatening or confusing market.

These three responses even apply in the animal world and pre-dispose some animals with particular tendencies to some poor health outcomes. This goes to show that you need to learn how to manage your emotions, because it might impact more than just your trading results.

Pressure

Pressure is what is happening in the external environment. For example, you can be in a pressure-oriented environment, but not be stressed (because you’ve chosen your own reaction to that pressure).

Weisinger explains that regarding whether you are experiencing stress or pressure can determine the appropriate actions required to lessen the negative effects on your psyche.

When you’re experiencing stress, you have several choices available to you. You can alter your perception about a situation by going for a run, talk with a friend or do yoga. You could aim to reduce either the load, or your attitude about the load, so you can manage your stressful situation adequately.

If you’re under pressure, you can tweak your environment to minimise the pressure you feel to perform. For example, you could set up your trading desk to minimise distractions and establish routines that help lower your cognitive load.

When we continue living in a pressure-filled environment, it’s more likely that we could overreact to minor discomforts. Everyday activities can feel like a matter of life and death when we don’t set up our environment for success. A continual frantic pace can increase your susceptibility to experiencing burnout.

Luke Mathers, author of Curious Habits says that the difficulty for people comes from when they ‘marinate in cortisol’ for long periods of time. You are neurologically doing yourself a disservice by staying in a pressure filled environment.

Dr John Tickell, author of Laughter, Sex, Vegetables and Fish states “pressure is incredible stuff. It is both frightening and exciting. In short bursts it is stimulating. In long, drawn-out doses, it is soul-destroying”. He goes on to summarise the difference between stress and pressure, “Pressure is out there. Stress is in here.” He asserts that stress doesn’t need to make people sick and deplete us. If we harness the right framing and the right habits, it can invigorate us.

STUFF

Sometimes it can help to have a framework to know when you’re likely to be experiencing the perfect storm for experiencing the effects of pressure. There’s a helpful template put forward by Dr Steven Jones. He came up with the acronym:

STUFF
Stress
Timeframe
Uncertainty
Fear
Fatigue

If you’re feeling under pressure, it’s usually because you’re experiencing a project where each of these characteristics are present. And it’s pretty evident that trading has a lot of STUFF woven into its very fabric.

This is why it’s even more important to make sure your recovery habits are top notch.

How to handle the pressure

In his book Beyond the Investor’s Quotient, Jacob Bernstein had some thoughts about how stress and pressure might be handled more effectively. His prescription includes the following steps.

1. Stop excessive stress before it starts. For example, take regular holidays, work a reasonable number of hours per day.
2. Don’t try to trade every market. Attempt to trade in specific markets. Try to become an expert in a few things.
3. Don’t try to catch every move. It is not possible to catch every daily, weekly, or monthly move. Specialise in one- or two-time perspectives.
4. Don’t set your goals too high. First focus on avoiding losses, then look at increasing equity, and lastly on making a lot of money. Too many people try to do it the other way round.
5. Don’t take the market home with you. Begin each day fresh.
6. Find a way to vent stress and pressure. During periods of pressure, you will probably overlook details and second-guess your analysis. When you experience a loss and you’re under stress, you may persecute yourself mercilessly and perhaps propel yourself into a mini depression.

Famous trader, Jesse Livermore, said in 1940:
“Keep stress at bay – act in all ways to keep the mind clear and your judgement correct. I did all I could to achieve this in my physical life by going to bed early, eating and drinking lightly, taking exercise… and demanding silence in the office.”

It’s the combination of multiple tiny actions, all adding tiny extra bits of probability to your trading success that will give you your edge. Your sleeping patterns, your diet, your exercise… each probably contribute only a small percentage to your trading success. However, get these wrong, enmasse, and it’s unlikely you’ll succeed in the markets.

High-performance trading is no accident. Distinguishing stress from pressure can help you avoid burning out and may even assist in providing choices about how to resolve the situation you’re in. Pre-plan how you’ll respond to the pressures of being a trader and you’ll be more likely to excel.

Louise Bedford is a full-time private trader and author of The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets, Trading Secrets and Let The Trade Wins Flow.