When trading we’re dealing with external stimuli (things that happen outside your mind and body) and your brain filters each individual event as either threatening or non-threatening.
So imagine logging in to check progress on a trade…
Things are going in your favour, the trade has almost reached your target and you move your stop loss to lock-in a good chunk of profit. It’s processed as a non-threatening situation and you are rewarded with feelings of calm and well being. Feel-good chemicals serotonin and dopamine and released into your nervous system.
Now imagine the opposite situation…
The trade is moving against you and you see red numbers in your profit/loss column. It marks damage already done to your account.
It can be difficult to control your natural response to this type of stimulus. Your brain can process it as a highly-threatening situation (even though on a logical level you know that losses are simply part of the game).
5 steps to managing Forex trading stress
A lot of things can go wrong when you trade on emotion.
Fighting the market with ‘revenge’ trades is common, as is bailing out of the trade ‘before things get worse’, even though your strategy clearly says you should stay in.
Your in-built survival mechanism can actually work against you. A “fight or flight” response kicks in and this is the exact point at which traders can start to go astray.
But there’s a small window of opportunity that’ll let you control your state of mind before launching into full fight or flight mode.
Here’s how you do it:
1) Spot your incoming stress sign
You just need to start paying attention to recurring physical feelings that let you know your fight or flight mechanism is igniting.
It might be a tightness in the throat, tension in the chest, a swirling sensation in the stomach.
It’s different for everyone. But there will be a sure sign an emotional response is on the way…
2) Put the brakes on now (if possible)
So you’ve noticed your recurring physical sign. And you can tell your fight or flight mechanism is about to kick in.
You now have a very short window of time to acknowledge this is the stage you’re at and to break the state.
It takes a bit of practice but visualisation techniques can be used here (you just need to act fast enough).
Do the job well and you’ll quickly correct your response, stop the full blown emotional response in its tracks, and be able to carry on business unaffected.
3) Remove the ability to do damage
If you didn’t catch things in time at step 2 (and it does take a bit of practice) you’ll now need to let the sympathetic nervous response take its course.
Your body will flood with fight or flight chemicals and there’s little you can do until your nervous system has flushed itself clean.
This doesn’t mean it needs to affect your trading decisions though!
You simply need to remove yourself from the trading screen for a while (removing the risk of emotional actions damaging the integrity of your strategy).
Go for a walk, take it out on a punch bag in the garage, go and chop some logs in the garden…
Just keep yourself out of mischief for about 20 minutes – that’s how long it’ll take your nervous system to reset itself. (A physical activity really does work well if it’s possible for you at the time.)
4) Analyse what triggers your ‘fight or flight’ response
So once your nervous system has returned to normal you can start analysing exactly what tends to trigger the fight or flight response in you. It’ll be related to fear at some level, and not necessarily a fear losing money. It can be something more deep-seated like a fear of ‘being wrong’.
And once you know exactly what you’re dealing with you can start to improve things…
5) Practice engineering more appropriate responses
A technique called ‘reframing’ can be helpful here. Instead of looking at losing trades as an assault on your skills you can reposition them as investments made in future profits. This can help neutralise the fear of being wrong.
And consider this – it’s probably the most useful trading exercise I ever performed…
Aim to take a string of DELIBERATE losses in quick succession and then reward yourself for doing so. It can quickly blunt any sensitivity to taking trading losses.
Rehearse performing the responses you feel are most appropriate and most helpful – with money at stake for added realism – and you can go on to reap the benefits for years.
There’s nothing shameful or negative about experiencing stress when trading, it’s how you handle it that makes all the difference!