Trading-related stress : Five ways to manage your mind

When it comes to stress and trading : how can you deal with anxiety, impulsivity and fear of losses, emotions that affect the trader's performance? How can you manage your mind to make the best financial decisions ? 

Here are 5 pragmatic things to do on a daily basis to manage trading-related stress and improve performance.   

Stress affects trading performance 

Many employment professionals consider trading one of the most stressful in the world. Wall Street is a perfect example of how stressful it can be for a trader : a hectic work environment, the need to make decisions in a matter of seconds involving large sums of money... The pressure is high! Knowing that stress influences cognitive functions, only traders with good mind management capabilities are able to practice their profession over a long period of time and make profits.   

Generally speaking, trading performance is said to be directly correlated to : 

  • good knowledge of the stock markets
  • good knowledge of your trading profile
  • experience
  • stress management

In short : by reducing stress, you improve your trading performance.  

How to manage trading-related stress

To be successful in the long run, your objective should be to reduce as much as possible stress and emotion triggered by trading.

Here are 5 pragmatic things to be done on a daily basis : 

  • Trade according to your investor profile 
  • Set stop orders
  • Listen to your body's signals
  • Diversify your daily activities 
  • Do not hold your positions outside of the session

Trade according to your investor profile (financial limit and psychological limit)

Fear and stress are directly linked to the financial risk incurred. This means that a losing trade should never jeopardize your trading activity or plunge you into any financial difficulty, at the risk of experiencing intense stress over time, which is difficult to control and inevitably harmful to your future performance. 

Thus, your trading plan should always be tailored to your trading profile, i.e. the maximum loss you can sustain without it causing real difficulty and/or an emotional roller coaster. 

You should set your maximum according to your budget and psychological limits, while keeping in mind that the more money is at stake, the more stress this will cause, which could negatively influence your behavior as an investor. In all cases, it is important to trade small at the beginning, even if it means increasing the risks with time and experience in stress management. 

A good tip to limit stress is to consolidate your portfolio with blue chip stocks: stocks with low volatility that you will keep for the long term to ensure a stable minimum capital.   

Positioning stop orders 

To apply tip #1, find out in advance the maximum loss you can take on each trade without risking your financial stability. By doing so, you can position a sensible stop order to automatically close your position when the price reaches your limit. You can change the stop position at any time, depending on the price trend and/or your trading profile.   

Listen to your body's signals

It is important to know that your investor profile constantly evolves according to your budget, your experience and your ability to manage losses. Therefore, to fully understand your profile, you must constantly listen to your body and your emotions. For example, if opening a position provokes intense stress (mental rumination, nervousness, heart palpitations...), it means that at the moment, this stop order is too high for your investor profile. It is up to you to lower it to regain the stability necessary for successful trading.     

Diversify your daily activities

An activity that is practiced compulsively will always come with high emotional investment. It’s advisable to do something other than trading and to multiply your sources of well-being. 

This advice also applies to finances: it is better to multiply your sources of income in order to limit losses in the event of a sudden drop in one of them.   

Do not hold your positions outside of the session

In order to gain height at the end of the day and during the weekend, it is advisable to get rid of your positions before the end of the session.  Finally, in trading as elsewhere, a healthy diet, a good night's sleep, regular physical activity and a pleasant working environment are all essential for a good mental state. Remember to trade in a bright space, with a screen adapted to your posture to trade in the best conditions.  

In conclusion, stress is the enemy of trading. We advise you to give the same level of importance to your mental health as technical learning about the stock exchange and the financial markets.  A winning trader mindset is key to performance!