Specialty Skills

Stress Kills Trades

woodyjohnson
Dr. Woody Johnson
Instructor

Have you ever entered a trade and immediately began to feel your heart pound, noticed that you were breathing heavily, found that it was difficult to maintain your concentration and on top of that felt a strong wave of anxiety travel through your body? Well, what you were experiencing are the effects of stress; and once they have begun to affect your body/mind functioning you have gone over the threshold; that is, a demarcation or imaginary line beyond which a plethora of physiological, emotional, and mental issues start to pile up. Because the nature of trading is performance oriented, which is extremely challenging as it relates to maintaining self-discipline while following through with plans and rules … becoming stressed is a common occurrence. And, you want to manage your stress in order to maintain calm, focused intention, and a connection to your A-Game.

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Let’s begin by saying that stress is a necessary systemic response to a perceived physical, mental or emotional threat. For instance, when you are considering entering the market and perceive that the price action is becoming volatile you may interpret this as either good or bad. If your interpretation is that this is going to be positive for you, your emotions may become intensely excited and greedy causing you to enter the trade impulsively and recklessly. In this instance, even though you attributed a positive meaning to the event, your unsupportive emotions still became activated by threatening unconscious thoughts that you might miss out. Or, you may interpret this movement of the price action as negative, which motivates your emotions to become anxious and fearful causing you to avoid initiating a clear set-up as you felt threatened by the prospect of losing in the trade.

Consider this situation; Samantha couldn’t believe what was happening. Actually, the trade began on a positive note…so she thought. She had seen what she surmised was a price pattern; an ascending triangle, which looked to hit the top of the resistance line several times and the bottom trend line was about to touch. She heard herself say, “… this is about to break up.” She entered long believing that this continuation pattern was “definitely” on its way up so she concluded that she would keep a mental stop and that a mechanical stop was not necessary. After she got filled, the price action did venture upward for a while and she became more confident in her decision. But, then the price action hit a supply zone that had not been identified or anticipated and it began to drop. In fact, the plummet of the price happened so fast that she felt herself become quite confused as to what to do. >She began to panic as the tick dropped straight down leaving her stomach in knots along with feeling fragmented, frustrated and frazzled. Furthermore, her heart began to race and she felt tension throughout her body. She tried to manage the trade by determining where to put in a stop order to liquidate the position, but she found herself frozen with the fear of losing so much money; but additionally she also loathed the thought of staying in as she was gripped by another fear of being really stupid. Her brain was caught in a deluge of stress related brain/body chemicals that distorted her judgment and distracted her thinking.

Stress is a natural part of living; but when you are caught in a highly stressful situation your brain begins to release a number of neurochemicals that can hold you hostage in that moment.  These neurotransmitters, peptides and hormones are messenger molecules that pass information to nerves, brain cells and parts of the body in order to coordinate a specific function. Some of them are dopamine, serotonin, and melatonin. There is a whole family of neurotransmitters. When Samantha noticed through her visual sensors that her trade had dramatically done the opposite of what she had anticipated, neurotransmitters were at work sending signals to other nerve cells and to her brain. This process caused the brain to begin to associate all of the other similar sensory signals that resembled trades (and like events) where she had lost in the past. Her brain began to initiate thoughts about the event that were mostly out of her awareness. t the same time cortisol, a stress hormone, was being released into her blood stream along with adrenalin, both of which cause a spike in heart rate, respiration, blood sugar (which increases energy), and muscle tone getting the system ready to fight or flee. Almost simultaneously, peptides (the chemical signatures of emotion) began to signal the brain and body that something was wrong by facilitating communication. They are responsible for how you act and feel on a daily basis. Whether you feel anxious or aroused, depressed or delighted, the action of the peptides produced in the brain is responsible for how you feel at any given moment. On another level, the Sympathetic Nervous System (SNS), which is part of the Autonomic Nervous System (ANS – which is in your midbrain and responsible for automatic responses that you can’t control) became engaged. The other part of the ANS is the Parasympathetic Nervous System (PNS)…the SNS speeds you up, and the PNS slows you down. This meant that she was in stress mode which can highly agitate both the physical and mental functioning. That’s why Samantha immediately experienced an uncomfortable sensation in her stomach, her heart rate increased, and she felt riveted to the chart even though she didn’t know what to do.

Samantha’s perception of the event (the meaning) was that she was under threat. She did not think of it in those terms, and in fact the thought was unconscious. Rather she “felt” the fear and anxiety associated with her internal dialogue. Fight or flight, which is what her body was experiencing, happens when there is a perception of threat, and its response is immediate and causes a cascade of physiological, emotional and mental changes which can leave you like Samantha, grasping for solutions while your normal thought processes can seem to melt in mush. >During the fight or flight response, neurochemicals released in the brain along with hormones and peptides that are released into the bloodstream, turn on the body. Once this process is in motion, it establishes a downward cycle that is difficult to stop. It turns into a feedback loop of stimulus (both external and internal) engaging brain chemistry, that turns on the body, which the mind then interprets and makes meaning of through unconscious thinking. The thinking then activates more emotions along with those that were a part of the fight or flight response and the emotions drive behaviors that deliver a result…and it keeps happening, sometimes long after the event has ended.

Unchecked stress compromises not only your thinking, emotions and behavior in the moment; it can also greatly compromise your immune system and your overall health if it goes on chronically. It is important to recognize when you are in the throes of a stress attack and as well when you have been under “chronic” stress. Stress is cumulative; meaning that the longer you are above the stress threshold the more your system is going to weaken. That is why you must be self-aware as much as possible in order to recognize when you are overly tense, caught in negative emotions, experiencing negative self talk, and generally revved up to a dangerously high RPM. You must anticipate when your stress levels are going beyond the threshold by managing your stress on an ongoing basis. Some of the ways to do that are through eating lots of fresh fruits and vegetables, getting enough rest, using meditation, positive self-talk, exercise and identifying mental/emotional tools and techniques that can help you shift from stressful states to empowering states. We teach tools, techniques and concepts like these and many other in the “Mastering the Mental Game” Online, On-location and XLT courses. Ask your Online Trading Academy representative for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.” Trading is serious and you must be prepared with the best that you have in order to do battle in the trading trenches.

Happy Trading,

Dr. Woody Johnson
wjohnson@tradingacademy.com

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.