Lessons from the Pros

Specialty Skills

Manage Your Stress to Manage Your Trades

Jackie couldn’t believe what was happening.  Actually, the trade began on a positive note…so she thought.  She had seen what she thought 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 wasn’t 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 neurotransmitters, hormones, peptides and other chemicals that can hold you hostage in that moment.  Neurotransmitters are messenger molecules that pass information to other nerve 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 Jackie 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 connect all of the other similar sensory signals that resembled trades (and like events) where she had lost in the past.  Her brain began to produce thoughts about the event that were mostly out of her awareness.  At the same time cortisol, a stress hormone, was being released into her blood stream along with adrenalin, both of which caused a spike in her heart rate, respiration,  blood sugar (which increases energy), and an increase in 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.  Peptides 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 Jackie immediately experienced an uncomfortable sensation in her stomach, an increase in heart rate, and riveted-to-the-chart feeling even though she didn’t know what to do.

Jackie’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 Jackie, 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, that 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 when you are above the stress threshold (the limit beyond which you are going to experience negative issues) the longer you are above the threshold line the more your system is going to weaken.  That’s 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 too-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.   Your “internal data” the T + E + B (your thoughts, emotions and behaviors) comprise a critically important component of your A-Game.  You must attend to your internal data when you trade just as you must attend to the mechanical data (everything having to do with the markets).  It’s crucial to learn and use mental and emotional tools to bring your A-Game to the platform and keep it there and as well manage stress levels.  Read 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.

May All Your Trades Be Green

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.

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