It’s no secret that trading can be a stressful profession. A game that involves your ego, money, and a lot of uncertainty will cause anxiety even in the most experienced of traders.
But there are several simple techniques and changes that can SIGNIFICANTLY lower stress levels. Before talking about how to combat anxiety, let’s start by discussing why its there in the first place:
The Cause of Trading Anxiety
Anxiety is defined as “a feeling of worry, nervousness, or unease, typically about an imminent event or something with an uncertain outcome.” In trading, there is no shortage of uncertainty. And this uncertainty is the primary cause of all trading anxiety.
The uncertainty of trading is the trade-off for all the freedom and scalability of income you can achieve in this profession. In order to become a successful trader, it is crucial to learn how to deal with trading anxiety not just to improve your decision making, but to make trading a less stressful and more enjoyable experience. Here are 5 ways to reduce trading anxiety:
Trade Slower Stocks
Many traders get stressed out because they are trading stocks that are extremely volatile because they want to make big returns in a short period of time. But instead, they freeze up because of the wild swings in their PNL, and they start to panic and make poor decisions with their capital.
Instead of trading volatile low-float small-cap stocks, try trading some slower-moving, higher float stocks instead. The extra volatility and range in stock aren’t useful for you if it makes you too emotional to capitalize on it. Just because I or other traders can make money on a certain stock doesn’t mean that you can or will.
Reduce Your Position Sizes
Trading too much size causes you to focus on how much money you are making or losing instead of the market signals telling you what could happen next.
Don’t trade with money you cannot afford to lose. Especially when new. You need to be trading enough size to make the time you put into the trade worthwhile, but not large enough where you become emotional when the stock makes an inevitable move against your position.
Even if you are making money trading large size, the stress can take a big toll on your health. Slightly smaller, stress-free gains will always beat big & stressful gains. Find that sweet spot in your position sizing.
Hide Your Unrealized PNL
We trade to make money. But when you focus too much on PNL, it becomes elusive. Your process brings the PNL, not the attention you give your PNL.
Hide your unrealized PNL when you’re in a trade to reduce minimize your emotions. This is one of the best strategies I know to keep your focus on capturing the trend of the stock, instead of how much you’re up or down on a trade.
Have A Defined Trading System
Having a backtested system with a positive expectancy will significantly increase the probability of you being less anxious. Why? Because you know that as long as you stick to your system, you know you will make money in the long run. There is no guess-work.
This makes entering and exiting positions a lot more black and white. You always know what you SHOULD be doing, and therefore have a lot less anxiety and stress in your trading. When you have defined rules, you will always know what you should and should not do throughout the trading day. Without defined trading rules, you are just gambling.
Try A Different Trading Style
I’ve worked with thousands of students who have tried to be day traders. Some of them failed miserably at day trading but found great success in swing trading. It was because they weren’t fast decision-makers, and got anxious trading volatile stocks.
Once they started swing trading, they focused on larger time frames and slower moving stocks. They became less perturbed by small fluctuations in the stock and focused on capturing the bigger picture moves. Learn more about how to find a trading niche here, and see if swing trading is right for you.