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Good preparation, good comprehensive knowledge of the system and practicing it in a multitude of equal situations is the best recipe for good results and low stress. Because you will be very, very, very well prepared.
Stress, losses and their consequences
In this lesson we will begin the subject of stress and its impact on the trading results – in the short and the long term. In addition, you will get the first tasks/exercises, which will lead to long-term reduction in stress level.
In the short term – high level of emotions and stress cause reduction in your intellectual ability. Lower intellectual ability, in other words, is less efficient thinking. This is the reason that we, in general, do worse at exams, e.g. we forget the simplest and most obviously things.
In the long term – constant stress may lead you to irritability, headaches, migraines, cardiac arrhythmias, gastric ulcers, and more! Some believe that biochemical reactions, that cause stress in our body, can cause heart attacks, strokes and may be one of the reason for the emerging and development of cancer.
Attempts to discharge stressful situations with alcohol can lead straight to alcoholism. Only few people know that William Griffith Wilson, founder of Anonymous Alcoholics, was a professional broker on Wall Street and even succeed some time ago.
Trading-related stress is not just a loss on the market! It has a broader impact on your life. I know traders who, because of high level of stress, are not able to perform their profession – they had to stop trading. So, there is a serious matter. All the active traders I know, have their own solutions of dealing with stress and its effects.
Because our goal in this course is long term profitability – we will deal with all sources of stress one after another. Are you ready? 😉 Let’s start!
The causes of stress in trading
Loss of money on the market can be a source of stress. Especially if it is a signification sum for you. For each one this sum can be different, but it exists for everyone. It is the so-called glass ceiling that we will deal with in future lessons.
Interestingly, profit can also be a reason for a strong stress response. The biggest profit, the higher probability of stress. I know traders whose large profits have cased traumatic reactions (psychological shock). In one extreme case, a trader, who in one day earned a huge sum on options, experienced such a strong psychological shock that for a year (!) he was unable to appear in his office.
Just being on the market can cause stress reaction. At some point it is associated in the psyche of the trader in such a way that later the stress response appears constantly. Soon you are going to learn how this happens and how to change that to positive reactions.
Being out of the market may be stressful, especially if you wait for the signal for a long time. Another case is a situation when you exit from the market, e.g. under the influence of emotions, and the market continued a strong move in your direction so, if you were in position you would earn very good money. Another example of stressful situation is a lost opportunity, a clear signal, which you missed.
Uncertainty is a next source of stress, indicated by practically all researchers. Trading is essentially the ability to manage uncertainty and risk – you enter the market with money not knowing “how will it end”. You should get used to this situation. Experienced traders practically do not pay attention to “uncertainty” – they know that the result of the single order is unknown but nevertheless, at the end of the month, after a series of orders, they will be on the profit.
Two basic sources of stress: external stimulants and imagination
Let’s overtake some material and point out one important thing – note that we have 2 types of sources of stress. The first is the situation in which we are, for example: with open position on the market. The second source is our thoughts and imagination which we create.
Several times I mentioned the fact that our mind does not quite distinguish reality from imagination. This means that the memory of stressful situation can generate the same reaction as an event.
Example:
Stop reading for a moment and call some stressful situation to your mind: exam, accident, difficult interview e.g. for a job… You may soon experience the onset of stress in your body.
That’s how worrying and uncontrolled imagining negative scenarios works – it causes stress and robs you of strength.
Note: The other thing is psychological preparation depicting black scenarios with the intention of preparing their own psyche, sometimes inventing reactions and lines of conduct in a given case. Such an active approach to the topic, builds mental strength and makes you have a sense of control.
It is a very important issue, so I will talk about this in details in the future lessons.
Stress as the sum of the stress from different sources
At the end of this brief introduction I will say more about another important issue: if you have other stressful situations, besides investing and trading, your stress level will usually be the sum of these stresses.
That means that other stressful life events e.g. quarrel, accident, illness, theft, stress in traffic on the street, jet-lag… … … can also have negative influence on your market results.
It is good to know that the source of stress can also be strong noise or crowd of people. The US stock market, where traders shout offers one after another and where is a crowd and noise, become an icon of a stressful environment.
Each of us reacts differently to potentially stressful event
There are people who, in the majority of these situations, will not experience the stress reaction. As researchers say, their high resistance to stress may be associated with the absence of several factors that contribute to stress: internal sabotage, internal conflicts, fear of success, impact of results on self-assessment.
In the next lesson you will learn another exercise that builds strong, positive self-assessment, to remove one of the tricky and powerful stress factors.
Our goal, through all the lessons devoted to stress, will be to understand how stress affects you, how it can negatively affect your results, and of course, what you can do to prevent such a situation, or how to reverse it.
Will not be here without specific techniques, not only directly affecting your level of stress in trading and in life but also improving your life prospects, building optimism, strength and internal resistance. These techniques are designed to help you become a more relaxed and happy person, pursuing your goals by trading on the markets with as few levels of stress and emotion as possible.
High and low sensibility to stress and results on different time frames (TF)
Stress develops as a result of our response to external events, we can also generate it ourselves – just by thinking… People who are worrying have increased level of stress.
In extreme cases, people who worry too much can induce a constant feeling of high stress. Often, these people perceive as stressful practically every event.
In this case, they will have problems in trading. Not only because of dealing with new stressful factors, but that the overall stress level can break quickly out of control. A high level of stress is: worse perception of the market, worse quality of analysis, poor decisions, losses.
On the second side, we have people, who can go through a lot of stressful situations without special problems.
Looking from a perspective and slightly generalizing we can tell that people with higher stress level can achieve better results at a higher timeframes (weekly, daily, 4-hours) and worse results with speculation on lower TFs:
1-hour, 15 minutes, 5 minutes, one minute.
Tip: 2 phases of „making a pile” on the market for people with high stress level
I understand the situation of many investors who want to take off from small capital and “get rich quick”. This usually requires multiple transactions in the short term in order to build capital.
If you are a person less resistant to stress – consider two phases of your game.
- First – when you accept a higher level of stress and actively apply exercises and tips that I will give you in the next lessons, making sure not to exceed your level of stress.
- Second – when you consciously move on to a higher TF, where the burden on your psyche will be lower.
The point is, do not over estimate the level of your mental burden too much, because many traders have had to leave the market for that reason and never come back because there was no one who trouble them out.
Another important thing: if you have high level of stress in your life, think about how to change it before you deal with a serious investment or trading. It’s very important, because you can’t withstand it all mentally.
The level of stress decreases with increasing experience and skills.
Of course, it is also possible that the level of emotion and stress over time is reduced. Remember, how it is after driving course and how it is after a while of driving – is no longer stressful and often becomes a pleasure. The trading can be the same. The greater will be your competence, familiarity with the system and market – the less stress you will get.
Of course, there is still a question of the glass ceiling when stress suddenly builds up, but this topic will be addressed in future lessons.
How to identify stress reaction (response)
Read the following description very carefully because on this basis you will learn how to deal with stress in short and long-lasting term.
When something happens suddenly, you are under attack on the street, a car is about to hit you, etc. – your body responds automatically. It is called the “fight or flight” so “fight or run”. And these action occur automatically:
- Muscle tense in wait for an action
- Breath accelerates and deepens. It may take a moment to hold your breath in the immediate danger situation
- The frequency of heart beats, the volume of blood being thrown at each contraction, the blood pressure rises
- Glands inject hormones to the blood, which accelerate the heart rate, respiratory rate, muscle activity, nutrient distribution needed by the muscles
- The pulmonary ducts dilate, blood vessels expand in the muscle and brain.
- The pupils dilate and the auditory sensitivity increases.
The body prepares for action: fighting, defending or escaping. This is a reaction inherited from ancestors, helping a person at a time of danger.
The basic action to prevent the stress response we will use, will be to control muscle tension and breathing in stressful situations.
The first method I will describe in today’s task at the end of the lesson. There is a whole package of such methods: basic will always work, another will trigger similar effects a little bit faster.
Learn more slowly to achieve success faster
At the beginning we have a lot of things to analyze ON THE MARKET, but over time it becomes easy and then often intuitive.
Simulation and “very slow trading” initially give our brain time to learn the realities of the market and the system. It will be very different to learn to undergo stress by trading on live account (which usually ends in a series of losses). In this case slower really means faster.
Before you risk your money on the market, be very well prepared. If you know yourself and the market you have a chance to win. Always get ready to fight.
Meditate on the classic quote:
„Battles are won before they start”
– Sun Tzu “The Art of War”
Invitation
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