Saturday, 31 October 2015

How to Stay Calm when you know you'll be Stressed? [Stress Free Trading]

“Brain releases cortisol that raises your heart rate, it modulates adrenaline levels and it clouds your thinking.”

And with all the cortisol in your brain your thinking will be cloudy and you won't even know about it because "your thinking is cloudy". :) 

“It's something that he had gotten from the psychologist Gary Klein, who had written about it a few years before, also called the pre-mortem. Now, you all know what the postmortem is. Whenever there's a disaster, a team of experts come in and they try to figure out what went wrong, right? Well, in the pre-mortem, Danny explained, you look ahead and you try to figure out all the things that could go wrong,and then you try to figure out what you can do to prevent those things from happening, or to minimize the damage.

said Daniel Levitin in his recent Sep 2015  TED talk, “How to stay calm when you know you’ll be stressed?”.

We become STUPID when we are stressed. Literally our brain stops sending blood to the parts of the brain that help us make "intelligent decisions". 

"Remember, our brain under stress releases cortisol, and one of the things that happens at that moment is a whole bunch on systems shut down. There's an evolutionary reason for this. Face-to-face with a predator, you don't need your digestive system, or your libido, or your immune system, because if you're body is expending metabolism on those things and you don't react quickly, you might become the lion's lunch, and then none of those things matter.

Unfortunately, one of the things that goes out the window during those times of stress is rational, logical thinking, as Danny Kahneman and his colleagues have shown. So we need to train ourselves to think ahead to these kinds of situations."

Proper Planning ahead of time will minimise the “negative effects” of stress. There are things we can do, systems we can put in place that will prevent or at least minimise the bad effects of situations in which we are stressed because stress can cause us to make mistakes. And we all know that mistakes in trading are always expensive. 

Planning can help prevent a bad thing to turn into a total catastrophe. Have you ever had a trading day where you wiped the entire account or the whole month's profits? Yes, it happens, and it has happened to me a few times until I realised that I must address this issue in my plan.

Our daily trading plan states that we will stop trading if we have three consecutive losses. This prevents us from going into the “negative zone”. It stops us from revenge trading and trying to win back the losses. We stop and come back with a fresh mind another day.

Having a proper trading plan may even help  decrease the stress levels because you’ve got the confidence that your plan has got everything covered. Often, stress is caused by the urgency of the situation and our inability to respond in a timely manner.

Uncertainty is the main cause of stress for traders but that can be cured by working on achieving a probabilistic mindset. If you think in probabilities you will be able to remind yourself that you do not need to know what’s going to happen next in order to make money in the markets.

Decision making can be stressful as well specially when you have less time to respond and even more difficult when you are confused and the more stressed you get the cloudier your thoughts. Making decisions that are not preplanned, that  you have not thought about in advance may become the cause of the “stress” itself at the “heat of the moment”.

e.g. You have been closing your trades too early and now you have finally decided to apply a method that will increase your chances of staying in the trades longer. You make a decision and from today you are determined to follow the green line as your exit. No more exiting the trades without a proper exit signal. You take a trade and it spikes 100 pips in your favour. You say, “wow  that’s awesome” and although on one side you’re excited on the other you are stressed about what to do with this bonus income.

Do I take the profit or do I still follow the green line? If I close here would I still get DS1 or would I have to score a 0 but at least I bank the profit. IF you’re on m5 or m1 chart you might not have that long to think and respond which may result in experiencing even more stress.

What do you do? Well, the simple answer is that if you don’t have a plan for a situation like this, and you just experienced it, the logical thing to do is that you will create a rule for a situation like this so that you can apply that rule in the future. If it happens the next time you know exactly what you’re going to do. This will bring more accuracy and less reasons for experiencing stress.

However, if you don’t keep a journal, do not have written well documented trading plan, then  chances are that you will experience the pain and stress and won’t do anything about it for years and years and continue wondering why you always feel the stress and don’t become consistently successful.

Have a Plan TODAY. Join AIMS to learn how to create a trading plan within a week. 

ps: A healthy level of stress may be good for peak performance as suggested by modern research. You may want to watch this TED talk about How to make stress your friend?