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"You donít need to know everything about day trading to succeed as a day trader. You need only to find a few solid strategies that work for YOU - then master them."
by Jens C.

Here's how my day trading ebook helps you do exactly that.

Options Trading Pro System

How To Overcome Trading Anxiety

Overcoming Trading Anxiety By Understanding the Causes and Process of Anxiety

Trading anxiety affects every trader at some point in their career. It almost always occurs when someone starts to trade, but can also cause problems for experienced traders. Just like in life, things can be going along magnificently...until they aren't, and anxiety develops. This article will look at the causes of anxiety, so you can understand where it comes from and the reasons for it.

How the anxiety is handled will be addressed next; there are three ways to handle anxiety, two of which are destructive (often subtly) and lead to a cycle of anxiety, and one of which breaks the cycle of anxiety and actually harnesses its power.

By understanding anxiety, and how you choose (or not choose) to handle it, will allow you to connect-the-dots so you can manage your own trading anxiety. Not many trading examples will be used; instead, after you have read this article just sit for a few minutes and allow the ideas to sink in. Then explore how you can apply the concepts to your own trading and life situations.

The Causes of Trading Anxiety (and Anxiety in General)

There are only two causes of anxiety. While you may be able to think of many anxiety causing situations, it's very likely they all could fit under these two broad headings.

  • Loss: We feel anxiety over loss. Loss can be real, threatened or imagined. We lose a loved one and are anxious about what we will do without them. We may imagine losing our job, and feel anxious about where we will live and how we'll pay for food. We may be bullied, blackmailed or held at gun point where there is a threat of financial or physical loss.

Often (but not always) loss is the result of something external, and therefore out of our control (side note: suffering can simple be described as trying to control the uncontrollable-that which is outside ourselves and beyond our control). A trader will lose some trades no matter how much they prepare, study and research.

Therefore, anxiety will always exist, because there is always the possibility of real loss. But we can learn how to funnel it in a more constructive way. We can also learn to minimize imagined anxiety (what causes that feeling of dread), and prepare ourselves to handle potential threats.

  • Lack of Confidence: If loss creates anxiety, then confidence is our ability to handle loss. A lack of confidence to handle a loss results in more anxiety. If you lose your job, a lack of confidence in your skills results in your mind cycling through not only the real job loss, but also imagined and threatened losses, such as losing your house, your spouse, your kids, your car...the list goes on.

If you have confidence in your skills, losing your job isn't such a bad thing. Yes, there is a real loss there, and likely some anxiety, but you know you can find a new job and so don't get caught in the cycle of creating additional anxiety for yourself.

If you train yourself in self-defense or negotiation, you increase your confidence in these areas and therefore will feel less anxious about things that threaten you with loss.

Confidence and lack of confidence are internal resources (or lack of). Therefore, unlike real losses, confidence is within our ability to control.

Confidence is created by courageous acts-constructive decisions which are made even when a lot of anxiety is present. How to be courageous is discussed below.

 The 3 Avenues of Anxiety - Destructive Cycles and the 1 Way Out

You have three choices for how to handle your anxiety. Two of these choices are destructive, to you and potentially others. Only one choice gets you out of the destructive cycles which anxiety can cause.

  • No choice/Passiveness: In essence this isn't a decision at all. You are choosing inaction, and allowing your anxiety to run your life. It is a passive approach, but is also very destructive-often subtly-over time.

By not making decision on how to handle your anxiety, and by taking a passive approach, you begin to operate on auto-pilot which results in acting on impulse,  and not on conscious thought (by not developing or utilizing your decision and reasoning functions, you brain begins to operate off more basic drives, such as "fight-or-flight"). Impulsive behavior leads to overeating, overdrinking, destructive habits, overspending, not following a plan, etc. Usually these things feel like they happen to you without your control, and it is because no conscious decisions are being made in real-time to monitor and steer behavior (monitoring behavior and thoughts in real-time takes practice, and requires you take an "observing" perspective on your own mind, body and actions).

This impulsive, passive, anxiety-driven behavior results in a cycle where there are likely escalating feelings of loss as the ability to exercise control over life slowly disappears, and the lack of confidence in our ability to do anything about it also grows. This usually results in an even greater attempt to ignore the issues, which results in greater impulsiveness (because the real issues aren't being handled) and the cycle deepens.

By continuing to be passive, and not make conscious directive decisions, the cycle continues.

  • Decision - Masochism: Many people will choose to do something about their anxiety, but quite often in a destructive way. They feel loss and a lack confidence, which creates a "poor me" mentality. Playing the victim, and expressing hopelessness and helplessness are other other ways to describe this action. This mentality is destructive because it results in behavior that is based on a "scarcity" and "win-lose" actions (side not: scarcity is the root of aggression, based on a belief that there is not enough, so you must forcefully take; this too is destructive to others and you).

A choice is made to make others feel responsible for losses and a lack of confidence in ones life. A choice is made to play the victim where the (often) underlying belief is that there are scarce resource and "I'm inadequate (lack confidence) to get them, so if I continually show this in my behavior then maybe I will get some handouts."

This once again creates a cycle. By continually dumping problems on others the masochist person is creating a win-lose scenario, where they win (they get to dump and get some freebies) while the other person receives their negativity. This is only short-term win-lose though, eventually it becomes lose-lose. Over the long-term, help will become unavailable for those that don't help themselves, because no one wants to be on the losing side of a win-lose game all the time (because that too is destructive)-there is no value there.

Such behavior results in a continued lack of confidence and possibly even greater loss as the perpetual inability to take personal responsibility pushes others away, thus driving the cycle.

  • Do Courage-The Way Out: As mentioned earlier, we can't get rid of all our anxiety in all areas of our life. It is a part of us, and a very valuable part. When anxious about loss or lack of confidence, there is only one way to constructively handle the situation-consciously choose to do the right thing even while feeling highly anxious.

"Doing the right thing" is doing what you know you should do, or what you have trained for;  it may also be having the courage to seek out help or resources, or simply inwardly or outwardly admitting a problem. Doing the right thing is striving for win-win action and behavior, where you don't simply take from others, but try to give back in some way.

Courage is not fool-hardy though. It is not succumbing to every whim (that is passive).

Most of us read self-help books so we can decrease our anxiety, so that we can then act courageously. This is flawed. We need to do courage first, which in turn reduces our anxiety over time. A conscious choice must be made to do the right thing, despite anxiety.

Being courageous while anxious increases confidence --> confidence increases our ability to handle anxiety related to loss --> having the confidence to know we can handle most losses gives us more confidence and inspires us to continually act courageously.

This is a positive and constructive cycle to be in.

Figure 1 shows most of this information in one chart (excuse my infrequently utilized PowerPoint skills).

Figure 1. Anxiety-The Causes and Process (click to enlarge)

trading anxiety

 

Trading Anxiety - Final Word

There has been little mention of actually "trading" anxiety in this article. This is on purpose; reflect on the general concepts of anxiety above-the causes and your decisions in response to anxiety-and then ponder how this can be utilized in relation to your trading anxiety. The main takeaways are that:

  • Losses will always occur, in trading and life. Therefore anxiety will never completely go away, although you can almost eradicate it in certain areas of your life by repeatedly making constructive decisions, in spite of the anxiety. Anxiety is beneficial, it alerts you to potential danger and can result in courageous acts which build confidence and feel great. By developing confidence in different areas of your life the amount of time and energy spent on imagined losses will greatly decrease, which in turn decreases the overall sense of anxiety.
  • The only way to constructively handle anxiety is to do the right thing even when feeling anxious. Courage is something we DO-it is not "try," "should" or "will"-courage is a present state of action when required. Hopefully by understanding the causes of anxiety and destructive nature of the other options, you'll choose to do courage, even though you will be extremely anxious while doing it.

For example, if you have trouble sticking to your trading plan, make a decision to monitor your anxiety, to remain present during the trade and stick with it even in the face of extreme emotion. Don't back down, don't let impulsiveness to end the suffering take over. Stay the course, and after you are done you will have a great sense of accomplishment (a slight boost in confidence). By doing this repeatedly, you'll gain confidence in what you are doing and know that you can handle any situation which may arise; your anxiety levels decline and you enter a constructive cycle of doing what you are supposed to.

This is of course assuming you have dedicated time, effort and study to your trading plan in the first place. By putting in this effort, you also gain confidence (it is a decisive and conscious act) that what you've accomplished is of value, and now you need to gain the confidence to actually implement it (see paragraph above).

Cory Mitchell, CMT

Please note, I am not a psychologist. These are my views, largely derived from people whom I view as smarter than myself on this subject. The article is aimed at people without mental biological issues-if you feel your anxiety is biological in nature please seek professional help.

 

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