How to Make Trading Less Stressful?
Do we have any power over the stress we experience in trading? Must trading be stressful? - Mind of a trader series
When one first decides to experiment with trading, one usually only sees the shiny parts of this game: the freedom, the wealth, the power, the sovereignty, the infinite possibilities. But make no mistake, there are some downsides to being an individual trader, living off your (market) kills, and never knowing when or how the next meal (money) will come. This is a business that challenges even the strongest among us.
We have to battle our inner demons every day and constantly work against the most natural impulses that have helped humankind survive for millennia. We must learn to let go of the concepts of security, certainty, and predictability, embracing the chaos of the markets. We have to not only learn the trade, which is in itself a proper challenge, but we also have to change who we are and how we view the world. It’s not really a surprise, then, that most people who take a stab at trading never make it past the first few months. Learning and working on yourself never stops for a trader, even after years or decades in this game.
Trading is, for the most part, a stressful affair. Unpredictability, substantial emotional ups and downs, life-changing profits or losses, round the clock open markets in crypto all add up over time. Still, it needn’t be so stressful if you set your mind right and implement proper systems in your trading. This will be our topic of the day.
How to arrange your mind and your systems so that you will experience minimal stress and operate at peak mental clarity?
24/7 markets and endless opportunities
Markets are always open in crypto, they never sleep, and something is always happening in at least some small corner of the market and the world. The market doesn’t need rest, but you do! Most crypto traders initially fall into the trap of intense FOMO - fearing they will miss out on something. The majority of my friends haven’t slept a whole night since the day they started trading crypto. At least until the bear market forced them to rest. Dear reader, sleep is critical, and so is rest in general.
The market may be open 24/7, but you will have to decide on a certain time frame every day, when you will be actively involved in the market, and a time for living your life.
Having fun, working out, spending time with your family and friends, or just sleeping. You must resist the urge to keep up with this market all day and all night. You have to take some time off every few days as well, preferably a few weeks in a year. You also have to socialize or risk falling into a catatonic state of perpetual loneliness and isolation, as trading is generally a lone wolf’s business.
First, you must accept that you will miss some things if you’re not there 24/7. It is inevitable, but it’s not the end of the world. So what if you miss something today? There is always tomorrow, and there is always another trade to be had. The opportunities in crypto are limitless and ever-evolving.
You can set up your trading schedule as you like, but it’s important that you set up some sort of routine and develop self-discipline.
But what if the price pumps or dumps overnight or something unpredictable happens, and I’m not there to react?
That’s what alerts are for! Don’t stare at the markets all day long. It will drain the life out of you and seriously hamper your ability to trade optimally. Set up as many alerts as you like. There are tons of applications that offer this functionality. Use them.
Therefore, the way to deal with a 24/7 market is to make sure you sleep well, establish a good trading schedule and regular time away from the markets, with alerts watching over the market for you. And good risk management to help you sleep at night.
Market panics, large down days, big losses
The single biggest stress factor in trading is losing money, especially when you’re losing a lot of money. Losses are part of trading. They may be unavoidable, but they can and absolutely must be managed! Taking a small loss on a failed trading idea is a good thing, as you’re protecting your capital. Taking a huge loss because you’ve failed to get out of a bad trade, on the other hand, is inexcusable!
90% of trading stress can be eliminated if you do this one simple thing - manage risk!
The best way to manage risk is by using hard stops, as in stop loss orders that do the job of cutting the trade for you as a predefined condition is reached. Make them your guardians, always alert, always awake, always having your back.
The other best way to manage risk is proper position sizing! We all have different risk tolerances when it comes to size. Find out what yours are and don’t add size too eagerly. It can and most likely will mess with your mind. You can also hedge, use options or some other instrument. It doesn’t really matter how you manage risk, as long as you do.
Here’s a rule of thumb: “If you can’t sleep at night with an open position, your position is too big!”
When you manage risk properly you’re safe even if something terrible and unexpected happens in the market, like an exchange going down, your favorite coin dying, a huge market crash or any other black swan event. You may take a small hit on your portfolio, but you’ll live to fight another day. If you’re really careful with risk management, what is a suicide tempting day for some, will be a non-event for you.
I cannot overstate just how important it is to always manage risk and protect your capital. For your profitability, your long term probability of success and especially for your mental health.
Emotions in trading, huge emotional swings, euphoria and depression
For people who are new to trading or just investing in the markets, the idea of managing their emotions or if at all possible, eliminating them from the game completely, if a foreign one. The crypto market is especially problematic in this area. Anyone can trade, anyone can play, which I love, but the sad reality is that most of us don’t know what we’re doing. Not really.
Emotions are great, it’s what makes life fun and interesting. But in trading, emotions are always wrong. They are “the enemy”.
And I’m not exaggerating when I say this. Most of the correct trading decisions in any given situation are diametrically opposed to the feelings every trader feels in that moment. There’s a reason that popular sentiment is a fairly reliable counter-trading indicator. Emotional masses are usually wrong.
If you’re a trader, even a fairly experienced one, your emotions will still play tricks on you daily.
After a good streak of winners, you’ll lose your objectivity and feel unbeatable.
Greed will make you take on too much risk and hold on to trades for too long.
After a few losers, you’ll feel like you don’t know what you’re doing.
Fear of experiencing another loss will prevent you from opening trades you should be opening or prevent you from taking the first small loss.
If you lose a lot of money, the urge to revenge trade and “make it all back in one big trade” rears its ugly head causing all sorts of mistakes in trading.
When we are in an underwater position and the market has proven our trading idea invalidated, all we want to do is add to the position in hopes of making it out with no loss or even a larger profit than previously planned (doubling down). When all we should be doing in such a situation is mitigating risk and cutting our losses.
People are usually the most bullish at the peak of a bull market and most bearish at the bottom of a bear market. Emotions betray us all.
Fear and greed will play mind games with you all day, every day in the markets, if you don’t learn how to deal with them. You don’t manage emotions by running away from them or ignoring them, but by acknowledging that they exist, observing them and accepting them. You need to learn to explore and process your emotions, not pretend they don’t exist or drown them with various substances. You need to really know yourself in order to structure your trading around your personality.
Managing emotions or emotionally detaching from your trading is one of the most important things you can possibly do, if you are to survive and one day thrive in this game.
So if you sense an emotional reaction rising up when trading, stop it in its tracks. Pause, take a break and clear your head.
Build systems that are aligned with your personality. Don’t fight yourself, learn to work with your strengths and weaknesses.
Protect yourself from yourself by setting up systems and rules that prevent you from making huge mistakes, because of your temporary feelings (fear, greed, doubt, exhilaration…).
Do not trade when you’re feeling bad, angry, depressed, scared or euphoric, cocky, pumped up. A clear and calm mind is the only path to seeing the market as objectively as you possibly can.
Learn to process your emotions, allowing them to come up and then examining the causes behind them. Why are you experiencing fear, doubt, anxiety, greed, euphoria? What are you actually afraid of? Why? Is it a true danger? Can you somehow adapt your strategy so that these emotions won’t be a problem in your trading etc?
Stress is caused by emotions, so by detaching your emotional state from your trading, you’ve eliminated a lot of potentially stressful situations and factors.
Unfortunately, the only way to eliminate the negative emotions in trading, is by also eliminating the positive ones. They’re simply two sides of the same stick.
If you are emotionally attached to the outcomes of your trading, then you will have to deal with huge swings up and down. And since the market and the results of any singular trade that you take are actually completely random, that is just not a very practical or sensible way to live. Detach!
Remove EGO from the equation. You’re not smart if you win a trade, nor are you stupid if you lose a trade. Ignore other traders. Ignore social media. Make “good trading = disciplined trading” your evaluation tool, not any particular win or loss in the short term. Did you follow you strategy? Did you execute your trading plan as best you could? Good. The results is a random mess of chaosness in the short term, but should produce profits over the long run, if you have a profitable strategy with an actual EDGE in the market, that is.
Uncertainty, unpredictability and randomness in the markets
As a trader you will have to forget about predicting how things will work out on any trade or investment. We all like the comfort of knowing what’s next, to a point. We often associate the feeling of safety with the feeling of certainty. But in trading, the latter does not exist. And if you’re not willing to make this mental adjustment, from seeking and assuming certainty to accepting and working with uncertainty and probabilities, you will be putting yourself into some very unpleasant situations and mental modes. When fighting reality, reality always wins.
Anything can happen in the markets, at any time. You really do need to deal with this truth.
So how does one operate under such conditions? Just like with everything else in life. By doing the best you can and making the best possible choices with what is at your disposal at this point in time, including information, money and available options. One decision at a time, always evaluating the particular moment in the market, trying to objectively recognize what is actually happening, instead of wanting to enforce your will and ideas upon the market. Simple in theory, harder in practice.
The fact is that you can never know what will happen in the markets. No one can! There are so many forces influencing it, completely hidden from your view, that accurately predicting the future is absolutely impossible. So the only thing you can do is to first give up on that idea completely and then to start seeing the market through the lens of probabilities. You can only estimate that something is more likely to happen than something else, based on your xyz information, edge trading system, news or whatever, and place your bets. You cut the trade if you’re wrong, you take profit if you’re right. And that my friends is all you can do. Now where’s the stress in that?
You really need to give up on the idea of finding the perfect system, it doesn’t exist.
Stop beating yourself up for losing in the market and trying to avoid losses. You need to welcome small losses and think of them as just a part of this trading game, stepping stones on the path to your success. You have to let go of wanting to know what will happen and being right in the market. Otherwise it will drive you crazy and push you into the realm of “analysis paralysis”.
Goals in trading don’t work, at least not in the sense of “I want to make this much money, profits… in this much time”, “I’m going to become a millionaire after 12 month trading”, “I need 1,000 USD by the fifteenth so I can pay the bills” and so on.
By attaching yourself to these fixed ideas about what you want to achieve (goals), you’re setting yourself up for failure and stress.
Failure because the markets are for the most part random and unpredictable, therefore you can never really know upfront what and when will make you money, and failure because trying hard to achieve those goals will force you to make mistakes in trading.
You cannot impose your will on the market! The market will always win.
The results of such a mentality include over-trading, forcing trades that aren’t there, risking too much on trades, being unwilling to take the loss or profit when you need to and so on. By setting up these impossible goals, you will be putting stress in your trading. Stress you don’t need and that will do you no good.
Set up good systems, not goals.
Make sure your trading is top notch, that you always follow your plan and execute your trading strategies flawlessly. Stick to your stop loss parameters and always meticulously manage risk. Stay objective and detached in the market. Make “good, disciplined trading” your goal, not some monetary value.
Control what you can, your mind and your choices in the now, and let go of what is not in your control - the results of any one trade and the behavior of the market.
If you set up good systems and follow your trading rules with discipline, the money will come on its own terms, as they say. But if you force trades and your desires on the market, the market will chew you up and spit you out. Trying to control what is not within your power will drain you and drive you mad. Don’t make trading any harder than it needs to be.
Since this is not the kind of business where it’s possible to predict your profits and cash flow for the most part, you need to give yourself time to make it work.
You really should have at least a year's worth of living expenses set aside and ideally, an independent stream of income, like a job or alternative businesses or investments.
This one thing will again make an incredible difference in how stressful and successful your trading will be for you.
So, let’s sum this article up now. You can absolutely influence how much stress you experience in trading. In fact, only you can do this and you can eliminate more than 90% of all major stress factors by:
Staying healthy, getting good night sleep and setting up a smart trading schedule.
Focusing on a few markets and strategies and letting the rest of them go, you can’t do everything great and be everywhere at all times.
Always protecting your money and managing risk diligently, so you never take a big loss.
Detaching your emotions and self worth from your trading.
Having an alternative income stream or enough money to live for at least a year or more. “Scared money doesn’t make money”.
Building good trading systems and a set of rules, and then simply following them diligently.
Re-framing your mind from the desire to predict, know or control the market, to accepting the uncertainty, unpredictability and randomness of if all. Start looking at everything through the lens of probability and risk reward.
Forgetting goals and instead focusing on systems and execution.
Knowing what you can control and doing your best, while letting go of everything that is not in your control completely.
Stress is a function of your mind’s perception of some situation, not the situation itself.
All the factors we’ve mentioned here, are meant to give your mind a calm, confident, unattached and unafraid experience in the markets. The situations will happen as they will, there is nothing you can do to change the flow of time or the behavior of the market. But you can train your mind to not freak out when things happen and have a solid base of understanding to fall back onto in times of distress.
By setting up good systems and mental models, you’re effectively preventing stress from manifesting in your life and taking over your experience.
But what if stress has already taken over you and is now eating you alive as we speak? How can you deal with already present stress in your life? How can you manage it, before it wrecks your health completely? We’ll get into that in the next article.
Managing stress is effectively managing risk in your life. Too much stress can cause serious harm and even lead to an untimely death. Take it seriously. You too are only human with some, as of yet unknown limitations. Let them remain unknown and do what you can to mitigate stress in your life. Oh yeah, and always manage risk when trading.
Stay safe and stay sane out there friends.
Disclaimer: nothing here is financial advice, just a fellow trader meditating on his trading journey, sharing the lessons he learned and debating some personal opinions that are only that, opinions and nothing more.
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