Subscribe to RSS feeds Bulkowski Blog via RSS

Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

Support this site! Clicking the links (below) takes you to Amazon.com. If you buy ANYTHING, they pay for the referral.

Picture of Bumper.
Kindle
Paperback
Nook
Picture of the head's law.
Kindle
Paperback
Nook
Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.

Bulkowski's Dealing with Trading Stress

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 06/27/2017
21,311 -98.89 -0.5%
9,384 -58.36 -0.6%
721 -9.91 -1.4%
6,147 -100.53 -1.6%
2,419 -19.69 -0.8%
YTD
7.8%
3.8%
9.3%
14.2%
8.1%
Tom's Targets    Overview: 06/15/2017
21,600 or 21,000 by 07/01/2017
9,100 or 9,600 by 07/01/2017
710 or 745 by 07/15/2017
6,400 or 6,000 by 07/01/2017
2,525 or 2,390 by 07/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

 

Trading Stress: Symptoms

Five minutes before the opening bell, Basket Case Bob's hands area already sweating. His fingers shake from the adrenaline coursing through his veins. His heart pounds louder than the bass drum in a marching band. Every sound, every movement catches his eyes as if he is avoiding a lion that will reach out from his computer screen and drag his limp body into the trading jungle.

In other words, Basket Case Bob has performance anxiety which comes in many flavors, such as:

  • Breathing difficulty
  • Palpitations
  • Tense muscles
  • Muscle cramps
  • Trembling hands
  • Sensitivity to noise
  • Loss of appetite
  • Loss of sleep or restless sleep

When the opening bell sounds and the chase for the perfect trade begins, the symptoms fade but do not disappear. Often it is outside of the trading day that these problems manifest themselves.

Modest amounts of stress can help focus attention on the task at hand, enhancing performance and preparing you both physically and mentally for a challenging trading day. The optimum amount of stress can steer you out of dangerous situations, alert you to a trade about to go bad, allowing better concentration, memory retrieval, and enhancing your ability to cope with complex trading situations or volatile trading environments.

Too much stress and anxiety increases as performance drops. Errors are more likely to occur. Dormant fears of failure may awaken to torment you again, leading to trading mistakes, missed signals, or missed opportunities. Have you ever had decision paralysis, when you sat and watched a trade go against you, but did nothing to stop the bleeding? And when you did act, it was just before the stock turned?

When Intel reported worse than expected earnings after the market closed a few years ago, I placed an order to short the stock that was double my usual amount. When I tried to go to sleep that night, it kept bugging me. That's when I knew I had exceeded my comfort zone. I got up and cut my position in half and felt better for it.

The opening the next morning was marked by violent reversals and within the first minute, I was losing big (the stock dropped then reversed). I exited the position just before the downtrend resumed. Had I used the 5 minute scale, the day trade would have been successful because the stock continued to slide throughout the day, but I was unprepared for the stock to go against me so quickly. I remember sitting there watching the stock climb, unable to believe my eyes. I felt paralyzed and when I did act, my instincts were wrong.

Top

My reaction to freeze and then the knee jerk, "fight or flight" response was typical for a high stress situation. Had I been more prepared, I may have recognized that any move up would be short lived (but you never know) and that the opening would be volatile. Waiting for a few minutes before placing the trade would have turned a large loss into a winner.

Compare my behavior during that trade with another stressful situation. During college, I resided on the 9th floor of the dorm. When my friends pennied me in (stuck a bunch of pennies between the door and the jamb, making it harder to unlock or even turn the doorknob), I fooled them by walking out onto the window ledge.

I felt my blood coursing through my veins and my nerves were tingling, but I was determined to win and walk the ledge to the room next door. I focused on my goal, and when I got to the room and found the window closed, I remained as calm as one could be in that situation. I banged on the window until my neighbor opened it, and then I crawled inside.

Once safely inside, that's when I became nervous. I pictured myself 100 feet up and tripping, or having a gust of wind come along and turn me into a 150 pound bomb.

Perhaps you have similar tales when you get nervous after the fact, but in the moment, you are calm and functioning at peak performance so long as you focus on the task at hand. And that's the key, isn't it? Focus on your goal, not on what might happen or on what happened in the past.

Top

Trading Stress: Solutions

As I mentioned, stress in small amounts can be beneficial. It heightens performance when you most need it. One key to handling stress is to push the boundary of the comfort zone, widening it so you feel more comfortable in a more stressful environment. For example, with my Intel trade, instead of doubling my position and far exceeding my comfort zone, I could have increased the position size more modestly. The increased size would have added to my stress level and pushed the comfort zone boundary, but not to the point of panic.

When I started trading, I found that I sabotaged my trades when I made too much money. If I looked at my open trades and one had $2,000 in profits, I would consider selling it (a winner) and holding onto losers, hoping that they would turn around. The solution was to concentrate not on the profits but on execution. Buying at the right time and selling at the right time is more important than money. If you trade well, then the profits will come. Not looking at the numbers allowed me to push beyond my comfort level for the profit I made.

Ask yourself if you lose more money when you are worried about losing. A losing streak or a significant loss can tear down the confidence level while increasing anxiety. Higher anxiety makes you more prone to mistakes, blocking the trading messages so vital to your success, increasing the fear of failure, and making you focus not on a current or potential trade, but on how awful you are doing.

By focusing on trading technique instead of how you feel about a trade, you can break the emotional cycle. Review your trading plan and concentrate on sticking to it. Focus on how price is behaving and not whether you will have another losing trade. Forget about what happened on the last trade and just watch the current one unfold, knowing that your trading plan has mapped out the route to success.

Breathing exercises can help to calm you. Breathe from the abdomen instead of the chest, taking air in and out with deep, slow breaths.

Top

Look at the screen and imagine where you want price to go. Focus on your goal of a successful trade and not worry about what will happen if it fails. Allow the excitement of the trade to help keep you focused on the goal of following your trading plan. When a gloom and doom image or thought appears, brush it aside with a new image or thought of achieving success in this trade. Forget about past losses and know that this trade will begin a string of trading wins.

Here is a list of things to try to make stress work for you instead of against you.

  • Focus on this trade, not on prior ones.
  • Review the mechanics of a trade (stop loss points, price targets, support and resistance zones) instead of dwelling on feelings or emotions.
  • Plan your trade and trade your plan.
  • Breathe deeply and slowly from the abdomen and not shallowly and quickly from the chest.
  • Imagine where you want the trade to go and know that this trade will become a big winner, starting a string of wins.
  • Accept that not every trade will be profitable. Losses are the cost of doing business.

Being better able to deal with stressful situations comes from experience. Allow stress to add to your performance. And when your hands begin to shake and beads of sweat appear on your brow, that is your body begging you to return to the comfort zone. Breathe deeply to calm down. Maybe switch to a higher time scale where the pace is slower. You want to push the boundary of the comfort zone without falling off the ledge.

And if you do find yourself up on that ledge, don't look down. Focus on getting off the ledge safely.

This posting was based on an idea from "Stress and trading success" article by Kiev in the July 1994 issue of Technical Analysis of Stocks & Commodities magazine.

-- Thomas Bulkowski

Top 

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. In prison, you get three meals a day. At work, you only get one meal and you have to pay for that one.