|Feature Article |
|Dealing With Unexpected Events
Winning traders aren't influenced by
their emotions, but as much as we try to stay in
control, there are always some unanticipated events that
seem to crop up. When we get caught off-guard, we react
with the most emotions. One of the best ways to stay
calm and logical is to reduce background psychological
stress, and to never let your guard down.
inherently stressful. Your money is on the line and you
are continually aware that you could possibly have to
deal with trading losses and dings to your ego. Somehow,
you have to take it all in stride and not be stunned by
it all. Many people are on edge as they trade, though.
They feel agitated and ill at ease. It's a combination
of dealing with background stress along with the ongoing
daily stressors that are a part of trading the markets.
Feeling a little flustered is a natural response. It is
important that you reduce as much background stress as
possible. When background stress is great, even a minor
setback can set you off. Instead of flying off the
handle prematurely, it's better to reduce background
stress, and thus, increase your ability to handle
emotional stress is especially great when you ignore
stressful life events outside the trading arena, and
hope that they will just go away if you pretend they
aren't there. If you are overly concerned with stressful
life events, such as a death of a parent, moving to a
new home, or problems with your spouse, you'll use up
precious psychological energy trying to cope with these
issues. And when you have limited energy for trading,
you'll have difficulty controlling your emotions.
Emotion control and discipline take energy, and you must
do everything you can to preserve the limited energy you
have available. Don't underestimate the powerful
influence stressful events can have on your life. If you
are under extreme stress, take a break from trading
until you resolve long-term stressful events.
way to reduce background emotional stress is to make
your trading environment as stress-free as possible. For
example, it is essential to use proper risk management.
If you risk money you can't afford to lose, or risk too
much of it, you'll feel the pressure and that will
increase background stress. On the other hand, if you
minimize the amount of money you risk on a trade, you'll
be able to tell yourself that the actual downside is
bearable. You'll know you can easily survive the
worst-case scenario, and that will help you feel more
comfortable. It's also vital to have a detailed trading
plan with clearly specified strategies for how you will
enter and exit each trade. It's also useful to place a
protective stop so that you can feel a strong sense of
security should the markets move against you. Taking
specific precautions to gain as much control of the
trading environment as possible will reduce your overall
feelings of stress.
In addition to
managing background stress, it is also important to
anticipate as many possible adverse events as possible.
It's impossible to anticipate everything that can go
wrong, but the more you can specify what can go wrong,
and have a plan to deal with it, the more you'll be able
to handle the event when it happens. For example, be
aware that earnings reports, rate hikes, or major
political events can impact the markets and ruin your
trading plan. If you get caught off guard, you may not
handle the situation very well. You may get overly angry
or frustrated, and act on impulse, rather than calmly
and rationally. But if you decide beforehand how you
will deal with the event, you'll react more decisively.
For example, you may decide to just close out the
position on the first sign of an adverse event, rather
than hesitate, deny that something has gone wrong, and
hope that it will all work out in the end. It usually
doesn't go aware, however. It usually just gets worse.
Similarly, if your DSL line goes down, and you don't
have a backup plan, you may panic. But if you anticipate
the potential problem, you can react quickly and
effortlessly. For example, you can just use a dial-up
connection or call your broker. By being on-guard and
ready to take action, you can get through unanticipated
adverse events without getting bogged down by them. The
more you can reduce background stress and react to
unanticipated events decisively, the more profitably you
will trade in the long run.
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