By Mike McMahon, Director of Education, Online Trading Academy*
Posted: April 11, 2008

As an instructor at Online Trading Academy, I obviously have a lot of students who "check in" with me from time to time. One recent note from a student was filled with all his recent triumphs and many of his recent defeats, but what prompted me to write back immediately was his last comment, "Mike, I am just getting tired faster and faster. I was able to handle the classes and do the research and maintain the trades, but I feel like I am fading out."

Stress from trading is one of the biggest killers of new traders. Most people (I mean traders and non-traders) have little appreciation for what they go through mentally and physically. So let's spend a little time on trading stress and what you can do about it.

First, you only have "X" amount of energy to use in your life. Some goes to walking and talking, some to thinking, some to play (I hope), and a great deal goes to managing your emotions. Once you start burning more energy in one area, another must suffer.

Many traders feel "burnt out" after a day (or lifetime) of trading. Trading is highly stressful and more so for the beginner. He or she has to deal with both real and imagined attacks on the psyche, money and emotional state. Traders burn a lot of energy in this arena; thus, other areas (walking and talking, for instance) suffer.

What is stress in the context of trading? Here's an example: The Stressor -- you just got whacked for a point and a half loser on 1,000 shares. You went "long" just as you saw that stock's CFO being led off in 'cuffs. Stress Response -- increased perspiration, blood pressure, heart rate…and wanting to throw your keyboard!

This is Distress or Negative Stress. It comes in two flavors: Acute: Intense, but disappears quickly and Chronic: Not as intense, lingers for prolonged periods of time.

You can also have Eustress, a Positive Stress that Motivates, Excites and Energizes you. The Eustressor -- a Roller Coaster ride. Stress Response -- increased perspiration, blood pressure, heart rate…and wanting to yell at the top of your lungs!

Obviously, traders have to deal with both. When they get whacked or when they hit a flyer -- good stress or bad stress -- they have to deal with it. Of course, they face stress aplenty in both the Acute and Chronic varieties. Acute is the moment; chronic is the "day in, day out" grind.

Because stock trading is the second most stressful occupation (next to disarming live nuclear weapons), it is essential that you learn effective stress management skills! To deal effectively with stress, you must understand how the stress response works.

The Model of (Bad) Stress Is Five-Fold:
1. Stressor -- The real situation
2. Perceptions / Thoughts -- Your initial reaction as you perceive the situation
3. Feelings / Emotions -- Your psychological response to your perception
4. Physiological Reactions -- Your body's response to your emotional state
5. Health Consequences -- Energy consumption

1. Stressors are manifold in trading:
You just got whacked.
You're distracted by other traders who have lost it!
Your "significant other" is less than supportive.
You're trading with scared money.

2. Your perceptions:
"I can't afford to lose any more money!"
"My wife is going to kill me!"
"My trading career is over!"

3. Your emotional responses:
Frustration
Rage
Anger
Fear

4. How your body responds to the emotions:
Increased perspiration
Increased heart rate
Increased blood pressure
Increased muscle tension
Bracing -- jaw clenching, shoulders tightening

5. Your health results:
Heart attack
Stroke
Asthma attacks
You name it: Headaches, loss of appetite, etc.

Your ability or inability to deal with stress comes from your philosophical makeup and belief systems. They, in turn, help you interpret your perceived thoughts, which, then, trigger your emotional response. Your emotional response then affects your body (pain or pleasure), which, finally, adjusts your philosophical makeup and beliefs. The cycle of good or ill is complete and ready for another rotation -- downward, if you are not careful.

Thus, to break this cycle of (bad) stress, we need to set up "roadblocks" as early in the cycle as possible. Don't wait until you're about to "lose it" to deal with stress! "Nip it in the bud" and decrease or eliminate the stressor itself.

If there's nothing you can do about the stressor, then modify your thoughts about the stressor:

Finally, if there is nothing you can do about the stressor, and you're already experiencing stress symptoms -- headache, muscle tension, disorientation, and so forth -- set up a physical "roadblock". Close your positions, log off and go for a vigorous walk or other physical activity. "Walk it off!" is what my track coach used to shout at me. Set this up as one of your disciplines.

I'm sure most of you have heard of the "flight / fight" syndrome. As stress builds up, it actually prepares our body either to "run away" or "enter mortal combat". These bodily changes cause increased physical power, speed and strength; the problem is that a trader does not need to be able to "leap tall buildings in a single bound" or "be faster than a speeding bullet".

If the stress does build up, a number of bad things start to happen. Obviously, an acute (intense) case magnifies any underlying stress that has been lingering (chronic). These "bad things" are really destructive for a trader. They include the items already mentioned but, also, forgetfulness, irritability, a decrease in sociability and a loss of concentration.

Wow, would any of these affect your ability to perform as a trader? Was I long or short? Damn this stock; I'm going to get my money back right now! Nobody loves me, and I am all alone. Those pesky Prints keep changing color?!?

Any one of these little maladies can destroy your account. It can also destroy your health, a far more important asset. Stress, in and of itself, does not cause disease, but it is certainly a "co-factor" in unhealthy situations.

Back to the "flight / fight" syndrome: Yeah, it gives you power -- by flooding your body with all sorts of hormones and chemicals. Part of this flood, if not used, is cortisol.

Cortisol is good for fighting saber-toothed tigers when necessary, but if it's not used or is not flushed out of your system, it can:

• Destroy appetite -- I like to eat
• Cripple the immune system -- Colds last longer
• Shut down processes that repair tissue -- Wounds heal more slowly
• Block sleep
• Break down bone
• Cause:
  • Bronchial asthma
  • Tension headaches
  • Migraine headaches
  • Temporomandibular joint dysfunction

Not too good, huh? Now, you start to understand why trading is a fairly "high-risk" occupation. Oh, I could add a bunch more to that list.

"What can I do about it?" is the normal response. Well, I do have a couple of ideas that you can easily adopt into your trading plan.

"That the birds fly overhead, this you cannot stop. That they build a nest in your hair, this you can prevent."-- Ancient Chinese proverb

Prior to the opening bell, during peak trading periods, and after the market close, learn to incorporate cognitive restructuring and relaxation techniques. Cognitive restructuring simply means that you need to talk to yourself. Mind talk is powerful and affects your subconscious mind, thereby affecting your behavior and performance.

Cognitive Techniques:
Tell yourself that it is not the end of your life if you get whacked.
Explain to yourself that all you can do is try your best, given the strategies that you've learned.
Count your blessings -- no matter how bad things are, they could be a lot worse.
Convince yourself that, no matter how bad things are, they will get a lot better.

Relaxation techniques are in the physical arena and help purge your body of unwanted by-products, including cortisol. These include progressive relaxation, breathing clouds and exercise.

A Progressive Relaxation Technique:
Take a deep breath and hold it for 5 seconds.
As you inhale, clench your fists and jaw and pull your shoulders up to your ears (tighten your muscles).
As you exhale, release all tension and completely relax downward.

A Breathing Clouds Technique (Repeat at least 3 times.):
Close your eyes and focus all your attention on your breathing.
As you inhale, visualize the air that you breathe in as being clean, fresh air that is pure and energized.
Feel the air enter your nose (or mouth), travel up through your sinus cavities to the top of your head and down your spinal column, to circulate throughout your body.
As you exhale, visualize that the air leaving your body is dirty air, dark cloudy smoke that symbolizes all your stressors, frustrations and toxins throughout your mind and body.

Exercise as a Coping Method:
Remember that our bodies go through physical changes (i.e., increased heart rate and blood pressure, and so forth). A single, 15-minute session of aerobic exercise "burns off" stress hormones by directing them toward their intended metabolic functions. Otherwise, we are allowing them to linger in the body to undermine the integrity of vital organs and the immune system.

Anaerobic exercise (weight lifting, isometrics, walking) is not as good as running, playing some tennis, racket ball or other vigorous sport. You know what you need; you also know what you like. So, here's a great excuse to "have to" do it -- make it part of your trading plan.

How does physical activity help us deal with stress?

1. Endorphins (powerful chemicals), released after 15 minutes or so of moderate to intense exercise, provide a euphoric feeling.
2. Exercise acts as a distracter and / or tranquilizer. It helps your mind take a break. When your mind takes a break, your body takes a break.
3. The training effect of exercise appears to prepare the body for future stressful episodes; secretions of stress hormones during the stress response are not as intense in exercisers as they are in non-exercisers.

Which technique works the best? It's up to you. There are literally hundreds of relaxation techniques. You need to try at least a handful and see which ones are most effective for you.

Stress can make you more than "tired". Stress can cost you more than money. Stress is a physical and psychological response to how you perceive your life and its stimulants -- in our case, trading. You know the old cliché, "If you don't have your health, you don't have anything."

Pay attention and put some stress management into your trading plan. Remember: If you don't think any of this will work…it won't!

Good Health. Good Trading.

*Reprinted (and modified) with permission from Online Trading Academy www.onlinetradingacademy.com.