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Trading is a stressful business, none of us would deny this. This article looks at ways of reducing stress levels to ultimately make us more relaxed and profitable traders.

The Health & Safety Executive defines stress as “The adverse reaction people have to excessive pressure or other types of demand placed on them”.

Trading is precisely the kind of profession that provides plenty of “the excessive pressure” that causes stress. And unless managed properly, stress can have an extremely negative effect on your ability to trade effectively.

Stress can make you excitable, anxious, jumpy and irritable – not exactly the ideal attributes conducive to profitable trading.  Stress can interfere with your ability to formulate judgments and makes you more accident-prone and less able to make good decisions.

Proper management of stress can significantly help with many of the classic mistakes in trading such as letting losses run, cutting profits too early, being too fearful to take a trade, and so on.

This article looks at stress in more details and discusses practical ways to manage and reduce stress so as to make you a calmer, more relaxed and, ultimately, a more effective and profitable trader.

The Physical Effects of Stress

When you’re under stress, a number of physiological changes take place in your body.

• Chemicals, such as adrenaline and nor-adrenaline, are produced to fuel you for the required response.
• Non-critical physiological responses, such as digestion, are shut down. 
• Critical responses, such as pumping oxygenated blood to the arms and legs in preparation for fight or flight, are ramped up. 
• Sweating increases in an effort to cool muscles and help them stay efficient.

In times past when we were hunters and gatherers, it was this exact response that kept us alive.  If you were trekking through the jungle and came across a tiger, you needed to decide immediately if this situation was a threat. 

Once you had decided that this was indeed a threat, your body would go on "red alert" and you would fight the tiger or run away.  And herein lies the modern dilemma.  We are still coming across those "tigers" in everyday life.  The difference is now we can't choose to fight or flee.
 
But When Was The Last Time You Saw A Tiger ?

It’s easy to think that this fight-or-flight, or adrenaline, response is only triggered by obviously life-threatening danger. On the contrary, recent research shows that we experience the fight-or-flight response when simply encountering something unexpected.
 
The situation does not have to be dramatic: People experience this response when frustrated or interrupted, or when they experience a situation that is new or in some way challenging.

And the situation doesn’t have to have a physical cause, like a tiger. It can be caused by a more abstract threat, such as a potential loss of status, self-esteem – or,( of particular relevance to traders),  money.

Imagine you’ve put on trade and it starts to move against you. You’re starting to lose money and the stress reaction kicks in. You’ve planned a stop level, but remember that one of the effects of stress is that it clouds your judgment and weakens your ability to make good decisions. Instead of getting out at your stop level, you let your position run. The trade continues to move against you and your losses increase. This leads to greater stress and even greater losses.

You can see how a downwards spiral quickly builds up.

In a stressful situation like the one described, your mind and body are using the process that in past times kept you alive.  The problem, however, is that you can’t respond by fighting the threat or fleeing from it. You need to discover an outlet for releasing the pressure that has built up in your body. Fight or flight was a release valve. Now you need to find modern day equivalents.

Taming the Tiger

Here are some ideas that will help you to reduce and manage stress.

1. Relaxation Breathing
It’s long been known that breathing can affect your mental state. Yoga and many martial arts include breathing exercises as an important part of their practice.

One of the most beneficial breathing exercises is ‘Alternate Nostril Breathing’. Many yogis consider it to be the best technique for calming the mind and nervous system. Practice it before the start of your trading session and, if possible, once or twice more during the day.

1. Close the right nostril with your right thumb and inhale through the left nostril. Do this to the count of four seconds. 
2. Immediately close the left nostril with your right index finger and hold your breath for a count of eight. Now remove your thumb from the right nostril, and exhale through this nostril. Do this to the count of eight seconds. This completes a half round. 
3. Inhale through the right nostril to the count of four seconds. Close the right nostril with your right thumb and hold your breath for a count of eight. Now remove your finger from the left nostril and exhale through this nostril to the count of eight seconds. This completes one full round.
4. Start by doing three rounds, adding one per week until you are doing seven rounds.