Have you been in the market for a while but can’t just seem to stop having a bloodbath? Are you considering closing all your positions and moving on with your life? Are you scared you’re losing your entire savings? Looks familiar, right? If yes, then you might have some trading anxiety.
At some point, all traders have suffered from trading anxiety in their trading life, i.e., feeling concerned or restless during trading. However, anxiety causes differ from one person to another.
Have you ever felt anxious when trading? Do you experience butterflies in your belly every time you want to execute a trade, causing an emotional imbalance in your mind?
This article carefully demystifies the concept of trading anxiety, including its causes and how to overcome it.
Without any further ado, let’s get started!
What Exactly Is Trading Anxiety?
The term Anxiety is “a feeling of nervousness, unease, or worry, usually about a forthcoming incident or something with an uncertain result.” In trading, there is no shortage of uncertainty. And this uncertainty is the leading cause of all trading anxiety. Now, what exactly does trading anxiety mean?
Trading anxiety is a feeling where traders feel troubled and anxious when trading financial assets. Every trader will feel concerned at some point in their career. Although beginner traders feel anxious and nervous about their funds and asset, anxiety isn’t meant for them alone; even the expert trader still experience it unconsciously at some point or the other.
Therefore, to become a successful trader, it is essential to know how to handle trading anxiety to enhance your decision-making, reduce trading stress, and have a more enjoyable experience.
Causes Of Trading Anxiety
The most prevalent cause of trading anxiety is that your position size is too large for your account size. For instance, a trader with $400 may be nervous over a $90 trade, while traders with a $10,000 account will not get worried over a $100 losing trade, as they’re more self-assured.
1. Worst Case Drawdown
One major cause of anxiety in trading is the knowledge (or fear) that your worst-case drawdown could be far higher than you are ready to bear. A recent study revealed that this could be a continuous cause of low-level anxiety, which speedily increases when the market moves in the opposite direction against you.
You can eliminate this anxiety source by determining how much of your account you are willing to lose in the worst-case situation. Then reduce your leverage and overall risk limits to suit this goal actualization.
2. Timeframe And Market Choice
The second major cause of anxiety can be a discrepancy between your personal state and your timeframe/market selection. I have two examples of this:
One, it’s unideal to merge personal work with day trading, considering that as a day trader, you need to be focused on the markets throughout the day. As such, one will suffer for the other – whether your personal work or day trading. So please don’t do it!
Also, the second scenario is to imagine trying to trade in different markets, say Hong Kong and US markets, across numerous time zones. Although each of these markets might only take 15 minutes daily, the trading system requires that you sit at the computer at each market open – meaning late nights and early mornings.
What is the point of being free if you have to be at the computer late at night AND early in the morning? That is not freedom at all!
The way out here is to rationalize the markets you are trading into more convenient time zones – then, your anxiety and stress levels will drop immediately.
3. Lack Of Self-Control
Often traders can do the finding, backtesting, and demo trading more to develop a strong strategy. But when it comes to sticking to the plan, that becomes an issue. It can be very tempting to overlook the rules when the market makes significant changes that are too good to fade away without acting.
However, this mentality can open the door to impulsiveness and overtrading. Regularly giving in to Fear of Missing Out (FOMO) can lead to a series of executing multiple drawdowns, unplanned trades, and anxiety.
4. Lack Of Trading Confidence
Another thing that triggers anxiety is a lack of confidence in your trading system. A lack of trading confidence occurs when you don’t believe in your skills. For example, maybe you have no trading knowledge and depend on some signal provider to tell you when to buy or sell — or you don’t have a stable trading plan and strategy to help you relieve your trading stress.
Although waiting and relying on the signal provider is acceptable, it becomes terrible when you try a method without thoroughly testing it personally. Your confidence falters, and anxiety sets in. On the other hand, if you fully backtest the system and understand how and why it works before applying it to your trading system, then your confidence and anxiety are reduced.
Overall, the important thing here is that irrespective of who published the system, no matter how compelling the information and how good their grade is, you must first test it for yourself! You will suffer from anxiety because of your uncertainty if you don’t. In addition, you will likely make errors and lose capital.
5. Using Large Position Size
What is the volume or size of the position you perform your trades? Your position size is very crucial to your trading plan. Traders are advised when trading to pick small position sizes; however, some traders like performing large positions, which tends to trigger anxiety when things start going erroneously.
Trading too much size makes you focus on the amount of money you are generating or losing, ultimately leading to anxiety rather than the market signals showing you what could occur next.
Don’t trade with capital you cannot afford to lose. Particularly when novel. You have to be trading in adequate size to make the time you put into the trade profitable but not big enough for you to be emotional when the asset makes an unavoidable move contrary to your position. Anxiety can significantly affect your health even if you are generating profit from extensive size trading.
Ways To Deal with Trading Anxiety
One of the critical ways of dealing with trading anxiety is self-discipline and self-control. Also, another possible way out is to try using a different trading system.
Basically, there are several expert-proven ways to deal with trading anxiety. I have discussed these various solutions in this article.
Choosing the right trades and strategies can help you deal with trading anxiety. Start by understanding your goals and developing a trading strategy or finding some brokers supporting your trading techniques.
Trading anxiety is a regular part of many traders’ lives, but they don’t have to be. Addressing common problems such as worst-case drawdown, position size, timeframe/market selection, and testing to get confidence in your trading system will help eradicate negative feelings.
With this article, I believe you can now relax and focus on one trade (stick to your trading plan) and make adjustments when necessary rather than being unduly anxious.
Should you have further questions or experiences? Don’t hesitate to share them with me via the comment section below – would be glad to hear from you!