Whether you’re a complete newbie or you’ve been trading for some time, you have likely experienced fear and other emotions while trading. If you haven’t, you might be robot. It’s natural to experience these things because we are human and subject to the pulls of the flesh. In this post, we’ll uncover 5 ways you can overcome fear and emotions in trading.
The Root of Fear and Emotional Problems in Trading
As humans, we are naturally predisposed for certain emotions. Psychologists often label these with cute labels like scarcity bias or one of a myriad of other biases. To them, we are subject to the habits ingrained in our dna.
For example, we are prone to think as humans that if we don’t store up for hard times, we might not have enough to get through the winter, or drought, or famine, or whatever. As our ancestors were more agrarian than we are today, we have a tendency to associate other aspects of our lives with similar biases — like trading profits instead of crops.
In a similar way, if we suffer loss, we are likely to take what little gains we come across more quickly the next time. Think about losing a girlfriend, or a loved one. It may traumatize you to the point that you want to “cling” to the next potential suitor more tightly than the last.
Unfortunately, the very thing that we are wired for can often times sabotage our intended outcomes. By clinging to the next lover too closely, we might actually push them away.
It’s not different in trading.
If we suffer a few debilitating losses, we are wont to “cling” to whatever gains we have the next time. The end result is that we cling to our profits too quickly and thereby continue “pushing” our lovers (potential gains) further and further away.
How to Fix the Issue of Fear and Emotions in Trading
Well, it isn’t as easy as one might think. It’s often quite painful actually. However, the antidote is often in the sickness itself — much like any disease.
Think about it this way. To become immune to something, what has to happen? Exactly, you have to get sick. You have to be exposed to something repeatedly in order for your body to build up immunity to it. It’s like this with viruses, bacteria, cold weather, callouses on our hands, etc.
The goal is to normalize the pain in an effort to make more sound decisions. In the case of the clingy boyfriend, the loss of your lovers will eventually teach you to let go a bit and give them some space. Jealousy is the cure for itself.
Trading losses will over time cure your habit of fear in one of two ways:
It will teach you that your fears are irrational with enough experience.
You will eventually find another line of work once your capital is completely expended.
One way or another, you’ll learn that fear isn’t profitable.
That being said, there are a handful of ways to proactively train yourself to mitigate the fears associated with trading.
1. Mitigating Fear and Emotion in Trading through Education
We humans have a big ego. Whether we realize it or not, we think we can jump right into something we know nothing about and become an overnight expert. Just like the little kid who sees his dad wielding a sledge hammer with ease, we think we can pick it up and do the same thing. “Go ahead, son….”
Little do we realize that more often than not, when we think we know something, we actually understand very little.
This is where education can help. Often times, awareness is the beginning of our enlightenment and path toward freedom. In trading, this can come through the help of books, courses, or free online content.
Trading Education Books
The great thing about pretty much any line of work is that usually someone has gone before us and made the mistakes. Not only have they made the mistakes, but many have documented their mistakes. And in this day and age, we have information at the tips of our fingers. So, why not take advantage of that?
The more you learn about technical analysis, other traders’ successes and failures, and the many pitfalls of the human mind, the more you’ll be prepared to face your own demons. We discuss a lot of topics in our blog here at TradingSim.com, but there are a ton of free resources on the web to help you as well.
2. Learn and Master a Single Strategy to Overcome Fear
Prop trading guru Mike Bellafiore is famous for teaching his traders to make “one good trade.” That’s all it really takes to get rich in trading. It’s so important, he framed it and hung it inside the prop firm.
From SMB Capital Prop Firm
Mastering a single strategy is a lot like getting married. You learn more about a person when you marry them, live with them day in and day out, commit to them for the long haul. Traders who don’t commit to a single setup often times suffer from “style drift.” Eventually, they begin to doubt their ability to succeed at trading.
Like a fickle relationship, they give up on the strategy when it isn’t doing well for them.
The problem with this, just like in relationships, is that you never find a deeper understanding of the strategy. You only stick around during the good times. But like life, the good and the bad always ebb and flow. Instead of becoming a master at something, you become mediocre at a lot of things.
Adapting with the Changes of the Market
Mastering a strategy isn’t an excuse for ignoring other opportunities for success, or variations to your strategy. It is simply an opportunity to reduce the amount of fear you have through deep familiarity.
By all means, study another strategy once you have mastered one. But understand that true confidence comes through mastery, and that can only be had through focus. It won’t come from mimicking another trader, or following an alert service.
It only comes from mastering something so well you could do it with one hand tied behind your back. (Assuming you could click the buy and sell button with the other hand….)
3. Practice Trading to Increase Confidence and Eliminate Fear
Practicing trading is akin to back-testing. Both have their place along the path to confidence in trading. There are two reasons for this.
Practicing trading builds situational awareness and pattern recognition
Back-testing (and outcome testing) provide statistical evidence of an edge
Both of these are the ingredients you need in order to eliminate fear. Why? Because you no longer have uncertainty about your edge probabilities.
We discuss how to find an edge in other posts, but suffice it to say that you need one in order to mitigate fear of trading. As humans, we want certainty in life. We want a paycheck. We want to know we’ll have food on the table, a roof over our head, etc.
“When you achieve complete acceptance of the uncertainty of each edge and the uniqueness of each moment, your frustration with trading will end.”
Mark Douglas
Trading is never certain. Period. Accept it.
Acceptance of the Risk Eliminates Fear and Emotions in Trading
An edge is a probable outcome that favors you over time. It doesn’t mean you’ll never suffer losses. Sometimes the best traders lose many more times than they win. However, they understand that their wins will far exceed the small losses that they take.
It’s all a game of risk management and knowing the outcome will take care of itself over time.
Without accepting the risk involved, or knowing the statistical edge you have, you’ll remain mired in fear. You’ll take losses much bigger than you need to, and you’ll take profits much sooner than you want. It’s that simple.
Practice trading in order to train your mind and develop your statistical edge.
4. Start with Smaller Size to Decrease your Anxiety in Trading
Improper sizing is often the #1 culprit for destroying your account. It’s true. You want success so badly that you think you’ll get there faster if you just “size up.”
Ironically, the very thing you want becomes your Achilles heal. It’s like the old adage of wanting to run before you walk. You have to start slow and incrementally increase your size as your account, consistency, and most importantly, knowledge, begin to grow.
In a recent SimCast interview, we spoke with Kris Verma about how he uses the Kelly Criteria to properly calculate a position or stake. If you haven’t had a watch, it’s really eye opening.
But whether you use an R factor for your positioning, or calculate a 1% account stop loss for your stake, the more you respect this, the more you’ll overcome fear.
Size up too much and the volatility of your account becomes too big for your emotions to handle, as shown in this chart:
Kelly Criteria for Optimal Position Sizing
As you can see, as you increase your Kelly stake from a full “1.0” size, the more your returns diminish and your volatility increases. Take the goldilocks approach and start out conservative. Prove to yourself the right to earn more size based upon your back tested data and performance consistency.
For a basic formula to calculate your Kelly Criteria, click on Kris’s free spreadsheet:
5. Trust Yourself. Let the Game Teach You to Overcome Fear and Emotions in Trading
This sounds simple, but it’s not. As a new trader you’re going to have your eyes all over the place: on twitter, on a guru, in a chat room, on your charts, etc. The best place to have your eyes is on the market and on yourself.
Learn to trust your personality. Trade in sync with it. If you need fast gains, then maybe scalping is your jam. If you are a slower mover who needs big wins, then maybe swing trading or longer day trades will work for you.
Whatever your personality, fine tune it with what the market is telling you. It’s ok to study gurus in your spare time, in fact it is recommended, but allow the market to teach you in real time or in simulation. You’ll be amazed at how much more confident you become when you stop the distractions and get a “feel” for the market.
To that end, you must eventually trust your trading instincts. By this, we don’t mean your whimsical guesses. No, when your education is complete, and your practice is sound, you will have confidence in your own ability to read the market.
Be in tune with it, and trust yourself.
Conclusion
If you find yourself struggling with fear and emotions in trading, by all means do something about it. Realize this is a long game, not a short game. Learn to enjoy the process of education and mastery. Many of the most successful traders took 5-10 years before they ever began making wealth in the markets.
To help along your journey, jump into the simulator here at TradingSim and find your confidence!
What is the best way to learn from and mitigate our trading stress? We feel as though this is a particularly important topic for traders, and especially newer traders. And along those lines, we know of no one more qualified to address this subject than Dr. Brett Steenbarger, Ph.D.
After all, Dr. Steenbarger has written the book, or should we say books, on the topic — particularly his last publication Radical Renewal (2019), which touches on this subject in depth and from a spiritual/life renewal point of view.
The ever-popular The Daily Trading Coachand Trading Pscychology 2.0, along with his other publications, offer a timeless approach to mindset awareness and training for anyone trying to tackle the markets.
The Interview
Before we dive into the interview, perhaps the very few who are not acquainted with Dr. Steenbarger’s work should also know that he has been in the business of coaching traders, hedge fund managers, and the like for decades. He is a trader, himself, who got started in the 70s. Through the years he’s been a mentor to many trading legends.
To that end, rest assured that he is very in tune with the markets, traders, and the struggles that traders face. In essence, he’s seen it all. And his recommendations on “learning from our trading stress” may actually surprise you.
We are very thankful he is willing to take time out of his busy schedule for us.
1. TradingSim Question
On that token, what do you say we get kicked off here with a discussion of the common emotions that you find inherent in trading, Dr. Steenbarger? You’ve mentioned in your writings before that the big 5 are typically “nervousness, tension, stress, fear, and worry.”
Why do you think trading solicits these emotions so easily? Are there any specific triggers in the markets that produce these feelings of “trading stress” within us?
Dr. Steenbarger
Thanks for the opportunity to share ideas with the TradingSim community, John!
I would add two common emotions to that list: overconfidence and neediness.
Indeed, it’s often because of our need to make money and our overconfidence that we pursue shortcuts in our learning processes as traders and take too much risk. That leads to volatility of P/L and losses, which in turn trigger our nervousness, tension, stress, fear, and worry.
What I’ve long liked at TradingSim is the focus on learning trading–and doing that in safe ways where we can’t trigger and traumatize ourselves.
Think about every performance field: athletics, acting, music. In none of those do we start out by following people online, doing some reading, and then trying to make a living from our performance. Rather, we recognize that it takes years of practice and mentoring to become a professional athlete, movie star, or recording artist.
When we take shortcuts in the development process, our unrealistic expectations set us up for disappointment, frustration, and pain.
Dr. Brett Steenbarger, Ph.D.
Many, many times the answer to emotional disruptions in trading is to work on our trading.
As I recently emphasized in an online post, the only losing trade is one that we don’t learn from. Our job is to keep our capital intact while we’re learning new things, and often that means starting out in simulation mode. Only once we gain successful experience in practice are we ready for prime time.
All the work in the world on our mindset is not going to provide us with the skills we need to succeed in a competitive marketplace!
2. TradingSim Question
You raise some really interesting points there, Dr. Steenbarger. I, particularly, like the analogy of trading to “athletics, acting, and music.” We recently discussed this in a post that dealt with having realistic expectations to curb the disappointments in our trading journeys.
But what stands out to me the most is your emphasis on training until “we gain successful experience in practice….” I’d like to build on this topic with two questions for you.
To preface: many in this industry claim that simulated trades cannot prepare you for the emotions of real trading.
1. What is simulation actually good for, and how should traders actually “train”?
2. Can simulation create a false sense of success for traders?
After all, sparring in a sweaty gym in Brooklyn is all fun and games until you get socked in the mouth by Buster Douglas in front of thousands of spectators with your reputation on the line. Kudos if you get the reference. 😉
Dr. Steenbarger
Well, John, I think you and Mr. Tyson have a great point. Having a plan in the calm of the moment is different from maintaining and acting on the plan once we get punched in the nose!
That doesn’t make simulated trading worthless, however. Even the best boxers practice in the ring away from formal competition to work on their movement, their combinations, etc. Similarly, basketball teams prepare for the next game by scouting the opponent and then practicing against the offense and defense that the opponent are likely to use.
And, of course, where would aBroadway actress or actor be without practicing lines away from the distraction of crowds.
Every performance domain relies on practice away from formal competition to build performance in the heat of the moment.
Dr. Brett Steenbarger, Ph.D.
That is what simulation accomplishes in trading. If we can’t be consistently successful in simulation mode, how in hell are we going to succeed with the pressures of real-time P/L??
Once we establish our consistency in sim, then, of course, we want to go live and tackle the pressures of actual gains and losses. This is why musicians and theater professionals conduct dress rehearsals. Simulation/practice is necessary for development, but not sufficient.
It’s a step in the learning process.
3. TradingSim Question
Fair enough. So simulation definitely serves a purpose for learning from our trading stress, and I get the comparisons. Point well taken.
I think for many traders, though, there is a struggle to maintain “discipline” within a simulated environment. Yet, what I wonder about this type of trader is whether or not they are actually disciplined while trading live.
To build on the point I’m trying to discover, my assumption is that the more successful traders, boxers, actresses, will take their training just as seriously as their live performances. And if that is true (again, I don’t know), then what we will likely see is that discipline in training is a key indicator of earlier success in the markets. In other words, those who take their training seriously are more prone to reach consistency faster, versus those who dismiss it as “play” and end up failing out of the markets because they are seeking the thrills associated with gambling (even if their intention isn’t to gamble).
As someone who has worked with 1000s of traders over the years, have you observed any connections with traders who lack discipline in both “training mode” and “live mode”?
Dr. Steenbarger
If what an actor is interested in is applause, he won’t be particularly motivated to practice on an empty stage. If what a trader is interested in is profits, he/she won’t be particularly motivated to practice in simulation.
It’s not simply a matter of discipline. It’s about the underlying motivation driving performance efforts.
If you’re motivated to learn and master markets, you’ll enjoy simulation and playing with trading ideas. If you’re motivated by making money and showing off pictures of your new cars on social media, simulation won’t hold much appeal.
When surgeons learn new techniques, they practice on models and cadavers before “going live”. If a surgeon told me he didn’t think such practice was important, I’d likely look elsewhere for my procedure….
4. TradingSim Question
Wow. Process over outcomes. I need to review that a few more times to let it really sink in. There’s so much there.
The underlying driver of trading performance is motivation “to learn and master markets.” That’s brilliant. And you compare that to ego: Ego vs. Enjoyment/Diligence.
To that point, a lot of motivation research is centered around the attitude of the learner toward the subject matter. It sounds like trading is no different.
Yes, I see that in training programs, such as at prop firms like SMB and at hedge funds where there is mentoring.
The motivation and attitude are modeled for new traders and they learn the right activities and mindset.
The key is emphasizing professionalism and sound process, rather than P/L.
5. TradingSim Question
That makes sense: proper modeling and mentorship leads to right actions and mindset.
And circling back to the topic of the interview, “Learning from our Trading Stress,” I assume it is within this setting of training programs that traders receive the ongoing mentoring and feedback they need to overcome the hurdles they may not have expected. Perhaps they are pushed to move beyond their comfort zones, or the thinking that markets are “easy,” and to then take the steps necessary for practice and refinement of their craft.
Is this the only way to progress? You and I spoke briefly before about the concept of suffering and how that can sometimes bring about the cessation of bad habits. Are many of us without these resources and training just prone to learn the hard way?
Dr. Steenbarger
I do think that learning curves are accelerated when working in team environments.
There are online trading communities that serve this function, where you can learn from the experience of others–including their mistakes.
If you look at most performance fields, it’s only a small percentage of participants who can make their living from their craft and those that do are those that receive mentoring in dedicated training environments.
Dr. Brett Steenbarger, Ph.D.
We can learn a lot by seeing how Olympic athletes, military special forces, and other elite groups develop their talent.
In this context, I don’t think the challenge is learning from our suffering. Rather, much of the suffering comes from trying to develop expertise in suboptimal learning environments.
6. TradingSim Question
That’s an interesting perspective that suffering, or trading stress, stems from “trying to develop expertise in suboptimal learning environments.”
To that end, would it be beneficial for new traders to explore communities and mentors until they find their own niche? Their own “team,” as you say?
And one other follow up, if I may. Do traders have to reach “elite” status to make it in this business? Is there an in-between that can still afford a living?
Dr. Steenbarger
If I were a new trader, I would look for a formal training program with a solid track record of training talent. That would maximize the odds of success.
And, yes, I would say that making a living from trading *is* an elite level of success. I think that’s true in chess, golf, acting, music, creative writing, etc.
7. TradingSim Question
I suppose that explains the 90% failure rate we often hear about.
Are there any other ways to learn from our trading stress that we may not have touched on? We’ve discussed teams, mentors, training, simulation, motivation, attitude.
Perhaps exercise and balance of life? Some stimulus from outside of trading?
Hey, that’s a great one! Thanks so much for sharing that link.
It is important to step away from trading to refresh our views of markets and rejuvenate.
Dr. Brett Steenbarger, Ph.D.
Closing
Thanks so much for your time and wisdom, Dr. Steenbarger. It has been a pleasure and an honor to have this discussion with you. Learning from our trading stress is such an important topic, and I know it will be a huge boon to the community here at TradingSim.
Key Takeaways
It is quite clear that Dr. Steenbarger is a firm believer in quality training. After all, he’s seen the effect it has on traders who succeed in learning from their trading stress, and those who eventually succumb to it.
To that end, we hope those of you reading will take home some key reminders when confronted with the emotional struggle of trading. Here are a few of our favorites:
Don’t take shortcuts in your development process
Find a quality team, mentor, and training program
Discover your enjoyment for the process of discerning the markets
Be a professional
Practice with intention
Take time for creativity, rejuvenation, and time away from the market
More Resources to Help “Learn from our Trading Stress”
For those of you who are interested in more great content and resources from Dr. Steenbarger, be sure to check out his blog at traderfeed.blogspot.com.
You’ll notice a search bar in the upper left hand of his homepage that can be a great tool for searching the myriad of topics he discusses on the site.
Also, be sure to follow Dr. Steenbarger on Twitter. His handle is @steenbab.
Lastly, if you are looking for a great place to test your strategies in the market, we hope you’ll give TradingSim a try. With over three years of intraday, tick-by-tick market data and L2 replay, along with a dynamic market scanner, there is no better place to build your confidence in trading.
Here’s to good fills!
Anxiety and depression are common. And they are real. Far too many suffer from this mental and physical condition, unfortunately. And the fast-paced, high stakes world of trading may add to that trauma. In fact, day trading anxiety and depression may be the root cause of the trauma you feel.
On the flip side, if your anxiety and depression are “subclinical,” and you can continue to function in your work, then these emotions and moods may actually be a motivator for success.[efn_note]https://traderfeed.blogspot.com/search?q=anxiety+and+depression[/efn_note]
However, as High Performance Psychologist Créde Sheehy-Kelly notes, “it is really important that traders are able to identify the distinction between a moderate level of heightened emotion caused by trading and a more general underlying mental health issue that permeates every aspect of life but which perhaps shows up more clearly when pressure is heightened.”
If you are experiencing strong feelings of anxiousness and/or sadness and low mood in general (not just related to trading) every day for a period of more than two consecutive weeks it could be helpful to check in with a doctor or mental health professional.
Créde Sheehy-Kelly BA, MSc, C.Psychol. PsS
Because this is such a delicate, but needed topic of discussion, we hope to uncover many of the underlying sources that contribute to the uneasiness of emotional stress in trading. While we are not clinical psychiatrists, nor licensed counselors or physicians, we will offer a few helpful tips for your trading journey as you deal with the emotions of fear, nervousness, doubt, and depression in trading.
That being said, we hope you’ll get the help you need if your problems are severe.
It is never worth it to suffer alone.
Day Trading Anxiety and Depression Scenario
Let’s start by imagining a hypothetical scenario for the sake of discovering similarities in our lives or trading experiences. Perhaps you’ll “see” yourself in this situation from one time or another. If we can do that, it will be worthwhile to examine the causes of our trading anxiety and depression within that context. And if we can identify the cause, constructive action can take place.
Meet John Doe
John Doe is a decent guy. He’s got a small family that depends on him and he isn’t afraid of hard work. In fact, he’s held down a decent job since he graduated college with an IT degree. He understands coding pretty well. Has a nice salary. You could say he fits the mold for the token intelligent, successful professional.
He grew up playing sports, and he’s competitive. He doesn’t play sports as much anymore, but likes to game and play with his kids who are very active. Golf and fast cars are more his thing these days.
Work-life balance becomes a bit blurred for John – especially since he’s working from home now. But he handles it the best he can. He’s got a spiritual side that he relies on during hard times, and a mother that taught him endurance when he was young.
But trading has so far been his biggest hurdle in life.
John Doe’s Mirror
Up to this point in life, things haven’t necessarily come easy, but John’s been able to push through and succeed. This applies to his marriage, his career, his kids, and most everything else. Heck, he’s even been pretty good about managing his weight and working out.
But trading is different. It’s elusive. On top of that, he feels pressured. Somehow it reveals all the inconsistencies and weaknesses in his personality. It’s like the market knows how to push his buttons.
It’s internal, sure. But also external. John sees success plastered all over twitter. He’s a member of chat rooms with successful traders who make millions. He sees gurus posting their big gains for the day on Instagram and other chat room moderators talking about the success THEIR traders are having.
Yet, he reminds himself that he’s tried them all, already.
Every day he sits through the P/L swings. Ups and downs. Fomo then discipline, greed then more fomo, then a little discipline. What he thinks will work doesn’t, and vice versa. He creates rules, then breaks them.
This guru says stick to one pattern. That guru trades everything that moves. Long, then short, then long again. This guru, that guru, this guru….
John can’t seem to trust his own intuition in the market. Every time he hears someone “better” than him with a different opinion, he changes his bias only to see the trade work the way he originally had planned.
The constant bombardment of emotions and information leaves him confused and depressed.
Exhaustion
One day, John backs his office chair away from his trading desk around 4pm EST, crosses his right leg over his left.He’s shut it all down: the chat rooms, the trading platform, the computer, the monitors.
He hangs his head in defeat, folds his arms, and massages his tired, closed eyes with one hand. In another room of the house he hears the faint noise of his kids playing.
“I hate this,” he says to himself. “I hate myself.”
A little voice in the back of his mind tells him it isn’t true. But he barks right back, “then how long is this s#@% going to carry on?”
“How long am I going to keep doing the same stupid things?!”
As he turns to look out of the window in his office, the light of the sun feels sharp and he squints. Trying to focus on something in the distance, he thinks to himself, “What is wrong with me?“
The Lonely Crossroad
John is long past the point of quitting. He’s been at this crossroads too many times.
You could say he’s entered that “no man’s land” of having so much time, money, and energy invested into the process of trading that he knows he can’t quit now.
What will his wife say to him? What about all the gurus who tell him to just hang on?
He’s been at this for almost three years. “You would think I would have found some consistency by now,” he often says to himself, shaking his head.
Yet it hasn’t arrived.
Nonetheless, that is where John Doe finds himself. At the intersection of hope, endurance, defeat, anxiety, and depression.
Every road he takes leads him right back to the same spot.
The Root of Day Trading Anxiety and Depression
Perhaps your personal journey has been slightly different than “John Doe’s.” Nevertheless, we all experience the ups and downs of trading. That’s a fact.
And while the pain is real, and we’re often wont to simply wallow in the mire of our own pity, self doubt, and fear of failure, there are really two decisions you must make at this point in your trading career:
We won’t spend much time on this topic, but it’s worth addressing first because it touches on the concept of identity.
Esteemed trading psychologist Brett Steenbarger, Ph.D., has this to say about the subject:
We expand our identity by taking on roles and, over time, having those roles become part of us. When you want to make a change, clearly identify your ideal self–the person you would like to become–and make a conscious effort to be that person in some way, in some measure every single day.
Brett Steenbarger, Ph.D.
As humans, we often succumb to certain images of ourselves, feeling helpless to overcome who we think we are or ought to be. In the case of trading, as with other scenarios in life, we may fall prey to the sunk cost fallacy. This is the idea that we must continue our behavior or endeavor because of invested resources we have “sunk” into the ongoing obligation.
Suffice it to say, that there are plenty of other things that can give you a meaningful life if you simply take the advice of Dr. Steenbarger. Perhaps it’s time you take a good break from the charts and screens and “clearly identify your ideal self.”
Career Change?
Maybe you’ve tried this before with a career change? Relationship change?
Take Jeff Bezos as an example. The man left a lucrative investment banking role to start an online bookselling company out of his garage. And we all know how that turned out.
Successful trading can be a ticket to financial freedom, but many more traders may find, in trading, their own prisons.
BRETT STEENBARGER, PH.D.
At the end of the day, there is nothing wrong with choosing a different career path. Once you’ve figured out what your “ideal self” looks like, you’ll at least take the burden of disappointment off your shoulders if the answer lie not with being a trader.
And if that ends up being true, that’s ok.
Digging up the Root of Day Trading Anxiety and Depression
On the flip side, if after self-reflecting you’re still convinced that your passion for discerning markets, the challenge of trading, the potential for financial freedom, the mastery of your own emotions, and any other value you find inherent with trading are the secret sauce to your identity, then perhaps you have, indeed, identified your “ideal self” as being a trader.
We’ll assume so for now, anyway.
At this point, it’s time to call out the demons causing the anxiety and depression, or at the very least the stress, and take action on what’s holding you back from success.
There is no loss of discipline without a prior loss of self-awareness.
BRETT STEENBARGER, PH.D.
Through the process of fostering self-awareness with the help of a performance coach, mentor, counselor, books, trading friends, or spouse, the goal is to identify the root of the problem. And only then will you be able to address it.
6 Causes and Fixes for your Day Trading Anxiety and Depression
This is by no means meant to be an exhaustive list of every potential cause for anxiety and depression in day trading. Instead, these reveal the broader and more pervasive flaws inherent in most traders. Unaddressed, they can create an endless cycle of anxiety and depression through undue stress.
1. Unrealistic Expectations
This is number one on the list for a reason. Every beginning trader sets out on his journey with unrealistic expectations. In fact, there is no real “standard” for what the expectation is to become a successful trader, only anecdotes from prior traders who have “made it.”
It’s no wonder why, then, that expectations set us up for failure what with the constant bombardment of psychological priming done by the entire trading industry.
Education services, seminars, brokers, gurus, trading communities, social media personalities, publishers, news media, and even trading coaches tend to paint a perfect picture of how easy it is to succeed in this business.
Granted, not all do this. But by and large, the hope of fast success in the markets is pervasive. Likewise, there is virtually no barrier to entry for trading.
And that shouldn’t be a surprise. All of these services are selling you something.
In contrast, the hard reality is that trading is just as hard as any other profession. And, unfortunately, unlike other lucrative professions, the expectations are never really understood from the outset.
Comparison to Other Professions
Think for a moment on some of the higher paying jobs available in the US economy. Lawyers, doctors, IT directors, coders, airline pilots, investment bankers. Shoot, just imagine an average job like being a teacher or electrician.
None of these professions are attained without considerable time, training, and education. Most of them require four-year degrees at a minimum.
You know this. We understand that. This isn’t just another cliché comparison between 8 years of medical school and paying your dues in the market. You’ve heard them all before.
Rather, think about what was just said: “You know this.” Everyone knows this. Everyone expects this.
The point we are making is that anyone who sets out to become a teacher, a pilot, or a doctor knows full well the amount of time, education, training, and effort it will take before they can ever receive a paycheck from their profession. Not only that, they have a pretty good indication of what their salary will look like long before they start working.
Traders don’t. Plain and simple.
And therein lies the biggest divergence between trading and normal careers. The expectations don’t match the reality of getting up to speed in the market because they are set by influencers who are selling the dream.
It Takes Time
Do you think medical school students are beating themselves up because they haven’t done open heart surgery by year two of med school? No. That’s absurd. They have clearer expectations.
How about lawyers. Is the average attorney disappointed that she hasn’t become a partner with her name on the plaque in the lobby by year two? Probably not. She’s doing the leg work and paying her dues to get there.
Setting the Expectations
All that being said, you’re going to have to piece together your own outlook for what it takes based on anecdotal advice. And to that end, if you can keep your expectations flexible, you’ll be a lot better off emotionally.
Thankfully, there are many books and educators offering wisdom along the path toward profitable trading, but everyone’s path is different.
By examining the uncertainty of past outcomes, we can sensitize ourselves to the uncertainty of the immediate future.
BRETT STEENBARGER, PH.D.
Along those lines, the best you can do is mitigate the disappointments by intentionally exploring the realistic amount of time, training, and paths required for success in the markets. Add to that an awareness of the systemic hype that is influencing you, along with the pressure you feel to perform.
Lastly, keep your journey and progress outlook malleable to the uncertainties inherent with trading and life. Do this, and you may just arrive at a place of zen-ful peace with regard to expectations.
12 Important Considerations
Here are 12 essential ideas for discovering an outlook for your trading journey:
Discover your “ideal self” first, and identify your personality and emotional strengths and weakness.
Understand that there is no formal “Trading Degree” you can obtain.
Forecast the costs associated with piecemealing your education and mindset coaching.
Determine the amount of time and flexibility you’ll need to study different strategies.
Ask yourself if you’re comfortable in a career with uncertain income (perhaps you’ve done sales in the past?)
Poll your influencers and educators: on average how long did it take them to reach sustainable, consistent profits? How many times did they blow up? Starting capital?
What road blocks can you expect along the way? Double this expectation for good measure.
Identify the demands you must meet in life: family, income, mortgage, etc.
How will you deal with inevitable drawdowns in your account?
Create a business plan based on all this information with enough cushion to carry you out to year four, five, beyond.
Be realistic with yourself. Can you make the sacrifice it takes for something not guaranteed?
Is there a contingency plan?
If you haven’t thought about each one of these in detail and mapped out your journey, then you’re likely headed for frustration. It’s a lot like building a house without blueprints, you’re still flying by the seat of your pants and risking your hard-earned cash without even considering what it will take to succeed.
Banks certainly wouldn’t lend you a small business loan with that kind of plan.
Really think about that for a moment. And if you remember only one thing from this section: keep your expectations structured, but malleable.
2. Lack of Self-trust
How many gurus/educators/legendary stock pickers do you know who rely on others to tell them when to get into and out of a stock?
Perhaps there are some self-proclaimed “furus” who are simply regurgitating someone else’s trading advice, but by and large, the real educators are thinking for themselves.
Granted, everyone has started somewhere in the markets. Even the great ones tip the hat to someone who’s gone before them and paved the way for a solid education. But when it comes down to pulling the trigger on a trade, having a plan and executing it, gurus are not relying on you or anyone else to tell them what to do.
In short, they trust their own intuition and ability to read the markets and execute trades.
If you’re reading this and new to trading, there is a high likelihood that you don’t.
Thinking for Yourself
A man must think for himself, must follow his own convictions…Self-trust is the foundation of successful effort.
Dickson G. Watts
The end game for not trusting yourself is always going to be stress. Trading anxiety will arrive right on time as you begin to see that you simply don’t know whether to take a trade, take profits, cut a loss, or any other decision.
You’re a dependent trader.
You trust someone else’s experience, not your own. Be honest, have you done this before: bombarded your guru with questions like, “How does XYZ look now? When should I take profits? Do you think it will come back up soon?”
Dependent traders have no autonomy or confidence, and usually this stems from not having a solid edge in the markets, for one reason or another.
In other words, you’re paying someone else to do the dirty work for you. And if this is you, you need to stop pushing buttons, period.
Education vs Alert Services
To be perfectly clear, we’re not saying gurus and educational trading services are bad. Right the opposite, in fact.
It all boils down to what you make of it. We’ll even go out on a limb and say that most trading services probably want you to be successful. After all, it’s a reflection of their effort.
However, the value of these services lies within your ability to use them responsibly as an educational tool.
Absolutely, listen to the gurus, watch the videos, read the books, check their alerts. But by all means, use them as a “mentorship” to perfecting your own style, edge, and strategy for tackling the market.
In other words, if you don’t know how to put together your own plan for a trade with a specific, tested edge, you shouldn’t be trading.
This leads us to our 3rd cause for day trading anxiety and depression: not knowing what your edge is.
3. No Edge
There is no simpler definition to “what is an edge?” than the late Mark Douglas’s definition in Trading in the Zone:
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Mark Douglas
Yet, something so simple can seem so painstakingly difficult to define in the market. And why is that?
We believe the answer lies in laziness and excuses, for the most part. These days, everyone is conditioned to expect a lot for very little. We are a generation of consumers who are willing to pile on debt in order to have what we want right now!
Best is to find someone who shares their strategy at the beginning so you can focus on your execution without the devil in the back of ur mind doubting if you're even doing the right thing.
Do your DD by backtesting, forward testing and live-tradinf with small size. https://t.co/IZDf9JGHlq
And trading is no different. That’s why this section comes on the heels of the “following a guru” section. Everyone wants to get rich quickly without putting in the time and effort to find an edge.
Gurus have become gurus because they know their edge in the markets, either through back-testing or through “time-tested” strategies. It will be no different for you on your journey to success. And, fortunately, an edge will eliminate a lot of the “fear of the unknown” once you find one.
How to Find an Edge
Simply knowing your probable outcomes on a trade can eliminate a lot of the anxiety or depression that comes from trading addiction, impulsivity, and gambling. In fact, a solid data set of trades with similar criteria may create the confidence you need to eliminate these problems altogether.
What? You’re not good with spreadsheets? Puhlease…
Datasets can help with edge discovery
Think about it this way, would you rather place a bet on a hand in Vegas that you know for a fact has an 80% chance of winning, or one that you have no idea what the chances are? An edge is not an edge if you don’t know the probability of outcomes. Stop trading until you know.
With that in mind, lets discuss a handful of ways you can eliminate the stress associated with not having an edge in the markets.
Find a mentor and study his/her strategies over a long period of time. Don’t just assume they work.
Observe the market, looking for patterns you can identify and for which you can set specific criteria for entries/exits.
Back-test a strategy using spreadsheets and historical data.
Take simulated trades until you know your probability for success with each edge you identify.
Review and tweak your edge as you observe new conditions, patterns, or information in the markets
And despite all of that, keep in mind that limiting your exploration in the markets may just be a “way of justifying a failure to move outside our comfort zone,” as Dr. Steenbarger suggests. So be willing to try new things and be watchful for new ideas.
Sometimes you don’t really know where your edge lies until you go over it.
BRETT STEENBARGER, PH.D.
It’s Up to You
There are a million ways to make money in the market, and resources for studying the markets abound on the internet. But one thing is for sure — it is up to you to put in the time and effort to find an edge that works, test it, know your probability for success with it, and stick to it.
Over time, you’ll likely develop more strategies, and that’s great. But discipline comes through doing one thing really well until it is mastered.
Don’t take it from us, Market Wizard Mark Minervini has this to say about the process:
“Trading is serious business with real money on the line. Why would you go into it without a well-thought-out plan of action? Yet most people do. The ease of entry into the stock market — no license or training required; just open a brokerage account and go — may give people the false impression that trading is easy. Or, perhaps they think their odds of succeeding without much thought are far better than they really are. Whatever the reason, I’ve seen people invest $100,000 in a stock with less research than when they buy an $800 flat screen TV.
By defining my parameters ahead of time, I establish a basis for knowing whether my plan is working or not. Have a process, any process, but have a process. Then you have the basis from which to work, make adjustments, and perfect your process.”[efn_note]Minervini, M. (2021). Think & Trade Like a Champion: The Secrets, Rules & Blunt Truths of a Stock Market Wizard (1st ed.). Access Publishing Group, LLC. 19-21.[/efn_note]
Mark Minervini Think and Trade like a Champion
Don’t be a follower. Put in the work. Be self-sufficient. Have an edge. Have a process.
4. Impulsivity and Trading Addiction
Hopefully by now you’re seeing some connections between the “causes” of daytrading anxiety and depression in each of these sections. So far we’ve gone from 1. Unrealistic Expectations to 2. Lack of Self-trust to 3. No Edge.
Impulsive trading and over-trading are next on the list. These two habits underlie the prior concepts for this reason:
When you have no definable edge in the markets, can’t trust your own actions, and have unrealistic expectations for quick success, you’re more prone to the uncertainties of the market and the temptation to overtrade and impulse trade.
And unfortunately, this pesky habit of impulses and overtrading may be a difficult nut to crack for some people, especially if you’re prone to certain personality traits in general.
Neuroticism
Jason Williams, MD, is the author of The Mental Edge in Trading. The son of trading legend, Larry Williams, Jason set out to compare many of the worlds best traders to their scores on the NEO-AC personality test.
Without going into great detail on the test itself, understand that it is an in-depth analysis of the 5 tenets of our personalities:
Neuroticism
Extraversion
Openness
Agreeableness
Conscientiousness
Each one of these contain 6 sub-categories. For our sake, suffice it to know that under Neuroticism, the subcategory N1 is Anxiety, N3 is Depression, and N5 is Impulsivity. Your score on each of these may have positive or negative implications on your success as a trader. Another notable category is E5, or Excitement Seeking.
Jason’s book is a great read for anyone wanting to peel back the layers of their own personality and uncover strengths and weaknesses. Within, he offers a few tidbits of wisdom for those of us who struggle with anxiety and impulse.
Tips for Over-trading
“For those high on the N1 anxiety scale, it will probably serve you well to avoid frequent checking of your trades, as this will probably only heighten your anxiety…. It is best to develop and then set predefined time intervals that result in minimal anxiety, and then train yourself to check only your active trades at those specified intervals (of course, always be sure you are trading with stops!).
Strategizing and making a schedule like this makes you master of your anxiety.”[efn_note]Williams, J. (2012). The Mental Edge in Trading : Adapt Your Personality Traits and Control Your Emotions to Make Smarter Investments (1st ed.). McGraw-Hill Education. 71.[/efn_note]
Jason Williams, MD
This bit of advice hearkens back to having an edge that you can trust, and a plan for your trade along with proper risk management. For those of us who struggle with high anxiety scores, the less we watch our trades and the more we are willing to accept our predetermined outcomes from proper planning, the better off we’ll be.
Learning to accept the risk is a trading skill—the most important skill you can learn.
Mark Douglas
Impulsive Trading
Many traders eventually lead themselves into a pit of anxiety and depression from constant thrill-seeking or over-confidence. This is akin to gambling, for obvious reasons. In essence, the market becomes a drug that fires up the dopamine mechanism in the brain, needing that fix, that rush.
As Williams notes in his research, most successful traders had “average E5” scores (Excitement Seeking).
“It tells me that the thrill factor, as a reason for trading, is less important to the successful trader than it is to the average investor.”[efn_note]Williams, J. (2012). The Mental Edge in Trading : Adapt Your Personality Traits and Control Your Emotions to Make Smarter Investments (1st ed.). McGraw-Hill Education. 93.[/efn_note]
Jason Williams, MD
Perhaps you score high in this area of your personality, and it is leading you to impulsive, thrill-seeking trades? Only you will know.
Assuming that you are not an addicted gambler who may need professional help but are reading this post for practical tips on becoming a better trader, one helpful tool in overcoming this issue is an entry trigger.
Entry Triggers
Minervini calls this an entry “mechanism”. Whatever you want to call it, it should be part of your edge, your trading plan, and your execution strategy.
An entry trigger is simply an edge criteria so well defined that you know exactly what you need to see technically and fundamentally to enter a trade. If those criteria don’t line up, you don’t enter. Plain and simple.
This eliminates a lot of “anticipatory” entries as well as “chasing” entries.
We discuss entry signals in many of our trading strategies on this blog. So, if you’re looking for an edge, be sure to read through some of these posts as you develop your own criteria.
5. Other Potential Causes for Day Trading Anxiety and Depression
To help uncover common causes of stress in trading, we reached out to our Twitter followers for what might be ailing them in the markets. Below are a handful of responses we received:
Not managing risk by using too much size
Not cutting losers and employing “hope” for a comeback
Hesitation and fear that a trade might be a loser before taking it (fear of failure)
Fear Of Missing Out (FOMO)
Self doubt (“will I ever be good enough”)
Missed opportunities
Inability to focus because of a full time job
Breaking your own rules
Success theatre (p/l screenshots on Twitter)
Imposter syndrome (“wow you’re a day trader, you must be like wolf of Wall Street” — in reality you’re not even profitable)
Not a bad list. And a list that most traders reading this can probably sympathize with.
Without going into detail on each one of these issues, let’s see if we can identify any connected patterns within the list in an effort to simplify the work to mitigate the habits.
Risk Management
Not managing risk by using too much size
Not cutting losers and employing “hope” for a comeback
The first thing that stands out about both scenarios are how closely related they are to Unrealistic Expectations. Everyone wants to size up fast in the market, because the more money you risk, the higher the reward. Right?
90% of traders dont fail because they're stupid. No, 90% of traders fail because they size up so fast relative to their knowledge and dispensable income, that they blow up before they have a chance to make all the mistakes necessary to become a profitable consistent trader.
Instead of expecting that success in the market is a measure of consistent process over time, you are “hoping” and risking way too much too early. Shift your expectations from fast profits and expensive thrills, to steady process and losses cut quickly.
Fear of Failure
Hesitation and fear that a trade might be a loser before taking it (fear of failure)
Fear Of Missing Out (FOMO)
Self doubt (“will I ever be good enough”)
Missed opportunities
All of these are rooted in in the same thing, fear of failure. Fear of failure is rooted in a Lack of Self-trust. Without the confidence in yourself, your strategy, your edge, it is not a surprise you have a fear of failure. And as we mentioned before, if your expectations are short sighted, this will only exacerbate the problem.
Here is a great example of a trader making an astute observation about time and edge development:
Give yourself the time you need to develop the edge that gives you self-confidence.
Lack of Focus
Inability to focus because of a full time job
This particular cause of anxiety is a direct result of your strategy.
Find an edge that works for you and whatever circumstances you find yourself in. If you can only trade 1 hour per day, then study the market for that one hour. We guarantee you that somewhere within that one hour, you’ll find an edge.
Maybe it is morning breakouts, maybe it’s a pre-market fade, or maybe it is a pullback scalping strategy. Whatever it is, change your expectations and edge to meet your current limitations. Study that time frame, take those trades, and move on to your other job.
Perhaps when you’ve built the account over time, you’ll have a host of other time frames to focus on. Be thankful for what the market gives you for now.
Trading Addiction
Breaking your own rules
Depending upon how often you do this, you’re probably addicted. Plain and simple, friend. And we don’t say that lightly.
If you can put a checkmark by any number of these self-assessment criteria, then it’s time you get help and stop trading. You have no realistic expectations, no self-trust, no edge, no plan, and you lack the discipline necessary to operate in the markets.
There is a fine line between making mistakes along the path to consistency and being addicted to trading.
Unfortunately, this is the case for many traders, and very few talk about it. Your broker won’t point it out to you. Heck, even your family may not say anything to avoid dampening your hopes.
We hope you’ll do a self-assessment and have that conversation before more damage is done.
Imposter Syndrome
Success theatre (PnL screenshots on Twitter)
Imposter Syndrome (“wow you’re a day trader, you must be like wolf of Wall Street” — in reality you’re not even profitable)
These last two causes on the list for day trading anxiety and depression are actually rooted in self-doubt, which points us back to Lack of Self-trust.
Twitter and social media in general have a way of painting a pretty picture on the outside. “Success theatre” can either motivate us to continue towards our goals, or depress us for not being there yet.
Analyze how it makes you feel.
Does seeing a PnL screenshot motivate you to perfect your own process? Or, does it tempt you to overtrade in order get rich quickly?
In general, we suggest unfollowing the people in your life, or social media life, who are influencing you to make bad decisions or experience emotional pain. Only you can create self-awareness for this.
No discussion on day trading anxiety and depression would be complete without some amount of biological consideration — especially on the heels of the “breaking your own rules” discussion.
After all, we are humans and therefore subject to the “pulls of the flesh.” What this means for trading is that our biological processes can often interfere with our better judgement, perhaps even our will power.
On that token, we are big fans of AllDayFaders on Twitter and his nuggets of wisdom and strategies. He’s been around the block for a while and really sums up the physiological aspect of a day trading despair and impulsivity.
Instead of botching our own explanation, we figured we’d just let you absorb it from the man himself:
Some great basic tips there from ADF on optimizing our ability to overcome the biological weaknesses we are programmed for. And notice specifically that a systematic approach is what helps us humans overcome these problems.
To that end, knowing your edge, trusting it, and managing your risk and expectations can be a foundation for moving beyond the impulsiveness that often holds you back. Throw in some sleep and exercise and we may have a recipe for success!
Habituation
The last topic of discussion with regard to day trading anxiety and depression is the concept of habituation.
Returning to Jason Williams’s research, there is something peculiarly simple, yet profound in his discovery of anxiety in trading. Williams, essentially, boils trading anxiety down to relativity and the ability to habituate.[efn_note]Williams, J. (2012). The Mental Edge in Trading : Adapt Your Personality Traits and Control Your Emotions to Make Smarter Investments (1st ed.). McGraw-Hill Education. 68.[/efn_note]
Anxiety, it turns out, is all relative. It’s nothing more than being confronted with a new scenario and not knowing how you are going to perform under these new sets of conditions. The only way to conquer it is to confront it and habituate it.
Jason Williams, MD
Much like cognitive behavioral therapy can address a lot of underlying bad habits, habituation can often bring about the desired change we need in our trading.
Stay in the Game
Of course, if the problem is bigger than just anxiousness, professional help may be warranted. But for those of us simply struggling with the common stresses that plague most traders, it would be beneficial to address those issues head on.
Here’s what Jason adds to this point:
“The very worst thing you can do to treat your anxiety is to remove yourself from it, because you are denying your brain the chance to habituate. If every time you are in a winning trade you abort it early because you are starting to feel anxious and doubt yourself, you will never learn to trust your abilities (and intuitions).
So you gotta stick it out, for better or worse. Don’t abandon ship at the first heart palpitation or the first drop of sweat.”
Jason Williams, MD [efn_note]Williams, J. (2012). The Mental Edge in Trading : Adapt Your Personality Traits and Control Your Emotions to Make Smarter Investments (1st ed.). McGraw-Hill Education.[/efn_note]
Jason raises an interesting idea here: deliberately exposing ourselves to our fears in an effort to “learn to trust” our abilities. Could this be deliberate emotional practice?
We think this is a great strategy for overcoming bad trading habits and discuss it more in depth in our post on how to overcome over-trading.
Resources for Combatting Day Trading Anxiety and Depression
At the end of the day, awareness is the best starting point. To that end, we hope we’ve at least identified a handful of starting places to help cope with the stresses of trading.
In addition, we’d like to mention a few resources for you. We are huge fans of Dr. Brett Steenbarger. His books and his website are a treasure trove of knowledge when it comes to trading psychology.
Brett Steenbarger’s Blog
https://traderfeed.blogspot.com/ is the place to visit. And in the upper left hand corner is a search bar that will allow you to find topics like “anxiety” or “confidence” or whatever you want to know about. Dr. Steenbarger is quite prolific with his writings, and we’re sure you’ll find something to grow from.
Guided Relaxation
Créde Sheehy-Kelly is another great resource. As a High Performance Psychologist, she has worked with many professional athletes and traders alike.
If you ever find yourself worked up or too emotional, be sure to visit her Progressive Muscle Relaxation audio resource.
For best results, do this exercise in a quiet room where you will not be disturbed and can give the exercise your full focus. Aim to practice the PMR exercise three to four times per week.
