How to Manage Trading Anxiety: Tips for Conquering Stress

Although the collective imagination assigns trading an aura of rationality, and the winning trader qualities such as coldness, it is still a human affair and, as such, subject to the emotional sphere. The truth, which all traders experience regardless of their position, skills, and experience, is the following: psychology, both on a collective and individual level, plays a decisive role and can profoundly - and sometimes irreversibly - impact earning prospects. As long as a trader coexists with emotions and manages them intelligently, trading proceeds smoothly, without major hitches (obviously with the ups and downs typical of this activity). Problems arise when emotions take over and degenerate. In this case, situations bordering on the pathological emerge, characterized by the appearance of specific symptoms and a general difficulty in behaving with lucidity. Among the consequences of poor emotion management, the onset of trading anxiety stands out. In this article, we discuss this disorder in depth, illustrating its symptoms and presenting some solutions.

What is anxiety

Trading anxiety, from almost all points of view, is simply anxiety. Therefore, the anxious state a trader may experience does not differ much from the anxious state, for example, a worker, a family man, a student, etc., may experience. Given that each person has their own specificity, also concerning the dynamics with which this disorder arises, develops, and generates its effects. However, according to the WHO (World Health Organization), and based on the most widely shared academic evidence, anxiety is a psychic condition that an individual experiences at a conscious and aware level characterized by intense worry, strong pessimism, and fear. In most cases, these emotions manifest with a severity not justified by the actual danger situation. Anxiety, therefore, has little to do with stress (in this article, we discuss it from the traders' point of view), which is basically a physiological response, albeit excessive, to a real danger condition. Moreover, stress is temporary and contingent, meaning it passes when one moves away from the stressful source. Anxiety, on the other hand, is a feeling that, while diluting the further one moves away from the danger, exerts its effects continuously. Everyone has experienced anxiety at least once in their life. Or, at least, an anxious feeling. As for the pathological or para-pathological one, the issue is a bit different. It can be triggered by a trauma or a series of events that, overall, have left a mark on the individual's psyche. Obviously, some individuals are more predisposed, and others less so. In any case, if the discomfort one is experiencing at a given moment is not a simple feeling but a real pathology, practical measures can certainly be taken to limit its effects, but the response must be therapeutic. What has been said so far also applies to trading anxiety, which, however, manifests itself in a fairly typical way. Here's how.

How trading anxiety manifests itself

The anxious trader, and not simply an anxious or worried one, adopts certain particular behaviors that certainly do not benefit their activity and reduce earning prospects. Here are some of them. Non-rational risk management. In the best-case scenario (among the worst ones), i.e., when the trader is anxious but still manages to trade, they risk losing lucidity and making wrong choices. These mainly concern risk management. The anxious trader either exposes themselves too much or too little. In the first case, this happens because they have to recover from a recent defeat. In the second case, this happens because they are simply afraid of losing money. It is still a deleterious attitude, as risk and money management should proceed from technical and, as far as possible, scientific evidence, not from the emotional condition of the moment. Paralysis. Those who are simply stressed operate, albeit in a condition of discomfort. Those who are anxious often freeze for fear of losing. It is not a solution, also because a type of worry that we could define as "double track" or "bidirectional" comes into play. Double-track worry. The anxious trader, when they have to trade, is deeply worried as they experience a visceral and almost unsolvable fear of losing. However, when they don't trade, they are equally gripped by anxiety because even in that case, they fear losing, specifically losing opportunities. In short, the anxious trader finds themselves, from their point of view, in a lose-lose situation.

How to resolve trading anxiety

Anxiety, if pathological, cannot be resolved with a few tricks, not even if it is trading anxiety. It must be tackled head-on, with a doctor. Of course, these measures can be useful in limiting the effects, while waiting for a specific treatment. The usefulness, then, is maximum if the trading anxiety is not pathological but still in a preceding phase, i.e., the one that can be defined as an "anxious feeling." However, all the measures that concern the way of trading consist in decreasing, at least temporarily, the exposure. Not in a random and disorderly way, as the anxious trader would be led to do spontaneously, but rationally and following certain rules. One solution is to use the surplus criterion. That is, only the profit gained in previous trades is invested. So, even in the worst-case scenario, the trader will have the feeling of not having lost. It is actually a typical gambling mechanism, but in a completely exceptional way, it could work to provisionally manage anxious states. The reduction of exposure, and therefore of the stake, in play should still be carried out in the name of money management. The basic idea is to halve it. Therefore, according to the mainstream, instead of investing a maximum of 2%, one could invest a maximum of 1%.