Watching a professional sporting event, especially in the final moments, demonstrates perfectly how hard it can be to perform under pressure. The need for one final touchdown, or a goal can either drive the sportsman to achieve or collapse and fail to deliver.
So the real talent is down to how they manage such moments and the same is true when we trade or invest. The fact is most people fail to perform well when put under so much stress, no matter where it comes from.
So what can we do to help ourselves?
What simple techniques are there to enable us to become more relaxed and focused so we calmly execute our trades?
Well the most important thing is to identify where our stress is coming from. This then allows for it to be managed by either removing the pressure or by putting in place strategies to manage it.
There are usually three main sources of pressure; financial, social and self-imposed through unrealistic expectations.
Let’s start with financial pressure, of which almost everyone suffers from at one point or another. There are times when we need to breathe more cash flow into our accounts, so the pressure is on to make those profitable trades.
Ironically, when we go in with a mindset that requires trades to turn out profitably all the time, actually puts the wrong emphasis on the outcome rather than the process which then makes it harder to focus and think clearly.
It’s during these times that it becomes even more essential to ensure we have a sensible risk management strategy in place and consider reducing the amount put at risk on each individual trade, also known as position sizing.
This in itself helps reduce our stress as there is less to lose on each position if something does go wrong. Never forget that successful traders are ones who have consistent strings of small but profitable trades and not one big windfall.
Constantly remind ourselves that trading is about one step at a time and playing the odds, so it is inevitable that we will have losing trades, but if we have our risk management in place, our accounts will never suffer from disastrous drawdowns.
Social pressure is a hard one to work around as it can also be built around personal expectations. However, there are things we can do.
Firstly, recognize that it is possible that it may be more in our own heads that these pressures exist. For example, feeling that our partner or family have high expectations of us or that they need us to be a successful trader is more our own perception than reality.
Whatever the truth is, just know that trading to other people’s expectations will make it almost impossible to focus properly and if we should have a losing trade, admitting it and moving on will be even harder.
Often it is better to just be vague in responses to enquires as to how we are doing and remind those close to us that trading is a numbers game and we win some and we lose some. This way, our ego is never challenged and avoids us being hyped up during the wins or brought down during the lows.
Lastly, the hardest pressure of all is managing our own expectations. Many traders have what I call ‘the need to be right’ personality, which means that down times can be hard to bear and even the good times can be just as hard as there is always the risk of setting even higher expectations.
Expectations like how fast we can master the markets, or increase your capital, or the number of winning trades we can execute etc. So stop. Look at what we are doing to ourself and acknowledge that such pressure is counterproductive.
We must keep on reminding ourselves that successful trading is all about researching and executing profitable trading and investment systems and allowing probabilities to be on our side over time. This eliminates the need to always be right and have unrealistic expectations.
Pressure can sometimes generate some of the most creative thinking but no one can sustain maximum performance when under constant pressure.
So step back, look at what pressure we have placed on ourselves and what can we do to eliminate these pressures. This then frees up our mind to focus on our processes that lead to greater long term profits without unnecessary pressure. Trading and investing this way is also a lot more fun too.