Psychology and Risk Management
• What to expect
• Risks
• Position sizing
• illusion of control
• Accepting critisism
• Paralyzed by fear
• Loss is a feedback, not a failure
• The flexible trader
• Focusing on the positive
• Short straddle
• The dynamics of greed
• The herd mentality
• Notes
The amount of psychological energy you can dedicate to trading has a cap. And when you let too many problems to linger in the back of your mind unsolved, you lose some of this finite energy. The more problems you put off dealing with, the more they pile up and the less mental energy you’ll have left over for trading. These conflicts are likely to erupt unexpectedly if they are allowed to build up and go unresolved. You can experience some conscious disagreements throughout the course of the day. Other conflicts may not often cross your mind since they are unconscious. But psychological problems are almost always present, whether they are conscious or not.
It’s crucial to recognise tensions and conflicts and put in a lot of effort to settle them in order to free up psychological energy and resources. By avoiding stress, you can liberate up psychological energy. Stressful feelings can accumulate, and if they are not sometimes discharged, one may become overwhelmed by stress. Although you cannot entirely eliminate stress from the trading environment, you can stop yourself from being unduly worried and afraid by creating and adhering to a stress management plan. Avoiding caffeine, exercising frequently, limiting daily inconveniences, and seeking out social support are some helpful methods to handle stress.
It’s not helpful to pre-elevate your nervous system and have a greater sensation of tension when trading because it’s already stressful enough. Exercise on a regular basis might also help to lower tension. A regular workout routine ensures that pent-up frustration and anxiety are released and do not accumulate to suddenly influence subsequent trading decisions. Tension builds up during the trading day. Reducing stressors in your environment is also crucial.
Daily problems like being pressed for time, stuck in traffic, or having too much on your plate can cause psychological tension and linger in the back of your mind. Reduce these inconveniences as much as you can to release the strain. Whatever method you use to deal with daily annoyances, don’t ignore them and don’t pretend they aren’t significant enough to address right away. Over time, they can add up and put a lot of burden on you.
A good technique to deal with stress is to ask friends and family for social support. Individuals who are under a lot of stress who have someone or several people to vent to are better able to handle the pressures. Sometimes all it takes to release stressful emotions like anger, fear, and frustration is to feel hopeful, in control, and prepared to take on new stressors with renewed enthusiasm. However, it’s crucial to keep in mind that relationships have two sharp edges.
Although caffeine typically elevates your nervous system to the point of having you hyper-alert to the smallest type of stress, it also helps many individuals wake up in the morning.
A good technique to deal with stress is to ask friends and family for social support. Individuals who are under a lot of stress who have someone or several people to vent to are better able to handle the pressures. Sometimes all it takes to release stressful emotions like anger, fear, and frustration is to feel hopeful, in control, and prepared to take on new stressors with renewed enthusiasm. However, it’s crucial to keep in mind that relationships have two sharp edges.
Under the correct circumstances, they can aid in stress reduction, but they can also be a significant source of tension. It takes special people to be an important part of someone’s social support system. A person’s social support network should ideally consist of good listeners who genuinely want to learn about their particular issues, validate their emotions, and assist them in de-stressing. While some relationships invigorate us, others make us feel anxious and frustrated. Since not everyone in a trader’s social support network is familiar with or supportive of trading, this might be especially true for traders.
Consider the following scenario: A loved one may not be supportive of trading and may constantly cause worry by asking, “How much did you lose today?” or “When are you going back to your regular employment after giving up trading?” Similar to this, a conservative, risk-averse friend would not want to hear about trading activities that are quite dangerous. In these situations, these partnerships are at best unsupportive and at worst extremely stressful. Finding the appropriate social support is so crucial for your psychological well-being.
It’s crucial to trade with the right attitude. When your mind is frantically consumed with conflict and tension, you’ll find that a significant portion of your psychological energy is spent, making it difficult for you to focus and concentrate when you turn your attention to trading. However, when you reduce stress, you free up psychological resources and can get rid of the disputes and stressors that are lingering in the back of your mind. The high performance attitude will help your trading.