I hear from traders more than usual about their struggle with performance anxiety. As one successful growth trader said, the problem tends to occur “in the high-profile trades that arguably most traders watch.” This is a very good observation. The higher the status of the trade – that is, the greater the perceived opportunity – the more room there is for performance pressures. As Epictetus noted, the issue is not the “real problems” with trades, but rather the “concerns” about those trades.
Let's look at this from a psychological angle. The more we recognize—and emphasize—the opportunity in a situation, the more space we create for anxiety should that opportunity be missed..
Imagine shooting a free throw while playing basketball. It's routine, you've done it hundreds and hundreds of times, and you don't feel any pressure. Now imagine the situation with my old college team. You've done a long workout after classes and you're so tired you want to go home. The coach announces that the players can go shower, change clothes, and go home after making 10 consecutive free throws. Now, suddenly, there is pressure. You *really* want to go home, so once you make six foul shots in a row, you worry that you might miss one and have to go back to square one. The coach, of course, knew that. This wasn't just free throw shooting practice, it was performance under pressure practice.
Now imagine it's an actual game and the second half clock is winding down with your team trailing by one point. You've just been fouled, and you can shoot once. If you miss the first shot, the opposing team will likely grab the rebound and run out of time to win. If you make the first shot, you will get a second shot that can win the game for your team. Everything is at stake. Suddenly, what was routine in practice became non-routine.
This is what happens to a trader who is under performance pressure. This occurs in a “high profile” situation in a volatile market, where a trade can perform very well or very poorly. Moreover, it is a position that other traders focus on. Everyone will see whether you nail it or screw it up. If this were a normal trade in simulation mode, there would be no pressure and it would be relatively easy to execute. With more at stake – financially and psychologically – we begin to overthink trading. This takes us away from what we know how to do naturally.
Often, performance pressure manifests itself as perfectionism. We feel like everything is at stake, so we try to do everything perfectly. Perfection becomes the enemy of good, because it keeps us away from doing what we naturally know how to do. Like most players, I had a free throw shooting routine. Hold the ball with both hands, look at the rim, bounce the ball three times, look at the rim again, bounce twice, look at the rim, exhale, focus, and shoot. The same way, every time. But if I'm in a stressful situation, I change the routine. I don't exhale. I shoot the ball. I became ashamed of my release. Ringtone. The shot bounces off the front edge.
This is the case with trading. We are overly focused on getting in, and we want to get the perfect risk-reward. Suddenly the market moves in the way expected before we entered it. We don't want to chase him, so we hope to back off, but he keeps moving. We missed trade. Ringtone.
What my coach realized is that you can't learn to perform under pressure unless you train under pressure. For this reason, military teams and rapid intervention teams practice maneuvers with live ammunition under realistic conditions. That's why emergency medical team members practice rescue techniques under observation while determining timing. Practicing under pressure turns stress into routine. This is how actresses and actresses overcome stage fright. Getting on stage over and over in rehearsals prepares them for live performance.
As traders, we can create exercises in imagery – vividly imagine stress situations and visualize in detail how we want to respond. Over and over again, we walk ourselves through stressful situations, and repetition makes stress familiar. We cannot feel stressed about something we know well. We can also create our own workouts by trading difficult situations in simulation mode and making ourselves accountable for the results. Imagine, for example, working in simulation mode and not being allowed to trade live for the next session unless the simulated trades are executed well.
We learn to perform under pressure by increasing the pressure in our practice. No psychological self-help methods will work if we do not make use of them in the heat of actual battle. If our practice is comfortable, we set ourselves up to worry about performance when the game becomes uncomfortable.
In-depth reading:
Performance Anxiety: The most common problem that traders face
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