The better you become as a trader, the less stress you will experience. Understanding the major players involved in your stress producers can greatly help alleviate this condition. Today I’d like to review the big players and suggest a few solutions.
OVERTRADING – This is simply trading in and out of positions too often. It’s an indication that your strategy is flawed, and you are waffling on your conviction that your trade is a good one. You jump in as the prices rise and exit as they fall. If you were going shopping for a new shirt, would you buy it when the price was rising, or pick it up when it was on sale? Having a few trading rules in place will help. Consider only buying on red tapes and selling on green tapes. Imagine if you no longer chased runaways and only bought goods when they were declining, that is, on sale.
Limit your trading to only a set number of trades per week. You can add to a position your already in, but no new positions once you hit your limit.
OVEREXPOSURE– This is what percentage of your account is actively in trades. If you have a $10,000 account and only want 50% exposure, then limit your trades to a total of $5000 in your open trades.
When you exit a position and have only $4,000 in trades, you may now enter other trades up to $1000. I mention the 50% exposure because it often allows one to make consistent gains without angst in a jumpy market.
I’ve found that being overexposed in markets that have high volatility leads to more stress. The thought of a runaway bull or bear market can make one tense who is overexposed in the wrong direction. If your overexposed, cover up a little. Taking some chips off the table makes trading much more relaxing.
SHORT TRADE DURATION– Related to overtrading but not exactly. Who do you think has more stress, a day trader or a weekly or monthly swing trader? Of course, you know day traders appear to be consistently frantic, jumpy and go from euphoria to depression within moments. Ever see the fellows who advertise for this style of trading? Not for me thank you.
You will find the longer your trading horizon, the less stress you perceive. Giving your trades some time to evolve with longer expiration dates on your options, longer hold times on your equities before exiting allows the market to realize what you see.
If you normally trade weekly options, consider trading options that expire two weeks or more in the future. You will immediately feel the difference.
SANE TARGETS– Several years back I was a member of a trading group that sought huge gains in option trades. The goal was 300-1000% winners. The group published their results and big winners were of course promoted. Each trade listed its amount of maximum profit during the trade and closing profit or loss at expiration. After reviewing their previous years trades, I noticed that about 95% of option trades expire worthless, in line with published research. I also noticed that during the trades almost every trade was once was up 30% during the trade time of exposure.
The answer is simple. Set your targets for 30-50% gains and exit. While its great to have a ten bagger, I will take 30% gains and a lot less stress every time.
Home runs are great, but singles and doubles bring in the runs also. Smaller consistent wins make your piggy bank into a biggie bank.
Reducing your level of perceived stress can make a significant difference in your long-term enjoyment and performance of trading for a living. Consider the above suggestions to reduce stress and allow you to make better trading decisions.
Enuf Said.