Trading can be a highly rewarding and exciting career, but it also comes with its fair share of challenges. One of the biggest challenges that traders face is managing anxiety, as the pressure to make profitable trades can take a toll on their mental and emotional well-being.
Anxiety is defined as the feeling of intense worry, nervousness, or a desire to do something to happen. It can also be known a apprehension, worry, and a strong longing. When you have so much anxiety, it is almost impossible to perform well.
This is a common issue among traders. It can have a negative effect on their performance. Here, we will take a look at the sources of this anxiety, and discuss how to manage it. This will help traders perform to the best of their abilities.
What is anxiety in trading?
Anxiety, or the action of being anxious, is one of the most challenging things that traders can go through. Sadly, it is a common situation that affects traders and investors of all stages, including the highly experienced ones.
For example, an investor who makes the biggest loss in his career will often be anxious about it. But this state of mind can also arise if a positive position begins to fall.
Let’s take another familiar example. As a day trader, knowing how to take advantage of market volatility is one of the best ways to generate profits. But the roller coaster of your asset value, when it moves against your expectation, can trigger your anxiety.
As a trader, you will find yourself in anxious moments in some periods. Your goal should be to deal with this state of mind well. That’s important since anxiety can lead to more psychological situations like stress and depression.
Causes of anxiety in finance
There are several triggers that can spark this state of mind among individuals.
General fear of the market
First, a new trader can be anxious because of the general fear about the market. This happens since traders know the statistics about the market well.
They know that most people who start trading don’t become successful. Therefore, they get anxious because they are unsure about their possibility of success.
Fear of losing money
Second, traders are often anxious because of the general fear of losing money. This happens since a trade can either make a loss or a profit.
And as humans, we tend to look at the negative side of life by worrying about potential losses instead of potential profits. Therefore, the fear of losing money in the market can lead to substantial losses.
Losing streak or underperformance
The other key cause of anxiety is when a trader has a long losing streak. This happens when a trader loses money for several days or months.
In this situation, the trader will often be anxious since they are unsure about what will happen in the future.
This happens in all industries, including sports. A good athlete who has a long track record of success, will often feel anxious if they have not been doing well recently.
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Entering large, leveraged trades
Another cause of anxiety in trading is when a trader enters a large leveraged trade hoping to make a quick profit. At times, it is possible to make a big return by doing that.
However, at times, there is a possibility that the trade will go against you right away. You can be anxious before the trade rebalances.
Fear of failure
Perhaps, one of the biggest causes of anxiety in trading is the risk of failure. We all want to be successful in the market. Therefore, the fear that you will be among the group of people who fail in trading is a big cause of concerns.
There are other important causes of anxiety in day trading, including trading addiction, lack of proper risk management, imposter syndrome, a medical condition, and substance abuse among others.
How to deal with anxiety in trading
Fortunately, all these causes of this mental state have solutions. For one, as We wrote above, every day traders and investors you know has gone through a period of anxiety.
Unfortunately, failure to deal with this anxiety can lead to substantial losses and a difficult psychological situation.
The first important remedy to anxiety is to gain enough experience in day trading. This means that you should work hard to gain experience in the market.
One way of doing this is using a demo account, which is an account that gives you access to the market without risking your money. This demo will help you test your strategies for an unlimited time as you move on to become a better trader.
Have a mentor
The other important thing you need to do to deal with anxiety is to have a mentor who has been in the industry for a long time.
This mentor, who has gone through anxiety himself, will guide you about the financial market. They will tell you how to go through various market conditions.
One way of getting a mentor is to start your trading career in a trading floor or in an investment fund. In those places, you will see first-hand how people deal with difficult market conditions.
Set realistic goals
A key cause of anxiety is when you have very ambitious goals. For example, your goal may be to double your money within a few months.
In most cases, setting such ambitious goals will lead to a substantial losses and anxiety. Therefore, you should have a goal of starting small and growing your account slowly.
Create a trading plan
The other important remedy to anxiety is to have a trading plan that you have tested for a long time. This plan should also be accompanied by a trading journal, which is a tool that lists all trades that you want to execute.
The plan should also include the risk management strategies that you intend to use when trading. When you have a good plan, there are minimal chances that you will became anxious.
All trades have two main outcomes: a loss or a profit. Therefore, it is important that you manage your risks well.
There are minimal chances of anxiety if you have a specific risk-reward ratio. This is because you know the maximum loss you can make per trade. In the same lens, you should never trade more than you are willing to lose.
There are other potential remedies for anxiety in trading. For example, taking time off in the market can help to cool your nerves. Further, you can avoid anxiety by not overestimating your trading skills.
Anxiety is a common experience for traders. It can be debilitating, leading to substantial losses to our account. Fortunately, this does not have to be the case. In conclusion, managing anxiety is key to successful trading.
How you can do this? By identifying the sources of anxiety, developing a trading plan, practicing self-care, and seeking support when needed, traders can manage their anxiety and perform at their best.
Remember, trading is a journey, and it’s important to prioritize your mental and emotional well-being as you navigate the ups and downs of the markets.