As traders, we tend to put ourselves in pressure situations more often than we would like to admit.  For most of us, this has been going on for so long that we feel there is no way to eliminate the pressure situations.  But, there are many ways to successfully react to the pressure.  In this article, I would like to help you recognize these potential pressure situations and prepare you in advance before they actually occur.

A potential pressure situation is one where the consequences of your actions are significant to you like when you place a trade and all you can think about is – “How much money am I going to win or lose?”  Trading like this will cause you to trade with emotions and not follow your trading plan.  Perhaps, you are trading beyond your capabilities or risking more money than you can afford to lose.  Another rule that is broken is traders who trade with money that needs to be used to pay bills.  When you trade the markets with the mortgage or grocery money, you are going to be trading with ‘scared money’ and we all know that scared money never wins.

Notice how I used the word “potential” in the previous paragraph in reference to pressure situations. There is always the possibility of pressure existing in a situation where the consequences of your actions are very important to you.  Keep in mind when the losses due to failure are considerable, the potential for pressure becomes greater. Always use stops and manage your risk on each trade to prevent your account from taking a large hit on any one trade. By having a maximum dollar loss per trading session, you can also eliminate some of this pressure.

Actual pressure is created when you begin to think of the consequences (losing or winning money) of your actions instead of concentrating on your actions themselves. This would include important things such as following your plan and taking a trade without apprehension when a setup is evident. When winning or losing is on your mind, you are thinking of the possible outcomes, which can cause you to try to override your subconscious mind with your conscious mind.  Your subconscious mind houses your trading plan so there is no thinking involved when you see your setup – you instinctively do the right thing. 

This is why simulated trading is so different from real time trading. There are no real penalties in the simulator.  In real time trading, you can have penalties and rewards.  Simulated trading is a great way to get started in trading, but keep in mind that you are only learning the mechanics of trading while on the simulator and not so much of the emotional side.

When you fear failure, your conscious mind does not trust the subconscious mind and will try and help as much as it can.  This can be where ego comes in to play.  You start hearing voices in your head about taking your profits early or letting that loss run – it will come back, etc.  You start to concentrate harder and the tension inevitably starts to creep in.  A winning trait in trading is relaxation when you trade.  When you are concentrating so hard you become tense, relaxation is almost impossible.

By now, some general observations regarding pressure seem clear. Situations do not create tension and pressure, the personal reactions of the trader do.  Since we are each unique individuals, pressure situations impact each of us a little differently.  Pressure is created when the trader’s thoughts switch from performance to consequences of performance, otherwise known as the consequences of failure.


This is an excerpt from Aug 2009 issue of Trader's Journal.