Mental Toughness

If you want to be a winning trader, you have to learn to handle extreme levels of stress. The markets are often chaotic and unpredictable; they are, no doubt, stressful. You mind has limited resources; when you feel stressed, a great proportion of your resources are devoted to managing the stress. You tend to have little energy left with which to focus on trading. It's a lot like "cramming" for an examination in school. It takes twice as long to learn material when you cram. Why? It's because you are more stressed when you are trying to learn under duress.

When you're struggling to cope with the wildness of the markets, you are similarly trying to perform under duress, and under less than ideal circumstances. As you push yourself to the limit, you use up mental and emotional energy. As you use up resources, there is little mental and emotional energy left for trading smoothly, easily, and with retaining your poise. You are more prone to panic, and may ride an emotional roller coaster as you face winning and losing trades. You may even begin to panic and behave irrationally. It's essential for survival to be able to cope with the ever-increasing demands of the markets.

Research has proven that, if you can learn adequate ways to cope with stressful situations, events that usually produce stress need not necessarily produce the stress response. You can develop "mental toughness." The mentally tough person can endure high levels of stressful events, yet not feel stressed out. Coping with stress is similar to weight lifting. If you lift more than your body can physically handle, you can damage muscle tissue. But, if you never push yourself to the limit, you'll never develop additional strength. Just as you build up muscles gradually, you gradually build up your ability to handle stress.

The key is to learn how to handle greater levels of stress, but also to find time to recover. When it comes to the markets, for example, it's tempting to trade all day, then work late into the night back testing and trying out new trading strategies. However, working tirelessly at such a pace is bound to wear you out eventually. It is very important to rest and recover. That doesn't mean shrinking back from the markets, but learning to deal with the pressures of the markets at a gradual, realistic pace.

By pushing yourself to greater levels of challenge, but at the same time resting and recovering, you can build up mental toughness in the same way that a weight lifter can handle greater and greater physical loads.

There are some basic steps that a person can take to prepare for stress and become adjusted to it. First, as I've stated many times, it is essential to get as much rest and relaxation as possible. People who do not get the proper amount of sleep have limited psychological resources to cope with daily stressful events. Getting extra rest is important. This may mean taking planned naps during the day to rejuvenate. Don't make the mistake of thinking that you'll be "missing out" on a trading opportunity by taking a break. Look at it this way: how much are you going to make if you are too tired and wiped out to focus on the market action and trade easily? The proper amount of rest can increase your ability to cope with stress.

Second, it is also important to exercise and eat correctly. Emotions are physiological responses. The more energy the body has to cope with stress, the more "tough" the body can be when extreme levels of stress are encountered. Regular exercise helps the body and mind release pent-up stressful emotions. By making sure you allow your stressful emotions to dissipate, your body and mind will recuperate and be ready to deal with extreme levels of stress.