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Stress Errors

Have you ever been so excited about a trade that you couldn't sleep at night? Or perhaps you are trying to dig yourself out of a hole and worry has taken a toll. Studies of disasters, ranging from major environmental catastrophes to minor laboratory accidents, happen when people are under extreme stress or experience physical exhaustion. When people are tired, there's an increased risk of disaster. For example, a lab technician may be tired and unable to concentrate and drop a test tube, unleashing a poisonous gas. Or a cook might drop a pan of hot grease on his or her foot because of a rush to get out an order. In all walks of life feeling tired and worn out can result in tragedy. It's true in everyday life and it is true in the trading arena. Trading requires a careful execution of a trading plan. You have to monitor the trade and enter and exit skillfully and effortlessly. It requires concentration and intense focus. But when you are tired, or overly stressed, however, you are likely to make mistakes.

It's crucial to be at your peak during these key moments of trading, such as deciding when to enter or exit a trade. You must be prepared and ready to take decisive action. Ideally, you should be fully rested and relaxed. But in our overly hectic days where we are trying to balance both personal and work responsibilities, it isn't always possible to get the rest we need. When it comes to trading, there are numerous things you need to do to put on a trade. You need to do background research and anticipate adverse events that may thwart your trading plan. And, if you're like most traders, you have a personal life to contend with. Stressors in your everyday life can influence your performance as a trader. Humans have their limitations. We aren't computers, no matter how much we want to be. We can only work for a limited number of hours a day, and if we try to work in marathon stretches, it eventually catches up with us, and it is shown by making trading errors when we least expect them.

So how do you operate at peak performance? How do you work "in the zone" and be ready to move in synchrony with the ebb and flow of the markets? Putting yourself into the right state of mind requires energy, both physical and psychological. From a physical standpoint, you must be rested. If that means that you need to get 12 hours of sleep a night, then by all means get it. If that means you can only trade for a few hours a day, for only three days a week, then by all means do it. The point is that you must know your own personal limitations and how to maximize your energy level. Don't view trading as a 9-to-5 job where you must put in the full 40-60-hour workweek. If trying to uphold such a schedule wears you down to the point that you have little energy to trade at your best, then your effort will not be cost effective. You'll put in more time than you will receive rewards. Indeed, you will likely put in a great deal of time only to fail in the long run. So figure out how much sleep you need, and make sure you get it.

Trading requires energy. You must be alert. Don't be caught off guard during critical moments of trading. Make sure that you can focus on executing your trading plan. Get the rest you need and neutralize as many stressful events as possible. When you are tired or stressed out, you will impulsively make mistakes. It's obvious when you think about it. No trader is a robot. Just because it's obvious, however, don't take this issue lightly. Unless you are rested, relaxed and ready to take action, your trading errors will ruin even the most innovative trading plan. 

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Thursday, 13 June 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.