Election Eve and A Blueprint For Battling the Dangers of Trading

With a hectic week of trading ahead, I hope you are all rested and ready to take advantage of the uncertainty and volatility accompanying the U.S election. These are exactly the types of events skilled traders thrive on. This will be the sixth election I have traded, and the best advice I can give is don’t guess, hope, think, or predict; know WHAT to trade and then operate mechanically, reacting to what the market gives. This is the most effective/efficient way to trade ALL the time, but I feel like it is especially tough to stay unemotional and stoic during election week.

With that mindset, and the right preparation, strategies, and execution, weeks like this can bring big profits. But with those profits comes stress, sitting for hours glued to screens engaged in high-stakes trading takes a physical and mental toll. Knowing full well how toxic and dangerous the side effects of trading can be, I wanted to touch on this topic again before moving on to more technical things. As a companion piece to my last post, Warning: Trading Can Be Hazardous to Your Health and Bank Balance!, I wanted to share an excerpt from my book, Cash Rules: Reminiscences of a Day Trader:

let me focus on the most relevant issue for this book–and that's trading and the adverse effects it can have on one's mental and physical health. 

Anyone interested in trading surely has heard that success is over 90% psychological. I am somewhat of an expert in this field since I have been engaged in psychological warfare with the markets for years and have the scars to prove it.

I’m going to share a bit of my own take on the mental battles of being a trader, but I’m no psychologist. I suggest you delve further into this complex subject of trading psychology by also getting more qualified points of view. I will leave links to some of my favorite books on the subject in the resources section. 

While these books–as well as certain sources on Twitter and YouTube–do a fine job of providing lessons on how to fine-tune yourself mentally to make money, they typically don’t mention the toxic side effects of trading. Apart from occasional sensational stories about a trader blowing up a huge account, the dark mental side of trading is seldom mentioned. It’s more pleasant to hear about traders making millions while trading on some tropical beach. 

The trading education business wants to promote these success stories because they are usually hawking a paid subscription to their service. That's why little is said about the 95% who fail, and even less is spoken about the psychological trauma this business can cause. 

Twenty years of experience has done little to ease that gut-wrenching feeling of having a big losing day, or trade. It’s tough for a non-trader to realize the pain and anguish involved in spending a day working an extremely stressful job and ending up thousands of dollars poorer for this privilege. It’s not just these losing days that can hurt. It may sound even callous, but making tens or hundreds of thousands of dollars can be just as painful or even more painful if the trader executes poorly and leaves money on the table. From my experience in the business, it seems a trader is very rarely satisfied with their performance, win or lose.

Trading can take a mental and physical toll; sitting in front of a bank of computer monitors and battling daily in an extreme game of psychological warfare against the markets is very unhealthy. I admit I may not have always managed my trading trauma most healthily, but even the most zen-like trader cannot escape this industry without some scars. When I'm lucky enough to meet a successful trader, it’s not their profits I'm impressed by–it’s the fact that they have been able to survive psychologically in this brutal industry. 

I’ve also survived where the vast majority fail. Of the 95% who don’t make it as traders, most will get out relatively unscathed, or even leave better off for their experiences. Not only does trading educate one on the markets, but the psychological challenges of this industry typically leave one mentally stronger. Look at trading as an expensive course of psychotherapy, or a method to build mental toughness. 

Unfortunately, others don’t get so lucky. Some leave financially broken and then carry the mental trauma that naturally comes with it. Others get addicted to the rush that trading can provide, and get caught chasing bigger and bigger highs. Our bodies are cruelly programmed to provide our brains with a hit of dopamine when we gamble or get into a risky trade, but it is extremely hazardous to chase that feeling with large amounts of money on the table. 

I see a mild case of this addiction in some of my non-professional trading friends. A common symptom is checking their phone for crypto or stock quotes every few minutes. It gets worse when they wake up in the middle of the night to get a peek at how their positions are performing. Even more disturbing is that some of these friends are pissed even when their positions go up, complaining, “I wish I had more!” 

This addiction can get a lot worse, and generally leads to financial losses, mental anguish, and dark times. I have gotten trapped in this mindset numerous times but have fortunately always found a way to escape. 

A friend of mine wasn’t so lucky. He got addicted to chasing the potent highs that accompany bigger and bigger trades, resulting in him–quite predictably–wrecking his trading account. He couldn’t step away, so he scraped together the funds from his family to start trading again. At first, he had a lucky streak (I say lucky because, with such a mindset, it’s really just gambling) and replenished his trading account. But then the addiction kicked back in, and he continued to chase that elusive high. Losses are inevitable in such cases, and when things start to go badly wrong, things like self-sabotage, desperation, and hopelessness rear their ugly heads. The story ended tragically when he took his own life. He had some other personal issues, but I am confident he would still be alive today if it weren’t for trading.

There are plenty of similar stories out there, so dealing with the psychological pressures and addictive tendencies involved with trading is an extremely serious matter. In severe cases, separating oneself from trading entirely and walking away is the only thing to do. However, professional traders who count on it for a living don’t have that option. They must find ways to tackle the daily pressures of this demanding job.

There are no fail-safe solutions, but there are better alternatives than numbing yourself with drink and drugs. I’d say that my own mistakes in that area are not indicative of most of the successful long-term traders I know. In fact, when things were going so well in my former trading office in Texas, my brother John and I were the only ones to hit up happy hour regularly. It was hardly a Wolf of Wall Street vibe. Quite the contrary, most traders were heading to the gym or church after the trading day. This, of course, is a healthier plan. And just like every trader should have a trading plan, we should all have a strategy for dealing with the sometimes toxic mental and physical side effects of this profession. 

As you can tell, I’ve not always set the best example or had the best routines. However, from my experience, observation, and common sense, exercise and a good diet should be part of the coping plan. Meditation is also something that I, and many other traders, have adopted into our daily trading routine. 

Time with loved ones and friends is a great method to relieve stress, but can easily turn toxic if the pressures of trading aren’t appropriately handled. Two failed marriages have harshly taught me this lesson. The psychological pressures of trading can be massive, but it’s imperative not to hand this burden over to your loved ones. Instead, quality time with family and friends should help free the mind from troubles and stress and put what is truly important in life into perspective. 

The older I get, the more I value time away from trading. I’m talking about both short- and long-term breaks. When you are new to the business, it's necessary to put in the hard work and get as much screen time as possible. But once you start to taste success, it’s important that money doesn’t become your only reward. You only have longevity if you make use of the money to find moments of freedom and independence. 

Trading is an intense performance-related activity. I will compare the trader to a professional athlete again. Just as an athlete needs rest between games and a break in the offseason, the trader needs to step away from the battle now and again. I’m always looking for trends in my P&L data, and a consistent trend I have found is a spike in my profits after a prolonged (more than a few days) break from trading. Regeneration works in the short and long term: it helps one perform better but also means one can sustain a tough career over a number of years.

To get a full bang for your buck from your investment, make sure your break isn’t spent checking quotes or wrapped in regret over the trades one is missing. Separate yourself from the markets and take time to really relax.

Each trader will have a different approach to handling the rigors of this sometimes toxic business, but it is imperative to have a plan. I don’t have all the answers, but here’s a quick reminder of what you might consider when drawing up your strategy:

• Recognize that trading is a tough mental business and don’t take it lightly. Practice meditation and, at the very least, try not to switch your mind off from trading for hours each day.

• Long hours at the desk can be detrimental to your eyes, back, and body. Physical exercise is as important as mental downtime. You don’t want gout in your mid-twenties!

• Junk food and energy drinks might give you the buzz to get through a day, but they aren’t good fuel for a longer career. Eat well.

• Drinking and drugs can take the edge off when the pressure gets too much. But they are not a good crutch and definitely don’t help decision-making.

• Take breaks each day, as well as short trips and longer holidays, to completely get away from the stress of trading.

• As you get further into your career, the buzz of those early wins starts to fade. Chasing the rush is a desperately dangerous path and can lead to financial and mental ruin. Understand that as you progress, you don’t just keep upping the stakes to get a rush.

• A healthy relationship with trading means realizing its place in the scheme of things. Treat it as a job, not as a means of self-validation.  

• Money cannot buy happiness. Even if you are having success as a trader, family, friends, health, and other passions are what truly matter.

• If you find yourself overwhelmed by the pressures of trading and you can’t make that change, the most courageous thing to do sometimes is just to walk away. 

Reminder, If the stresses ever get too much, please walk away from trading and get help. I mentioned books that may help, so here is a link to my favorite books, with most of them touching on psychology. I hope this post helps, and I wish you the best of luck in your trading this week!