Winning and Losing in the Markets

How do you handle the stress of trading? Have you ever felt like throwing your computer out of the window with a losing trade? Or have you ever felt the elation of a winning trade that's run and run? Woohoo , Warren Buffet watch out, here I come. And then you come down to earth next week with a thump. If you have traded, you would recognise the stresses of winning and losing. Winning and losing is stressful and emotional. It can also be very lonely, especially as a retail trader or private investor. Think about the effects of trading on your body. The uncertainty of the markets is a constant strain. Taking risk is also a burden on us. So, stress and trading go hand in hand. How do we manage this stress?

Fight or Flight

The 'fight or flight' phenomena is widely recognised and we all understand that stress feeling. Adrenalin surges through the system, we might feel sick and have a dry mouth as our body prepares for a response. The problem for us as traders is that 'fight or flight' response is not always helpful for us as traders. Literally a different part of our brain is in use when we are in our 'fight or flight' mode. This area is our Brain Stem and governs our survival instincts. However, as trader we want to be using our Neocortex part of our brain as this is where the majority of our more developed thinking takes place: planning, thinking, and rationalisation.

The impact of winning and losing

You know the saying, 'when you smile, the world smiles with you?'. Well, when you win you feel different. There is a book called The hour between Dog and Wolf written by a former Goldman Sachs trader and neuroscientist, John Coates. He wrote about the different effects of the winning and losing cycles. You will recognises them:

Winning streak

  • Excited, embracing risk, feeling extremely confident, higher testosterone

Losing streak

  • Risk avoidance, fearful, deeply pessimistic, losing confidence

Both winning and losing streaks create dangers for traders. So, we need to work at managing our emotions in order to avoid extremes of thoughts and response to both winning and losing.

Managing stress from trading

Below are some tips to help us avoid making trading overly stressful.

Define and limit risk

Certain things we can't change about trading, like risk. We must take risk in order to trade. However, we need to always manage it. You know Greg has this down when he constantly reminds traders to 'define and limit' risk.

Trade from competence

One key aspect of trading is to be competent. In other words, just trade when you know 100% what's going on. Sometimes the market is weird and complex. Not all fundamental narratives are clear. So, avoid trading when you don't understand what's going on. Stay out. It is ok to say, 'I don't understand what's going on in the market'. No-one has complete mastery

Never over-leverage

If you are taking too much risk, you are are going to put your body under enormous stress and your brain will flick into survival mode and take unwise decisions. My advice to you is to stop using leverage. Your thinking will improve as you do this.


Develop a plan that you start to follow. Write it down, do it each day and develop a daily competence through daily discipline.

Change your perspective and try to find an opportunity

Ok, you have had a tough trading spell. It's tough. You will probably be feeling down, worry about how this will affect your job or position with the firm, but what can you take from it. Maybe you have become more selective in your trading, or managed risk better. Don't add to the losing trade by feeding negative thoughts to yourself.


Sounds silly, but deep breathing is extremely helpful for your body. It is being more widely reported these days and genuinely reduces stress. Practise taking deep, belly breaths by pushing your diaphragm out as you breathe in. (You can google the technique if you are unsure of how to do this). As you breathe in and out you will notice that your out breath is your longest breath. It is also your 'relaxing' breath. You heart rate will drop and you will optimise your brain's thinking. One technique is the 4, 4, 4, 4, technique. It as follows:

Breathe in for 4 seconds

Hold in for 4 seconds

Breathe out for 4 seconds

Hold for 4 seconds.

Doing this will help 're-set' a stressed system.