Forex education: Stress is unhealthy in life and in trading

A researcher has found that even a moderate amount of sudden stress can make people more sensitive to losses and indifferent to small gains.

Mauricio Delgado is a neuroscientist in the psychology department at Rutgers University in Newark, N.J; he conducted experiments by first putting participants under stress (by immersing their dominant hand in ice water at about 39 degrees Fahrenheit), and then asking them to choose between simple gambles with varying odds and different amounts of money at stake:

  • Under stress, participants gravitated toward bets giving them a higher probability of making a smaller amount of money
  • Brain scans showed that if the gamble paid off the natural response in the reward areas of the brain was blunted by stress

Says Delgado:

  • “Exposure to stress makes people more loss-averse and diminishes their overall sensitivity to reward”
  • “And if a reward is of low magnitude, [people under stress] often don’t care about it very much”

More detail here.

Stress would thus seem to diminish trading performance.

I reckon there are two implications:

1. The obvious one is to work to reduce the stress from trading; which may involve more back testing of your system, smaller risks and so ... probably the subject of a book!

2. Be aware of the stress and what its doing to your performance - just simple self-awareness can improve your performance. Being aware that stress could be causing you badly assess the quality of potential trades might help you improve this aspect of your trading.