How to Master Trading Stress

02/18/2008 12:00 am EST

Focus:

John Carter

Author, Mastering the Trade

Goal-setting and a diligent attention to that goal is imperative, Dr. Ari Kiev, of The Social Psychiatry Research Institute, told traders in his workshop…

In a Fidelity-sponsored workshop, Dr. Kiev told attendees that he came to trading after counseling Olympic athletes, who typically spent ten to 15 years working and planning before actually achieving their goals. And he has found that many of the same success strategies employed by the athletes can also help traders in reaching their goals.

One major discovery was that the athletes who decided early on to win a gold medal had a greater probability of actually winning than those who did not make that decision.

Consequently, Kiev told traders they must first commit to a result by setting a target. Then decide the strategy you need to achieve your goal, and do everything that increases the chances of attaining it. That requires visualization, centering, and relaxation.

Along the way, you must also learn how to master your anxiety, so that you can handle the market’s uncertainties and the stress. Then to consistently improve your results, Dr. Kiev suggested that you set your target a little bit higher than you’ve done before—making it challenging but not so much that it’s stressful. Then keep reviewing what you are doing in case you need to reset your targets.

Kiev commented that trading is very personal, like art. You have to figure out what you do well and play to that strength. And when you have a bad trade, just get back in, in smaller increments. Even the pros have bad trades; they just don’t become too attached to the company and they learn to cut their losses quickly.

He also discussed the characteristics of a highly functioning team and how the best portfolio managers distribute their holdings among low-, medium- and high-conviction ideas.

Lastly, Dr. Kiev brought up the psychology of going short, cautioning attendees that it is often difficult for ordinary investors and traders to profitably play this strategy without having a thorough understanding of the company.

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