Forex trading can be an exhilarating and rewarding endeavour, but it can at times be a stressful pursuit, with a lot of high pressure decisions and worries about profitability and success. Here’s a closer look at the potential sources of anxiety in forex trading and the most effective methods for managing and reducing it.
Identifying the causes of trading anxiety
The first step is to pinpoint the causes of your anxiety. Not all anxiety is bad for us; it’s a natural human response that is intended to sharpen up our physical and mental reactions when we are under pressure or feel threatened.
It can be useful, giving us an extra burst of adrenaline to help us respond to a dangerous situation such as getting caught in a riptide, or the mental clarity and stamina to perform well in an exam, or indeed during a high-stakes forex trade.
Everyone feels anxious from time to time, and it is not necessary to try to overcome it unless it starts to intrude on our daily lives in a way that is out of proportion to the cause. For forex traders, anxiety can mean their approach becomes too hesitant and fearful, or too rash and ill-considered, leading to mistakes and missed opportunities.
Therefore it’s important to be aware of the signs that you might be afflicted by trading anxiety, and take steps to overcome it.
What are the symptoms of anxiety?
Anxiety can have both mental and physical symptoms. It’s most commonly experienced as feeling on edge and panicky, a sense of detachment, feeling restless and being unable to concentrate or make decisions, and a sense of dread or unease.
Physical symptoms might include headaches, muscle pain, shaking, dizziness, sweating, shortness of breath, and a fast or irregular heartbeat. In severe cases, anxiety might even lead to a full-blown panic attack. However, everyone’s experience of anxiety will be slightly different, just as we all have unique triggers or reasons for feeling anxious.
For some people, persistent levels of anxiety might manifest in behaviour such as withdrawing from friends or family, and avoiding certain activities or situations. Some people seem to be naturally more prone to anxiety than others, which may be a result of temperament or personality traits, upbringing, environment, or past experiences.
If you are worried about anxiety affecting your forex trading performance, first of all it’s important to determine the causes. Think about the trading situations that make you most anxious, to a point where it is impacting on your ability to make clear and rational decisions. Here’s a look at the most common reasons forex traders feel anxious.
Market volatility
The forex markets are characterised by sudden and unpredictable moves and this lack of control can be a source of anxiety for some traders. However, the sudden sharp swings in price points also offer opportunities and this needs to be seen as an advantage rather than a source of fear or anxiety.
Setting unrealistic expectations
It is a common mistake for new traders to be overambitious and expect too much from themselves. They might be fixated on making the perfect trade or the potential outcome of every move. However, the reality is that it takes time, effort and patience to make consistent profits in forex trading, and it is unlikely that success will arrive straight away.
Instead of fixating on the outcome of each trade, set yourself small achievable goals and focus on the process rather than the end result. If you see trading as a get rich quick scheme then you are likely to be setting yourself up for a lot of pressure, failure, and frustration.
Make sure that you have another steady income source besides trading, do not invest more capital than you can comfortably afford, and do not expect large profits immediately.
Trading with too much leverage
With instant forex funding platforms available that offer high leverage ratios even for modest amounts of capital, it can be tempting to take out large position sizes to maximise potential rewards. However, if you are trading with more than you can afford to lose, you are obviously taking a huge risk and this will inevitably lead to high levels of anxiety.
Instead, start small and increase your position sizes in small increments as you gain confidence and experience. This brings us neatly onto our next point…
A weak risk management strategy
Without a solid risk management strategy, you are effectively doing no more than gambling with your forex trading. It can be tempting to take the attitude that the forex markets are unpredictable so it is not worth putting much effort into this area, but in fact successful forex trading is not about chance or luck, but all about taking carefully calculated risks.
Never trade with more than one or two per cent of your capital in the early stages, and use stop losses to limit the amount that you can potentially lose on each trade. Always stick to your trading plan, even if you feel that rising tide of anxiety when a trade isn’t going your way. Step away and centre yourself before taking any further action.
Insufficient knowledge or technical skills
If you dive in headlong without sufficient preparation, you will soon feel out of your depth and this can drive anxiety levels sky high. Learn as much as you can about the basics of trading and how the forex markets operate before you begin, and start off with a demo account before you go live.
Make sure that you understand some basic technical analysis methods such as line graphs and bar charts, and have a grasp of how global and economic events can impact the forex markets.
Information overload
The flip side of being underprepared is trying to learn everything there is to know about forex trading. It’s a vast and ever-evolving field, so this would be a Sisyphean task for even the most experienced of traders. Accept that you can never know everything, and stay well informed but focus on data and news sources that are most relevant to your trading strategy.
Fear of failure
Learning how to deal with losses is part and parcel of the forex game. Remember that even when you are making consistent profits, only about 50 per cent of your trades will be wins. Learn how to take losses in your stride, rather than seeing them as a sign of personal weakness.
Do not let your anxiety drive you to make more trades in an effort to compensate for a bad loss, and be vigilant for other powerful emotions such as anger, shame, or greed. Forex trading requires objective analysis and any emotions clouding your judgement will only compound your problems.
Methods to manage and reduce your anxiety around forex trading
It’s important to deal proactively with anxiety that may be affecting your forex trading. This is to ensure that it is not leading to rushed or biassed decision making that can perpetuate the cycle of anxiety.
Have a daily routine
Follow a consistent daily routine to help you avoid making unnecessary mistakes and give you a sense of order and control over your trading career.
Pay attention to your trading environment
Make sure that you have a quiet and uncluttered space to work that is free from distractions. It should ideally be spacious and comfortable with good ventilation and natural light. Take regular breaks and get outside for short walks to relax and clear the mind.
Keep a trading journal
Keeping a detailed journal of all your trading decisions can provide insights into your patterns of thinking, and help to identify any issues that are a particular source of anxiety.
Reach out to the trading community
Connect with other traders, either online or in person. This will bring a sense of community as well as a source of advice and moral support when times are tough.
Consider the wider picture
You should also consider if your anxiety is purely forex related, or if it is part of a wider mental health problem that could be rooted in other areas of your life. If you feel that this might be the case, it is important to be honest with yourself and others about the way you are feeling.
Some people feel anxious and on edge all the time without any clear causes or triggers, a category of mental health disorders referred to as Generalised Anxiety Disorder. It’s a recognised medical condition, so if you decide to seek medical advice you may be offered treatment such as medication or talking therapies, or guidance on lifestyle changes.
If your anxiety is impacting your trading, remember that this is a very common condition that affects almost all traders at some point. To a certain extent, you can harness this anxiety to keep you motivated and mentally sharp, but do not let it control your thoughts and actions.
Pinpoint the causes of your unhelpful anxiety, and take steps to overcome them, whether through a calm trading environment, a careful risk management strategy, or a good work life balance. Remember that good mental health is just as important as technical knowledge and skills when it comes to successful forex trading.