1. Know your mission
When it comes to making good decisions under pressure, having a plan is crucial.
Yet it is surprisingly common for day traders to act on impulse. Nearly a third (34%) of respondents to a survey of traders by Exness said they sometimes made quick decisions without planning or proper analysis.
Robert Kershaw, a former paratrooper and military historian, says that soldiers are taught to understand their mission and what to do if things go wrong.
He says: “You get the basic mission, you know what it is you have to achieve. But once you get going, it might start raining or snowing. Then you've got to reassess your original task and say to yourself, `what impact do these changed conditions have upon what it is I'm required to do?”
In trading, that means understanding why you are trading, what you hope to get out of it and what you will do if conditions change. Are you trading for fun? To make a certain return? To learn?
For example, if you are trading to learn and do not mind being in a neutral position, you could introduce stop losses, do in depth research on a limited range of companies and use back testing software to test how your trades would have done.
Having a plan also means you can do more technical analysis, the number one resource for traders who make over half their income from trading.
2) Take a break
Good decision makers can have off days. When Norwegian chess grandmaster Magnus Carlsen is on a losing streak he is known to take a novel approach to halt his losing run. Instead of burying his head deeper in chess, he goes ten pin bowling. Carlsen’s approach is a useful lesson for traders: sometimes taking a step back can help us regain our composure and approach a problem with a fresh perspective.
That could be taking time out to do yoga, listen to heavy metal, play video games, eat cheesecake, talk to a friend or read a book - whatever works for you.
When it is not possible to take a break during a losing streak, Anastasiya Karlovich, a chess grandmaster, recommends changing your approach and aiming for a draw rather than a big win. That means steadying the nerves and playing slowly and carefully for a sensible result.
Karlovich says: “Stop the blood flow. Make a draw. Try to play carefully without risk.”
“When it comes to making good decisions under pressure, having a plan and sticking to it is crucial”
- Focus
Focus is crucial to making good decisions under pressure. That can be easier said than done: 45% of traders said they sometimes cannot stay focused while day trading.
But maintaining focus enables traders to make quick decisions at crucial moments. Over two thirds (68%) of traders who rate their ability highly say they never hesitate. While day traders who earn over half their income from trading also say that decisiveness is important: 74% of those traders said they never hesitate, versus 46% who are in a neutral or loss making position.
A key way to do this is to acknowledge emotions and let them go, so that you can refocus on the moment. Kershaw says that on the battlefield soldiers need to distance themselves from whatever they are encountering.
“You need to distance yourself from the pell mell nature of conflict. You sit above it and stare at it, rather than become emotionally entangled in it”, he says. “Don't feel sorry for the enemy. Don't feel sorry for yourself. Be as dispassionate as possible in order to achieve the aim.”