What is Trading State Management and why is it important?

In the last post we talked about the importance of internal control. Having internal control will determine your success at state management, which is essential to thriving at trading.

What do we mean by Trading State Management?

As you probably know from your own experience, recent trading events can affect your trading state. Your trading state refers to your psychological and emotional framework and your physiological state.

After a losing trade do you find that you are slumped down in your chair?  Is your breathing shallow?  Is your internal dialogue defeating and negative instead of positive and supporting?

I know I have certainly been there, and from my own experience I know that the emotional impact of trading losses can make it harder to execute entries, and cause traders to break exit and stop-placement rules.

Why is this? Your internal dialogue—the self-talk that goes on in your mind—and your internal belief systems about money and trading will directly affect your outward physiology. If an outside event such as a trading loss unconsciously triggers some negative self-talk or beliefs, you will go into a state of alarm or stress. In this state your hind brain, the part of you that is focused on survival, will react with the body physiology of fight, flight, or freeze. You then lose some or all of your access to the rational decision-making abilities of your frontal lobe. Obviously, this directly affects your decisions regarding the next trade setup and thus your ability to execute your Trading Plan.

What I’ve realized through experience and research is that our bodies will give us all the signals we need to know that we are going into a state of stress—and, in order to continue to trade our plan and therefore trade successfully, we need to stop and manage our state right away. Some of the body signals could be: heart beating quickly, shallow, quick breathing, loss of energy, or feeling spaced out.

The swing of emotions can go from euphoric highs to “I’m never going to trade again” in the course of one 3-minute bar. This is just part of the business.

Knowing this puts you ahead of the game. When you are aware of something you can address it and make the appropriate and necessary changes to affect positive change. Making your negative thoughts conscious so that you can become aware of your belief systems and begin to change them will certainly be important to your trading success, so that the lows (or highs!) don’t impact your ability to follow your rules.

Jack Schwager, author of Market Wizards and New Market Wizards, concluded after interviewing some of the world’s top traders that the most important factor in their success was that they each had a trading system that was right for them.

When you have a trading system that is right for you, you will find that it is easier to follow your trading plan even when your trading state is compromised. With discretionary trading plans it is easier to be inconsistent when your physiology is showing signs of stress. However, with our forex trading software, what could be easier than “see dot, trade dot?”

If you are interested in a straightforward, mechanical trading system which makes you more consistent in your trading, no matter what your state, check out the FOREX Model software at www.4xauthority.com

To your success!

Alexander Lamm
4xAuthority.com