As we find ourselves in the midst of a brutal bear market in 2022, it may be a good exercise to study the past in order to be better educated on what...
22 min read
John McDowell : August 3, 2021
Last Updated: June 7, 2022
As Lead Content Strategist, John diligently searches for ways to connect with day traders and provides training and education to those in this space.
Anxiety and depression are common. And they are real. Far too many suffer from this mental and physical condition, unfortunately. And the fast-paced, high-stakes world of trading may add to that trauma. In fact, day trading anxiety and depression may be the root cause of the trauma you feel.
However, as High-Performance Psychologist Créde Sheehy-Kelly notes, “it is really important that traders are able to identify the distinction between a moderate level of heightened emotion caused by trading and a more general underlying mental health issue that permeates every aspect of life but which perhaps shows up more clearly when pressure is heightened.”
Because this is such a delicate but needed topic of discussion, we hope to uncover many of the underlying sources that contribute to the uneasiness of emotional stress in trading. While we are not clinical psychiatrists, nor licensed counselors or physicians, we will offer a few helpful tips for your trading journey as you deal with the emotions of fear, nervousness, doubt, and depression in trading.
That being said, we hope you’ll get the help you need if your problems are severe.
It is never worth it to suffer alone.
Let’s start by imagining a hypothetical scenario for the sake of discovering similarities in our lives or trading experiences. Perhaps you’ll “see” yourself in this situation from one time or another. If we can do that, it will be worthwhile to examine the causes of our trading anxiety and depression within that context. And if we can identify the cause, constructive action can take place.
John Doe is a decent guy. He’s got a small family that depends on him and he isn’t afraid of hard work. In fact, he’s held down a decent job since he graduated college with an IT degree. He understands coding pretty well. Has a nice salary. You could say he fits the mold for the token intelligent, successful professional.
He grew up playing sports, and he’s competitive. He doesn’t play sports as much anymore but likes to game and play with his kids who are very active. Golf and fast cars are more his thing these days.
Work-life balance becomes a bit blurred for John – especially since he’s working from home now. But he handles it the best he can. He’s got a spiritual side that he relies on during hard times, and a mother that taught him endurance when he was young.
But trading has so far been his biggest hurdle in life.
Up to this point in life, things haven’t necessarily come easy, but John’s been able to push through and succeed. This applies to his marriage, his career, his kids, and most everything else. Heck, he’s even been pretty good about managing his weight and working out.
But trading is different. It’s elusive. On top of that, he feels pressured. Somehow it reveals all the inconsistencies and weaknesses in his personality. It’s like the market knows how to push his buttons.
It’s internal, sure. But also external. John sees success plastered all over Twitter. He’s a member of chat rooms with successful traders who make millions. He sees gurus posting their big gains for the day on Instagram and other chat room moderators talking about the success THEIR traders are having.
Yet, he reminds himself that he’s tried them all, already.
Every day he sits through the P/L swings. Ups and downs. FOMO then discipline, greed then more FOMO, then a little discipline. What he thinks will work doesn’t, and vice versa. He creates rules, then breaks them.
This guru says stick to one pattern. That guru trades everything that moves. Long, then short, then long again. This guru, that guru, this guru….
John can’t seem to trust his own intuition in the market. Every time he hears someone “better” than him with a different opinion, he changes his bias only to see the trade work the way he originally had planned.
The constant bombardment of emotions and information leaves him confused and depressed.
One day, John backs his office chair away from his trading desk around 4 pm EST, crosses his right leg over his left. He’s shut it all down: the chat rooms, the trading platform, the computer, the monitors.
He hangs his head in defeat, folds his arms, and massages his tired, closed eyes with one hand. In another room of the house, he hears the faint noise of his kids playing.
“I hate this,” he says to himself. “I hate myself.”
A little voice in the back of his mind tells him it isn’t true. But he barks right back, “then how long is this s#@% going to carry on?”
“How long am I going to keep doing the same stupid things?!”
As he turns to look out of the window in his office, the light of the sun feels sharp and he squints. Trying to focus on something in the distance, he thinks to himself, “What is wrong with me?“
John is long past the point of quitting. He’s been at this crossroads too many times.
You could say he’s entered that “no man’s land” of having so much time, money, and energy invested into the process of trading that he knows he can’t quit now.
What will his wife say to him? What about all the gurus who tell him to just hang on?
He’s been at this for almost three years. “You would think I would have found some consistency by now,” he often says to himself, shaking his head.
Yet it hasn’t arrived.
Nonetheless, that is where John Doe finds himself. At the intersection of hope, endurance, defeat, anxiety, and depression.
Every road he takes leads him right back to the same spot.
Perhaps your personal journey has been slightly different than “John Doe’s.” Nevertheless, we all experience the ups and downs of trading. That’s a fact.
And while the pain is real, and we’re often wont to simply wallow in the mire of our own pity, self-doubt, and fear of failure, there are really two decisions you must make at this point in your trading career:
We won’t spend much time on this topic, but it’s worth addressing first because it touches on the concept of identity.
Esteemed trading psychologist Brett Steenbarger, Ph.D., has this to say about the subject:
As humans, we often succumb to certain images of ourselves, feeling helpless to overcome who we think we are or ought to be. In the case of trading, as with other scenarios in life, we may fall prey to the sunk cost fallacy. This is the idea that we must continue our behavior or endeavor because of invested resources we have “sunk” into the ongoing obligation.
Suffice it to say, that there are plenty of other things that can give you a meaningful life if you simply take the advice of Dr. Steenbarger. Perhaps it’s time you take a good break from the charts and screens and “clearly identify your ideal self.”
Maybe you’ve tried this before with a career change? Relationship change?
Take Jeff Bezos as an example. The man left a lucrative investment banking role to start an online bookselling company out of his garage. And we all know how that turned out.
At the end of the day, there is nothing wrong with choosing a different career path. Once you’ve figured out what your “ideal self” looks like, you’ll at least take the burden of disappointment off your shoulders if the answer lies not with being a trader.
And if that ends up being true, that’s ok.
On the flip side, if after self-reflecting you’re still convinced that your passion for discerning markets, the challenge of trading, the potential for financial freedom, the mastery of your own emotions, and any other value you find inherent with trading are the secret sauce to your identity, then perhaps you have, indeed, identified your “ideal self” as being a trader.
We’ll assume so for now, anyway.
At this point, it’s time to call out the demons causing the anxiety and depression, or at the very least the stress, and take action on what’s holding you back from success.
Through the process of fostering self-awareness with the help of a performance coach, mentor, counselor, books, trading friends, or spouse, the goal is to identify the root of the problem. And only then will you be able to address it.
This is by no means meant to be an exhaustive list of every potential cause for anxiety and depression in day trading. Instead, these reveal the broader and more pervasive flaws inherent in most traders. Unaddressed, they can create an endless cycle of anxiety and depression through undue stress.
This is number one on the list for a reason. Every beginning trader sets out on his journey with unrealistic expectations. In fact, there is no real “standard” for what the expectation is to become a successful trader, only anecdotes from prior traders who have “made it.”
It’s no wonder why, then, that expectations set us up for failure what with the constant bombardment of psychological priming done by the entire trading industry.
Education services, seminars, brokers, gurus, trading communities, social media personalities, publishers, news media, and even trading coaches tend to paint a perfect picture of how easy it is to succeed in this business.
Granted, not all do this. But by and large, the hope of fast success in the markets is pervasive. Likewise, there is virtually no barrier to entry for trading.
And that shouldn’t be a surprise. All of these services are selling you something.
In contrast, the hard reality is that trading is just as hard as any other profession. And, unfortunately, unlike other lucrative professions, the expectations are never really understood from the outset.
Think for a moment about some of the higher-paying jobs available in the US economy. Lawyers, doctors, IT directors, coders, airline pilots, investment bankers. Shoot, just imagine an average job like being a teacher or electrician.
None of these professions are attained without considerable time, training, and education. Most of them require four-year degrees at a minimum.
You know this. We understand that. This isn’t just another cliché comparison between 8 years of medical school and paying your dues in the market. You’ve heard them all before.
Rather, think about what was just said: “You know this.” Everyone knows this. Everyone expects this.
The point we are making is that anyone who sets out to become a teacher, a pilot, or a doctor knows full well the amount of time, education, training, and effort it will take before they can ever receive a paycheck from their profession. Not only that, they have a pretty good indication of what their salary will look like long before they start working.
Traders don’t. Plain and simple.
And therein lies the biggest divergence between trading and normal careers. The expectations don’t match the reality of getting up to speed in the market because they are set by influencers who are selling the dream.
Do you think medical school students are beating themselves up because they haven’t done open-heart surgery by year two of med school? No. That’s absurd. They have clearer expectations.
How about lawyers. Is the average attorney disappointed that she hasn’t become a partner with her name on the plaque in the lobby by year two? Probably not. She’s doing the leg work and paying her dues to get there.
All that being said, you’re going to have to piece together your own outlook for what it takes based on anecdotal advice. And to that end, if you can keep your expectations flexible, you’ll be a lot better off emotionally.
Thankfully, there are many books and educators offering wisdom along the path toward profitable trading, but everyone’s path is different.
Along those lines, the best you can do is mitigate the disappointments by intentionally exploring the realistic amount of time, training, and paths required for success in the markets. Add to that an awareness of the systemic hype that is influencing you, along with the pressure you feel to perform.
Lastly, keep your journey and progress outlook malleable to the uncertainties inherent with trading and life. Do this, and you may just arrive at a place of zen-full peace with regard to expectations.
Here are 12 essential ideas for discovering an outlook for your trading journey:
If you haven’t thought about each one of these in detail and mapped out your journey, then you’re likely headed for frustration. It’s a lot like building a house without blueprints, you’re still flying by the seat of your pants and risking your hard-earned cash without even considering what it will take to succeed.
Banks certainly wouldn’t lend you a small business loan with that kind of plan.
Really think about that for a moment. And if you remember only one thing from this section: keep your expectations structured, but malleable.
How many gurus/educators/legendary stock pickers do you know who rely on others to tell them when to get into and out of a stock?
Perhaps there are some self-proclaimed “furus” who are simply regurgitating someone else’s trading advice, but by and large, the real educators are thinking for themselves.
Granted, everyone has started somewhere in the markets. Even the great ones tip the hat to someone who’s gone before them and paved the way for a solid education. But when it comes down to pulling the trigger on a trade, having a plan and executing it, gurus are not relying on you or anyone else to tell them what to do.
In short, they trust their own intuition and ability to read the markets and execute trades.
If you’re reading this and new to trading, there is a high likelihood that you don’t.
The end game for not trusting yourself is always going to be stress. Trading anxiety will arrive right on time as you begin to see that you simply don’t know whether to take a trade, take profits, cut a loss, or any other decision.
You’re a dependent trader.
You trust someone else’s experience, not your own. Be honest, have you done this before: bombarded your guru with questions like, “How does XYZ look now? When should I take profits? Do you think it will come back up soon?”
Dependent traders have no autonomy or confidence, and usually this stems from not having a solid edge in the markets, for one reason or another.
In other words, you’re paying someone else to do the dirty work for you. And if this is you, you need to stop pushing buttons, period.
To be perfectly clear, we’re not saying gurus and educational trading services are bad. Right the opposite, in fact.
It all boils down to what you make of it. We’ll even go out on a limb and say that most trading services probably want you to be successful. After all, it’s a reflection of their effort.
However, the value of these services lies within your ability to use them responsibly as an educational tool.
Absolutely, listen to the gurus, watch the videos, read the books, check their alerts. But by all means, use them as a “mentorship” to perfecting your own style, edge, and strategy for tackling the market.
In other words, if you don’t know how to put together your own plan for a trade with a specific, tested edge, you shouldn’t be trading.
This leads us to our 3rd cause for day trading anxiety and depression: not knowing what your edge is.
There is no simpler definition to “what is an edge?” than the late Mark Douglas’s definition in Trading in the Zone:
Yet, something so simple can seem so painstakingly difficult to define in the market. And why is that?
We believe the answer lies in laziness and excuses, for the most part. These days, everyone is conditioned to expect a lot for very little. We are a generation of consumers who are willing to pile on debt in order to have what we want right now!
And trading is no different. That’s why this section comes on the heels of the “following a guru” section. Everyone wants to get rich quickly without putting in the time and effort to find an edge.
Gurus have become gurus because they know their edge in the markets, either through back-testing or through “time-tested” strategies. It will be no different for you on your journey to success. And, fortunately, an edge will eliminate a lot of the “fear of the unknown” once you find one.
Simply knowing your probable outcomes on a trade can eliminate a lot of the anxiety or depression that comes from trading addiction, impulsivity, and gambling. In fact, a solid data set of trades with similar criteria may create the confidence you need to eliminate these problems altogether.
What? You’re not good with spreadsheets? Puhlease…
Think about it this way, would you rather place a bet on a hand in Vegas that you know for a fact has an 80% chance of winning, or one that you have no idea what the chances are? An edge is not an edge if you don’t know the probability of outcomes. Stop trading until you know.
With that in mind, lets discuss a handful of ways you can eliminate the stress associated with not having an edge in the markets.
And despite all of that, keep in mind that limiting your exploration in the markets may just be a “way of justifying a failure to move outside our comfort zone,” as Dr. Steenbarger suggests. So be willing to try new things and be watchful for new ideas.
There are a million ways to make money in the market, and resources for studying the markets abound on the internet. But one thing is for sure — it is up to you to put in the time and effort to find an edge that works, test it, know your probability for success with it, and stick to it.
Over time, you’ll likely develop more strategies, and that’s great. But discipline comes through doing one thing really well until it is mastered.
Don’t take it from us, Market Wizard Mark Minervini has this to say about the process:
“Trading is serious business with real money on the line. Why would you go into it without a well-thought-out plan of action? Yet most people do. The ease of entry into the stock market — no license or training required; just open a brokerage account and go — may give people the false impression that trading is easy. Or, perhaps they think their odds of succeeding without much thought are far better than they really are. Whatever the reason, I’ve seen people invest $100,000 in a stock with less research than when they buy an $800 flat screen TV.
By defining my parameters ahead of time, I establish a basis for knowing whether my plan is working or not. Have a process, any process, but have a process. Then you have the basis from which to work, make adjustments, and perfect your process.”2Mark Minervini Think and Trade like a Champion
Don’t be a follower. Put in the work. Be self-sufficient. Have an edge. Have a process.
Hopefully by now you’re seeing some connections between the “causes” of daytrading anxiety and depression in each of these sections. So far we’ve gone from 1. Unrealistic Expectations to 2. Lack of Self-trust to 3. No Edge.
Impulsive trading and over-trading are next on the list. These two habits underlie the prior concepts for this reason:
When you have no definable edge in the markets, can’t trust your own actions, and have unrealistic expectations for quick success, you’re more prone to the uncertainties of the market and the temptation to overtrade and impulse trade.
And unfortunately, this pesky habit of impulses and overtrading may be a difficult nut to crack for some people, especially if you’re prone to certain personality traits in general.
Jason Williams, MD, is the author of The Mental Edge in Trading. The son of trading legend, Larry Williams, Jason set out to compare many of the world's best traders to their scores on the NEO-AC personality test.
Without going into great detail on the test itself, understand that it is an in-depth analysis of the 5 tenets of our personalities:
Each one of these contains 6 subcategories. For our sake, suffice it to know that under Neuroticism, the subcategory N1 is Anxiety, N3 is Depression, and N5 is Impulsivity. Your score on each of these may have positive or negative implications on your success as a trader. Another notable category is E5; or Excitement Seeking.
Jason’s book is a great read for anyone wanting to peel back the layers of their own personality and uncover strengths and weaknesses. Within, he offers a few tidbits of wisdom for those of us who struggle with anxiety and impulse.
“For those high on the N1 anxiety scale, it will probably serve you well to avoid frequent checking of your trades, as this will probably only heighten your anxiety…. It is best to develop and then set predefined time intervals that result in minimal anxiety, and then train yourself to check only your active trades at those specified intervals (of course, always be sure you are trading with stops!).
Strategizing and making a schedule like this makes you master of your anxiety.”3Jason Williams, MD
This bit of advice hearkens back to having an edge that you can trust, and a plan for your trade along with proper risk management. For those of us who struggle with high anxiety scores, the less we watch our trades and the more we are willing to accept our predetermined outcomes from proper planning, the better off we’ll be.
Many traders eventually lead themselves into a pit of anxiety and depression from constant thrill-seeking or over-confidence. This is akin to gambling, for obvious reasons. In essence, the market becomes a drug that fires up the dopamine mechanism in the brain, needing that fix, that rush.
As Williams notes in his research, most successful traders had “average E5” scores (Excitement Seeking).
“It tells me that the thrill factor, as a reason for trading, is less important to the successful trader than it is to the average investor.”4Jason Williams, MD
Perhaps you score high in this area of your personality, and it is leading you to impulsive, thrill-seeking trades? Only you will know.
Assuming that you are not an addicted gambler who may need professional help but are reading this post for practical tips on becoming a better trader, one helpful tool in overcoming this issue is an entry trigger.
Minervini calls this an entry “mechanism”. Whatever you want to call it, it should be part of your edge, your trading plan, and your execution strategy.
An entry trigger is simply an edge criterion so well defined that you know exactly what you need to see technically and fundamentally to enter a trade. If those criteria don’t line up, you don’t enter. Plain and simple.
This eliminates a lot of “anticipatory” entries as well as “chasing” entries.
We discuss entry signals in many of our trading strategies on this blog. So, if you’re looking for an edge, be sure to read through some of these posts as you develop your own criteria.
To help uncover common causes of stress in trading, we reached out to our Twitter followers for what might be ailing them in the markets. Below are a handful of responses we received:
Not a bad list. And a list that most traders reading this can probably sympathize with.
Without going into detail on each one of these issues, let’s see if we can identify any connected patterns within the list in an effort to simplify the work to mitigate the habits.
The first thing that stands out about both scenarios is how closely related they are to Unrealistic Expectations. Everyone wants to size up fast in the market, because the more money you risk, the higher the reward. Right?
Instead of expecting that success in the market is a measure of consistent process over time, you are “hoping” and risking way too much too early. Shift your expectations from fast profits and expensive thrills to steady processes and losses cut quickly.
All of these are rooted in the same thing, fear of failure. Fear of failure is rooted in a Lack of Self-trust. Without confidence in yourself, your strategy, your edge, it is not a surprise you have a fear of failure. And as we mentioned before, if your expectations are short-sighted, this will only exacerbate the problem.
Here is a great example of a trader making an astute observation about time and edge development:
Give yourself the time you need to develop the edge that gives you self-confidence.
This particular cause of anxiety is a direct result of your strategy.
Find an edge that works for you and whatever circumstances you find yourself in. If you can only trade 1 hour per day, then study the market for that one hour. We guarantee you that somewhere within that one hour, you’ll find an edge.
Maybe it is morning breakouts, maybe it’s a pre-market fade, or maybe it is a pullback scalping strategy. Whatever it is, change your expectations and edge to meet your current limitations. Study that time frame, take those trades, and move on to your other job.
Perhaps when you’ve built the account over time, you’ll have a host of other time frames to focus on. Be thankful for what the market gives you for now.
Depending upon how often you do this, you’re probably addicted. Plain and simple, friend. And we don’t say that lightly.
If you can put a checkmark by any number of these self-assessment criteria, then it’s time you get help and stop trading. You have no realistic expectations, no self-trust, no edge, no plan, and you lack the discipline necessary to operate in the markets.
There is a fine line between making mistakes along the path to consistency and being addicted to trading.
Unfortunately, this is the case for many traders, and very few talk about it. Your broker won’t point it out to you. Heck, even your family may not say anything to avoid dampening your hopes.
We hope you’ll do a self-assessment and have that conversation before more damage is done.
These last two causes on the list for day trading anxiety and depression are actually rooted in self-doubt, which points us back to Lack of Self-trust.
Twitter and social media in general have a way of painting a pretty picture on the outside. “Success theatre” can either motivate us to continue towards our goals or depress us for not being there yet.
Analyze how it makes you feel.
Does seeing a PnL screenshot motivate you to perfect your own process? Or, does it tempt you to overtrade in order to get rich quickly?
In general, we suggest unfollowing the people in your life, or social media life, who are influencing you to make bad decisions or experience emotional pain. Only you can create self-awareness for this.
Work on changing your self-talk and the images and influences you allow to enter your mind.
No discussion on day trading anxiety and depression would be complete without some amount of biological consideration — especially on the heels of the “breaking your own rules” discussion.
After all, we are humans and therefore subject to the “pulls of the flesh.” What this means for trading is that our biological processes can often interfere with our better judgment, perhaps even our willpower.
On that token, we are big fans of AllDayFaders on Twitter and his nuggets of wisdom and strategies. He’s been around the block for a while and really sums up the physiological aspect of a day trading despair and impulsivity.
Instead of botching our own explanation, we figured we’d just let you absorb it from the man himself:
Some great basic tips there from ADF on optimizing our ability to overcome the biological weaknesses we are programmed for. And notice specifically that a systematic approach is what helps us humans overcome these problems.
To that end, knowing your edge, trusting it, and managing your risk and expectations can be a foundation for moving beyond the impulsiveness that often holds you back. Throw in some sleep and exercise and we may have a recipe for success!
The last topic of discussion with regard to day trading anxiety and depression is the concept of habituation.
Returning to Jason Williams’s research, there is something peculiarly simple, yet profound in his discovery of anxiety in trading. Williams, essentially, boils trading anxiety down to relativity and the ability to habituate.6
Much like cognitive behavioral therapy can address a lot of underlying bad habits, habituation can often bring about the desired change we need in our trading.
Of course, if the problem is bigger than just anxiousness, professional help may be warranted. But for those of us simply struggling with the common stresses that plague most traders, it would be beneficial to address those issues head-on.
Here’s what Jason adds to this point:
“The very worst thing you can do to treat your anxiety is to remove yourself from it, because you are denying your brain the chance to habituate. If every time you are in a winning trade you abort it early because you are starting to feel anxious and doubt yourself, you will never learn to trust your abilities (and intuitions).
So you gotta stick it out, for better or worse. Don’t abandon ship at the first heart palpitation or the first drop of sweat.”Jason Williams, MD 7
Jason raises an interesting idea here: deliberately exposing ourselves to our fears in an effort to “learn to trust” our abilities. Could this be deliberate emotional practice?
We think this is a great strategy for overcoming bad trading habits and discuss it more in-depth in our post on how to overcome over-trading.
At the end of the day, awareness is the best starting point. To that end, we hope we’ve at least identified a handful of starting places to help cope with the stresses of trading.
In addition, we’d like to mention a few resources for you. We are huge fans of Dr. Brett Steenbarger. His books and his website are a treasure trove of knowledge when it comes to trading psychology.
https://traderfeed.blogspot.com/ is the place to visit. And in the upper left-hand corner is a search bar that will allow you to find topics like “anxiety” or “confidence” or whatever you want to know about. Dr. Steenbarger is quite prolific with his writings, and we’re sure you’ll find something to grow from.
Créde Sheehy-Kelly is another great resource. As a High-Performance Psychologist, she has worked with many professional athletes and traders alike.
If you ever find yourself worked up or too emotional, be sure to visit her Progressive Muscle Relaxation audio resource.
For best results, do this exercise in a quiet room where you will not be disturbed and can give the exercise your full focus. Aim to practice the PMR exercise three to four times per week.
Hopefully, this post has helped your awareness of common struggles that traders run into with emotional well-being. Sometimes, that’s half the battle.
Also, feel free to use our checklist if you need a constant reminder of your emotional state of being.
Please reach out to us with any feedback you have and be sure to follow us on Twitter for more great posts.