Day trading can be a ruthless business. Some days, you don’t find any trades worth making. Other days, you find trades, but they don’t work out the way you want them to. And some days, there are too many good trades, more than you can possibly make, and so you watch profitable opportunities slip away. When you’re working with real money, it can be too much to take.

In a money management or brokerage firm, traders have tremendous camaraderie. They are working for the same employer and need to stick together to blow off the stress. What do you do at home, though? How do you keep from panicking, getting depressed, or otherwise letting this business hurt your profits and hurt you?

If you’re going to day trade, you need to understand the very real physical and psychological stresses that the market pushes on its participants. In this chapter, I offer some information and advice that can help you avoid a crisis.

First, the Cautionary Tales

Trader lore is loaded with stories of people who flamed out in spectacular and destructive ways. People who work on trading desks or on trading floors tell tales of colleagues who went down, walked off the desk, broke down in the pit, or died at the trading post. They can tick off colleagues who are alcoholics, who suffered bitter divorces, who committed suicide. Even though day traders usually work by themselves, stories of their self-destructive behavior abound.

Sure, many day traders lead pleasant lives and suffer no more problems than any other person. That’s because they have perspective, balance, and the right personality for the business. Know what can go wrong, because it can help you keep in the right.

Jesse Livermore

Jesse Livermore is sometimes considered to be the father of day trading. He’s the subject of the book Reminiscences of a Stock Operator by Edwin LeFevre, a classic book about trading. Livermore was born in 1877 and started trading stocks when he was in his teens. He claimed to have made $1,000 when he was 15, which may not seem like much, except that he was very young and price levels were a little different in 1892. He made huge fortunes betting against the market in 1907 and again in 1929, and he managed to lose it all both times. By 1934 he was broke and depressed. He attempted suicide in 1935 and succeeded in 1940.

Mark Barton

Mark Barton lost $105,000 day trading and he snapped. On July 27, 1999, he bludgeoned his wife and two children to death. Then he went to the downtown Atlanta offices of Momentum Securities, a brokerage firm that specialized in working with day traders. He had an appointment to deliver $50,000 so that he could cover his losses and start trading again. Instead, he took out a gun, opened fire, and killed four people. He then went to the offices of All Tech Investment Group, another day trading firm where he had an account, and killed another five people. Barton killed himself before he was arrested. This case is one of the worst workplace massacres in the United States, and it did as much as the 2000 meltdown in NASDAQ technology stocks to reduce the enthusiasm for day trading.

Anecdotal suicides, divorces, alcoholism

Because not that many people day trade consistently, not a lot of good demographic studies have been conducted on just how many day traders end up abusing drugs and alcohol, getting divorced or becoming estranged from friends, and turning to suicide. The anecdotal evidence is pretty strong, though. People in the securities business face high pressure and real dollar losses every day they go to work.

Their performance is constantly judged by the market, and it doesn’t grade on a curve. If you spend even a few minutes talking to people in the business, you hear horror stories. I personally know a trader who set fire to his house, killing his 90-year-old mother in the process, to get the insurance proceeds to cover his financial shortfalls.

Don’t be the person who finally gives researchers enough critical mass to report on day trader self-destruction. Stress is a real part of day trading, and not all day traders handle it well. If you know what you’re up against and prepare for it, you’ll be better off than many.

Controlling Your Emotions

The key to successful day trading is controlling your emotions. After all, the stock doesn’t know that you own it, as equity traders like to say, so it isn’t going to perform well just because you want it to. This can be infuriating, especially when you are going through a draw-down of your capital. Those losses look mighty personal.

Traditional financial theory is based on the idea that traders are rational. In practice, however, most of them are not. In fact, traders and investors are often irrational in completely predictable ways, which has given birth to a new area of study called behavioral finance. It’s a hot area generating Nobel Prize winners, and it may eventually help people incorporate measures of investor behavior into buy and sell decisions.

You have to figure out a way to manage your reactions to the market, or you shouldn’t be a day trader. Almost to a one, day traders talk about their enemies being fear and greed. If you panic, you’ll no longer be trading to win, but trading not to lose. There’s an important distinction: If your goal is not to lose, you won’t take appropriate risk, and you won’t be able to respond quickly to what the market is telling you.

This is all much easier said than done. Human beings are emotional creatures, constantly reacting to everything that is happening in their lives. Knowing the emotions that affect trading and having some ways to manage them can greatly improve your overall performance.

The big five emotions

When it comes to trading, five big emotions can take over and mess up your strategy and your returns. At this point in your life, you may already know whether you have tendencies toward some of them. If so, trading can exacerbate them. If you’ve never experienced them, you might for the first time. Here’s a list and some descriptions so that you know what you’re up against and can plan accordingly. I include some tips that can help, but if you are really in the throes of an emotional crisis that affects your trading, you should seek out professional help.


Anxiety is the anticipation of things going wrong, and it often includes a physical response: perspiration, clenched jaws, tense muscles, heart palpitations. Anxious people worry, agonize, overanalyze, and generally stress out. And then they avoid whatever it is that makes them upset. That means that a trader might not make an obvious trade, but instead hesitate and miss a market move. He might hold on to a losing position too long because he’s worried about the effect that selling it will have on his portfolio. He becomes too nervous to trade according to his plan, and his performance suffers.

One way to fight trading anxiety is to concentrate on following the trading plan, not on making a set amount of money. That way, following the plan becomes more automatic, and you spend less time worrying about what can go wrong.


Here’s the ugly truth about day trading: It can be really dull. In an eight-hour trading session, you might spend seven and a half hours waiting for the right opening. A flurry of trades, and it’s all over. To keep yourself entertained, you might start making bad trades, spending too much time in chat rooms, or letting your mind wander away from the task at hand. None of those things is conducive to profitable trading.

If you are really bored and tempted to do something stupid, close out your positions and take a break. Going for a walk or quitting early can clear your head and help you focus when you get back. Remember, day traders work for themselves, and one of the benefits of that is that there is no boss to find out that you knocked off early. Take advantage of that!


Depression is a severe downturn in your mood, especially one that causes you to feel inadequate and lose interest in things you used to like. Although everyone is susceptible to depression, the ups and downs of the market can make traders particularly vulnerable. At best, depression can make it hard for a trader to face a day with the market. At worst, it can lead to alcoholism, alienation, and even suicide.


Fear is one of the worst emotional enemies of the day trader. Instead of trying to make money, the fearful trader is trying hard not to lose it. She is so afraid of failing that she limits herself, doesn’t take appropriate risk, and questions her trading system so much that she no longer follows it, no matter how well it worked for her in the past.

By the way, it isn’t just failure that traders fear. Many fear success, sometimes for deep-seated psychological reasons that I am in no position to address. A trader who fears success may think that if she succeeds, her friends will treat her differently, her relatives will try to take her money, and that she will become someone she doesn’t want to be.

One way to limit fear is to have a plan for the trading business. Before you start trading, take some time — maybe half a day — to sit down and think about what you want, what will happen to you if you get it, and what will happen to you if you don’t. For example, if you lose your trading capital, then you’ll have to live on your walk-away fund until you find another job. If you make a lot of money, then you can pay off your mortgage and your friends will be none the wiser.


Greed seems like a silly thing to have on this list. After all, isn’t the whole purpose of day trading to make money? This isn’t charity, this is capitalism at its purest. Ah, but there’s a popular saying down at the Chicago Board of Trade:

   “Pigs get fat, but hogs get slaughtered.”

Traders who get greedy start to do stupid things. They don’t think through what they are doing and stop following their trading plans. They hold positions too long in the hope of eking out a return and sometimes they make rash trades that look an awful lot like gambling. The greedy trader loses all discipline and eventually loses quite a bit of money.

If your goal is simply to make more and more money, you might have a problem with greed. Sure, everyone wants to make more, but there are also a basic need-to-make number and a want-to-make number. If you know what those numbers are, you’re well on your way to preventing the problem.

Limit orders, which automatically close out positions when they hit set prices, are one way to force discipline in the face of greed.

Having an outlet

Successful day traders have a life outside of the markets. They close out their positions, shut off their monitors, and go do something else with the rest of the day. That’s the whole idea behind day trading.

The problem is that there is always a market open somewhere. Traders work overnight and after hours through electronic communications networks and sometimes move the action to exchanges in other parts of the world. Without something to mark a beginning and an end to your trading day, and without other things happening in your life, the market can consume you in a way that’s simply not healthy.

So as you plan your life as a day trader, think about what else you’re going to do with your days. Exercise, meditation, socializing, and having outside interests are key to maintaining balance and staying focused on the market when you have to be.


Exercise keeps your body in fighting shape so that you can stand up to market stress and react to trends when you need to. Many times when you’re trading, you have huge rushes of adrenalin that you can’t do much about. You have to stay in front of your screen until the trade is over, no matter how much you want to run away screaming. But after the trading day, you can hit the track or pool or treadmill and burn off some of that adrenalin. Figuring out a regular exercise routine can pay off for your trading.

If you aren’t an exerciser now, call your local YMCA. They have introductory programs that can teach you how to use the equipment and help you design a workout that suits your current fitness levels and goals.


You may have closed out your positions and shut down your monitors, but the day’s trading may keep playing itself out over and over in your head. When you are trading, you may get upset and start thinking about everything else that has ever gone wrong in your life, instead of staying focused on the task at hand. Trading, therefore, requires mental discipline. Good traders can keep their minds clear of everything but their trading system, at least when the markets are at their hairiest.

One way to develop that discipline is to take up meditation. Yeah, it may seem goofy, being a big tough trader type doing something woo-woo like meditation, but if you have trouble keeping your focus, you really might want to take it up. There are an almost infinite number of meditation styles, many of which are associated with different religious traditions, so you can surely find something that works.

Friends and family

Day trading is a lonely activity. You’re working by yourself all day. It’s just you, your room, and your screen. It’s really isolating, and if you don’t get other human contact, you’ll personalize the market so that you don’t feel so lonely. That’s bad, because the market isn’t a person; it’s an agglomeration of all the financial activity taking place, and it has no interest in you whatsoever.

No matter what you do in life, you want to have the support of the people you know and love. And you need to make time for them, too. Start and end your trading day at regular times, and be sure to make plans to see people who are important to you. Going to your kid’s ball game, having dinner with your spouse, and seeing your buddies for a few beers on a regular basis can go a long way to keeping your life in balance — and that will keep your trading in balance.

Hobbies and other interests

A lot of people get into day trading because they have long had a fascination with the market. Trading goes from being a hobby to being a living. In many ways, that’s perfect. It’s so much easier to go to work if you have a job that you love.

But if the market is your only interest, then you’re going to be too susceptible to its gyrations and you’re going to have trouble sticking to your trading discipline. Plus, whatever upsets you during the trading day is more likely to carry over. So find a new hobby if you don’t have one. Maybe it’s a TV show, a sport, or knitting, but whatever it is, you need to have something going on outside of your trading.

Trading is just one part of your life.

Support systems

Exercise and friends and family and hobbies and the like are all well and good, but they don’t directly address the mindset of trading. Ah, but there’s a veritable industry of support for traders, and it’s easy to tap into. Many day traders find that reading books, hiring a coach, or finding other day traders helps them get through the day.


A library-full of books have been written on the psychology of trading itself. In addition, many traders rely on other self-help and history books for inspiration and ideas. (I think every trader I’ve ever known owns a copy of Sun Tzu’s The Art of War, which is about military strategies and tactics. They find that it helps them prepare their minds to face the market, or at least gives them something interesting to talk about.) I list several books in the Appendix that might help you organize your mind and keep your enthusiasm for the market.

Counseling and coaching

Because it takes a lot of mental toughness to handle big losses — and big gains — many traders find professional support. They use counselors, psychologists, or life coaches to help them deal with the challenges of the market and understand their reactions to it. You can ask other traders or your doctor for a referral, or check the online directory at Psychology Today’s Web site or the International Coach Federation. When interviewing coaches or counselors, ask whether they have experience with traders or others who work in finance.

Many day trading training and brokerage firms also offer coaching services that specialize in helping people learn and follow day trading strategies. Some day traders find these people to be invaluable, whereas others find they are just glorified salespeople.

Some day trading coaches may be more interested in selling you specific trading strategies rather than helping you manage your own system. Check references and find out what other forms of compensation the coach receives before signing up.

Finding other traders

To offset the loneliness of trading alone, many day traders choose to work out of trading rooms operated by brokerage firms or join organizations where they will meet other traders. These may be formal or informal groups where traders can socialize, learn new things, or just commiserate.

Many day traders get together through Internet message boards and chat rooms. These groups are less formal, more anonymous, and sometimes more destructive than supportive. Most day traders lose money and give up their first year. You may find that spending too much time with other traders is more depressing than supportive.

Watching your walk-away money

A lot of traders have a secret that lets them get through the worst of the markets. It’s something called walk-away money, although traders sometimes use more colorful language to describe it. It’s enough money that they can walk away from trading and do something else.

And just exactly how much is it? Well, it varies from person to person, but having enough money to pay three months’ worth of expenses on hand and in cash is a good place to start. If you know that you can pay the mortgage and buy the groceries even if you don’t make money trading today, you’ll be better able to avoid desperate trading. You won’t have to be greedy, and you won’t have to live in fear.

The more money in your walk-away fund, the better. Then you have more time to investigate alternative careers should day trading prove not to be your thing, and you can relax more when you face the market every day.

Most day traders quit after a year or so. There’s nothing wrong with deciding to move on and try something else. If you have some money saved, then you’re in a better position to control when you stop trading and what you do next.

If all your trading capital is gone, you might be tempted to tap your walkaway fund to stay in the game. Don’t. That’s the exactly the time that you should use your walk-away money to walk away, if only for a short time to clear your head and rethink your strategies. Otherwise, your trading losses may become financial ruin.

Importance of a Trading Plan

You may have noticed that trading plans pop up several times. That’s because they are so important to maintaining the discipline that leads to trading success. You have to know what you’re doing and how to recognize entry and exit points and then go and do it.

In this section, I cover how you can use a trading plan to manage stress and give you a few tips for sticking to your trading plan even as the markets sometimes move against you.

Problems following direction

Was that written on all your report cards? I hope not. A good, tested trading plan sets out market patterns that work often enough that you can make good trading profits. But some people have trouble following their plan, and that leads to stressful mistakes.

Prevent choking!

In sports lingo, an athlete who chokes starts playing so carefully that he or she looks like a beginner. This is often caused by over-thinking — by being so afraid of failure that the mind slows down and breaks the play down step by step. It’s not pretty to watch a contender break down in a championship game. The fans want to see a good match.

Anyone in a high-performance situation can choke. When a trader chokes, he seems to be following the plan, but it’s no longer automatic. Trading becomes so slow and deliberative that obvious trades get missed.

The more you trust your plan, the less likely you are to choke. Has it been tested? Are there parts that you can automate?

Reducing panic

Panic occurs when you just stop thinking. Your most basic survival instincts take over, even when they are totally uncalled for. You’re losing money? You start to trade more and more, off-plan, in a desperate gamble to win it back. You’re making money? You close out all your trades right now so that you can’t possibly lose, even if your plan tells you to hold your positions. When you panic, you can’t think straight, and you can’t follow your plan.

One problem is that when your positions are down, and you seem to be losing money, you really should be buying and sticking it out so that you can make money later. That’s tough to do and requires a lot of discipline. Traders learn to avoid panic with experience.

You’re probably going to have more than a few losing trades when you get started. In your trading diary, keep notes about how it makes you feel to lose money. Can you handle it emotionally? If losing upsets you too much, you might not be cut out for day trading. You can’t trade with a clear head if you’re bogged down with negative thoughts.

Confidence versus ego

Day trading requires a lot of confidence, because you are going to lose money and you are going to get beaten up some days. But you not only have to remain confident in the face of adversity, you also have to be careful that you do not cross from confidence into an inflated ego. The more your trading success and failure become part of your personal identity, the more trouble you are going to have.

What’s the difference between confidence and ego? It’s “I’m smart enough to figure out what the market is telling me” vs. “I’m smarter than the market.” The difference is crucial to your success.

Revising and troubleshooting your trading plan

Strong discipline is key to success in trading, but only if you’re disciplined in following the right system. If your trading method is flawed, then sticking to it is going to hurt you. If something isn’t working, don’t get mad at the system; take some responsibility and make some changes.

How do you figure out whether your trading system is right and what changes to make? Go through your trading diary and ask yourself some questions:
  • Why did you choose this system? What is the market telling you about it? Is it telling you that the system works if you follow it, or is it telling you that there’s something wrong with the underlying assumptions. What works for someone else might not work for you. There’s no flaw in admitting that you made a mistake and that you need to make a change.
  • Were your mistakes because you followed the plan, or because you didn’t?
  • What part of the system is causing the trouble? Are you having trouble identifying entry points or exit points? Or are you stuck when it comes time to enter the trade, causing you to miss a point? Or is it that the trades your system identifies never seem to work out? Once you know where the problem is, you can change it.
  • Can you improve your trade efficiency? Is there a way to reduce the number of mistakes? Would automating some or all of your trading help?

One way to get your confidence back while still staying in the market is to trade in very small amounts so that your profits and losses don’t really matter. Trade 100 shares, not 1,000 shares. You give up the upside for a time, but you can also get out of the cycle of greed and fear that has destroyed many a trader.

The Follies of Chat Rooms

Spend any time on the Internet researching day trading and you’ll come across the chat rooms and message boards that some traders use to exchange information. Or at least you’ll come across the chat rooms and message boards that purport to be used by traders to exchange information.

Chat rooms were quite the thing in the first big wave of day trading, in the late 1990s. They don’t have quite the influence that they once did, but some day traders still rely on them. Some are excellent, help people learn to trade, and offer good perspectives on market action. Others are a distraction at best. In this part, I cover some of the benefits and risks so that you know what you are getting into before you make that first post.

Support group or group think?

Many day traders turn to chat rooms for the camaraderie and support they offer. It seems so great to find other people who are going through the same things that you are! They understand what’s happening!

Or do they? I could make a very strong argument that traders who really know what they are doing don’t want anyone else to know who they are or what their plan is. Several successful day traders that I talked to while researching this book refused to have their names in it, because they are happier staying off the radar. Meanwhile, even those day traders who make money have trouble making enough money to stick to the business for a long time.

To compound the problem, the people in a chat room might get so agreeable that they start reinforcing bad advice. Instead of getting support to help you through a rough time, you get dragged down.

In general, a message board that charges a subscription fee is likely to be of better quality than one that’s free, just because the fee wards off the people who aren’t serious. I’ve listed a few in the appendix. But no matter what you pay, spend some time lurking — watching the comments without making any yourself. Proprietors of good message boards usually offer temporary access to prospective subscribers to help them evaluate the service. Check to see how people treat each other, what experiences they have, and how their trading systems match yours. And limit your time and watch your reactions to people’s postings.

Getting angry at nothing

From the very early days of newsgroups and Internet Relay Chat, people exchanging ideas on the Internet have managed to misunderstand each other and blow small things out of proportion. That’s all well and good if you’re talking about the latest season of American Idol, but it’s not so good if you’re day trading. The market is a tough-enough evaluator of your performance. You don’t need to waste time, energy, and confidence on someone who, intentionally or not, makes a nasty comment on a message board.

At a minimum, try to limit your message board activities to market hours. And if you’re one of those people who are quick to anger, it may be best to avoid online discussions with other day traders all together.


Now, here’s one other nasty truth about day trader chat rooms: Sometimes the people posting are trying to manipulate the market and sabotage other traders. They plant false and misleading information, seek to undermine others’ confidence, and otherwise try to seek an edge by bringing others down. In other words, there may not be much information value at all, and the value of camaraderie may be quite low, too.

The Internet is a wonderful thing, and it makes it possible for people to trade sophisticated financial instruments in real time from the comfort of home. But it has its limitations, and online interaction with other traders can actually add to the stress of day trading. Tread carefully.


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