What is performance anxiety?

There isn’t a trader I’ve consulted, whether they’re part-time retail or professionals trading in investment banks: that haven’t been affected by performance anxiety.
Performance anxiety afflicts even the most successful operators. It occurs when awareness of the performance and the outcome of the performance disrupts the art of performing at a higher level. The most successful investors will have developed their skills to the point of automaticity. This applies even more to scalpers or intra-day traders, where high speed execution of skills is paramount to consistent success. If a trader becomes self-aware and focuses to much attention on the outcome of the trade, instead of focusing performance , then focus is lost and the result is a reduction of  performance levels.

Have you ever seen a technically gifted sports person miss a simple shot? Their focus at the point of the miss was probably on the importance of it and not on the execution. In the financial world, many traders focus on the future results of a trade or on the importance of it needing to be a winner, especially true during a drawdown period. This can lead to missed opportunities because  they couldn’t focus on pulling the trigger and taking the play. Being overly aware of risk interferes with the function of making money.

So why does performance anxiety occur? It could be an isolated  poor performance or a string of poor performances, which can lead the trader to think, they’re in a slump, they then try to over compensate and force things, which only makes the situation worse. A change in circumstances can also generate performance anxiety. Starting a new hedge fund or trading for the 1^st time with your own capital and understandably wanting to impress investors or loved ones; increasing position size and all of a sudden becoming aware of increased risk. Any of the prior can shift the mindset of the trader. This can affect the traders mood, which shifts their focus onto things which in the short term are unimportant to their success.

Something that is commonly missed and is a important aspect of performance anxiety is something  known as secondary anxiety. This occurs when the trader becomes aware of being anxious about being anxious! This is one of the main forces behind panic disorder, it also frequently plays an important role in sustaining performance anxiety. A trader can start to be scared by the normal fight-or-flight responses generated by activities that involve uncertainty, risk being the major uncertainty traders face on a daily basis. If these responses are perceived as threatening, they can generate more anxiety, which leads to the situation becoming even more threatening. I have worked with many traders where, performance anxiety is the result of such a spiral, once it starts and chained effect thinking (one bad thought leads to another) kicks in, the result can be prolonged anxiety.

In my next blog, I’ll offer some techniques to deal with performance anxiety, so you can return to an enhance trading state.