Emotional Diversification

I can always count on Dr. Brett Steenbarger, trading coach, trader, blogger and psychologist to come up with interesting commentary.

"Emotional diversification: the degree to which the happiness and contentment in your life are coming from multiple sources. When we are emotionally diversified, no one area of setback in life can turn our stress into overwhelming distress. That is absolutely crucial in a field such as trading, where occasional setbacks are the norm even for the most profitable professionals."

A very simple, yet important concept.  If you are facing stress as a result of difficulties in other aspects of your life: marital problems, or the loss of a job etc, then it becomes much more difficult to perform at your best as a trader/investor.  And if those difficulties are financial, it's even worse because you may urgently need money to pay your bills.  That is about as bad as it gets for a trader.  If you 'must' make money and make it now, then you are going to want to expand the boundaries of (or completely ignore) your comfort zone and be trading with increased risk – in an attempt to earn that cash.  Being able to stay within your comfort zone is important.

Be alert to this situation.  If you are stressed, try to cut back on your trading.  At least be certain your decisions are sound and fall within your standard comfort zone.

On the other hand, if you are emotionally satisfied with the important parts of your life, then there's a likelihood of trading better.  Your mind will be clear, and you won't feel the pressure resulting from outside stress.

Brett discusses this further in his new book, The Daily Trading Coach.

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