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In any kind of skill training, stress training is an essential component. Effective stress training can serve as a connection between training and real-life situations, but its impact can vary from person to person. Certain individuals may experience an exaggerated physiological response to stress, which they cannot control consciously. The traditional theory of stress training suggests that augmenting the stress levels during training can increase the threshold of stress response in trainees, leading to better performance in real-life scenarios. This approach is often utilized in athlete training, where pressure is added during training and decreased during real-life situations.
Personally, I fully support the idea of stress training, but I would like to supplement some points related to stress training for traders. In our previous training processes, we have observed that experienced traders who have encountered stressful situations, such as sudden price fluctuations resulting in floating losses, exhibit fewer stress reflex behaviors than inexperienced traders. While some may argue that this is due to the adaptation of their bodies from previous similar situations, I believe that this is not entirely the case. Through extensive research, we have discovered that experienced traders are more attentive to their psychological state and can better protect themselves when faced with unexpected events, rather than being overtaken by their emotions.
On January 15, 2015, the Swiss National Bank (SNB) made an abrupt announcement to eliminate the euro-franc floor of 1.20 that had been maintained since September 2011. This led to a temporary fluctuation of more than 10% in the euro-franc exchange rate, the most significant and severe fluctuation since the floating exchange rate system was adopted. At the time, three traders in our trading room held relevant contract positions, one of whom had less than a year of trading experience (hereinafter referred to as Trader U), and the other was a senior trader in our trading room with nearly 10 years of trading experience (hereinafter referred to as Trader Q). Due to the rapid price fluctuation after the announcement, their stop-loss orders were disregarded, resulting in losses that surpassed their expectations. After experiencing a life and death moment, all three traders closed their positions. Trader U suffered a single loss of 6% of his position, while Trader Q's single loss reached 11% of his position. Another trader who was holding a position happened to have purchased an option to hedge, so he did not incur too much loss.
However, the story didn't end there. According to the rules in our trading room, if a trader's losses reach 5% of their position in a day, they are required to enter a cool-down period, during which they are not allowed to trade on their commission account for the rest of the trading session. Interestingly, the rule did not explicitly prohibit traders from continuing to trade on their personal accounts. As a result, the two traders took different paths. After managing his stop-loss orders on his commission account, Trader U started trading on his personal account. He believed that since the euro-franc exchange rate had fallen by 7%, no investor would continue to short at that time, and he heavily bought the euro-franc contract. Unfortunately, within two minutes, his personal account suffered a loss of 43%. Later, when the price dropped by 10%, Trader U bought the contract again in full with the intention of recovering his losses and exiting the market. However, his plan failed, and he incurred an overall loss of 66% overnight. In contrast, after entering the cool-down period, Trader Q did not continue to trade. He took a break and went home after smoking two cigarettes in the smoking area. The next day, when he woke up, he submitted a report on the abnormal loss he incurred from the previous day's trading to the risk management department. Below is an excerpt from my conversation with Trader Q.
Trader Q: I made the decision to purchase Euro against the Swiss Franc based on external commitments made by the Swiss National Bank. When the price suddenly dropped below 1.2, I had a feeling that it may have been due to some official remarks from the bank. However, I did not expect them to not allow enough time for the market to absorb the news. As a central bank, they should have acted more responsibly and gradually released the news in stages. Nonetheless, the actual losses on my trades are a fact that I must accept, even though I felt angry at the time. I saw other traders in the trading room profiting/>/>/>/>