Performance anxiety afflicts even accomplished individuals in sports, performing arts, and games of skill such as poker and chess. It occurs when awareness of the performance--and especially the outcome of the performance--interferes with the actual act of performing.

Performance skills have generally been honed to the point of automaticity. This is especially true of performers in high-speed activities, such as race car drivers, fighter pilots, baseball batters, and short-term traders. When the performer becomes self-aware and focuses attention on the outcome of the performance, this leads to efforts at conscious control of the automatic activity. The result is a disruption of performance.

A great example is the basketball player who is shooting a free throw in the last seconds of a game with his team down by a point or the golfer who has a putt to win a tournament. Aware of the importance of his shot, he carefully aims the ball and does not deliver his natural stroke. In the financial world, a trader will overthink a trade, missing a great opportunity when it doesn't set up exactly right. Heightened awareness of risk interferes with the pursuit of reward.

What causes performance anxiety? Sometimes a single poor performance or set of performances create the view of a "slump" in the performer's mind, leading to efforts at correction that only exacerbate the problem. Other times, changed circumstances can generate the performance anxiety. Being hired by a new firm and wanting to impress everyone; having one's trading size raised considerably and becoming aware of the new risk; giving birth to a child and now feeling more pressure to bring in money--all of these can shift the mindset of the trader. The result frequently can be seen as a change in the trader's mood.

The traders' questionnaire I posted a while back is one way to assess a disruption of mood. Performance anxiety can become debilitating, not only because it inhibits performance, but because it affects global well-being and the accurate assessment of risk and reward.

One of the poorly recognized aspects of performance anxiety is known as secondary anxiety. This occurs when a person becomes aware of their own emotional arousal and becomes anxious about being anxious! It is a major dynamic behind panic disorder, but it also frequently plays an important role in sustaining performance anxiety. A trader can become threatened by even the normal fight-or-flight responses generated by activities that involve risk and uncertainty. Once those responses are perceived as threats, they generate further anxiety, which in turn becomes even more threatening. Many times, performance anxiety is the result of just such a downward spiral.

Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University. Dr. Steenbarger is an active trader and author of The Psychology of Trading (Wiley, 2002).