Interested in improving your trading acumen?

I came across a recent study by British researchers that indicated that higher amounts of testosterone in the morning was correlated with bigger returns at the end of the trading day. This study by John Coates, which appears in the Proceedings of the National Academy of Sciences, theorized that this super hormone can be related to extensive risk-taking in traders, which can lead to bad financial outcomes, if left unchecked. However, the research also seems to indicate that higher levels of testosterone may make a trader feel very confident, inspired and consequently, take more risks, which can be associated with greater returns at the closing bell. The study also examined cortisol levels of the participants, as it has a tendency to increase during periods of prolonged stress or market volatility.

The Study

To briefly describe the researchers' methodology, they used a private screen-based trading floor in London and took saliva samples from 17 male options traders before their trading day began to assess pre-trading levels and then again at the conclusion of their session. The assessment was conducted over the course of eight days when market-moving reports were released. As outcome measures, the researchers looked at the books of each trader and compared their performance and market volatility with their hormone levels.

Testosterone is our bodies' own natural anabolic steroid. For traders, testosterone may serve as the competitive drive and fire that allows them to take larger monetary risks and make quick decisions. This investigation showed that testosterone levels for top-performing traders were highly elevated, but only in anticipation of profit, not in reaction to a big day.

Cortisol is a hormone often associated with prolonged physical and mental stress. Too much of it can make your immune system weak and become susceptible to physical illness. As it was analyzed during the study, the researchers noted that cortisol levels seemed to be strongly related to a traders feeling of uncertainty or lack of market predictability, as opposed to be related to loss or failure. As it would seem, seasoned traders or investors, expect that loss or failure is part of the risk-reward formula for their job description, and consequently, can overcome feeling "stressed" by it. However, they were navigating markets fraught with uncertainty, potentially contributing to a smaller appetite for risk. Thus, cortisol levels increased during the process of making tough risky trades within the context of uncertain and volatile markets. It would seem to me that these two hormones can operate synergistically if one could learn how to harness them.

Achieving the Optimal Balance

The most interesting finding ascertained by this study, was that traders who came into work with higher levels of testosterone and anticipated profit, were the most productive at the end of the work day. However, increased levels did not appear to be significantly related to the outcome of having a profitable day of trading. Thus, these findings suggest that a trader's mental and physiological warm-up or pre-game each day is essential for keeping levels of testosterone up, which may relate to a better day and higher returns at the closing bell.

Additionally, this study highlights the role of cortisol in measuring a trader's stress while working within uncertain and unpredictable markets. It is normal to have stress with some cortisol secretion. However, too much prolonged stress may hamper one's physical health over the long run.

I always coach my clients on the importance of achieving emotional discipline in their trading and personal life. Too much irrational exuberance or the flipside, too much pessimism, can lead to very negative outcomes in terms of investment performance and quality of life. Achieving a fine balance seems difficult, but not impossible.

Mind Over Hormones

My new book for advisors, traders and bankers, Bullish Thinking: An Advisor's Guide for Surviving and Thriving on Wall Street, offers strategies for achieving emotional discipline during times of uncertainty and distress. In previous columns on TheStreet.com, I have emphasized taking proactive steps in reducing stress on the job by taking control over how you perceives your work environment.

By managing perception of the frenetic and volatile markets, you can buffer yourself from harmful stress that could send your cortisol levels to the moon. This mental and behavioral intervention is known as Bullish Thinking.

This study's findings underscore the importance of starting your work day with testosterone flowing through your veins -- just not too much of this hormone. If the level of this hormone is down, there are both psychological and behavioral strategies for raising it. Once it is up to an optimal level, it is important for a trader to eradicate any irrational or grandiose thoughts that could set them up to become overconfident and too aggressive when it comes to taking risks.

Much like baseball players who try to get an edge by taking HDH to enhance their performance, traders who execute strategies under the influence of too much testosterone, can be in for very negative long term consequences -- both physical and financial ones.

Good Morning, Returns

Per this research and my qualitative experience in my practice, it seems logical that your mood, confidence, "pre-game" activities and level of testosterone play a significant role in how you will perform in terms of investment returns.

If a trader realizes that their testosterone needs a boost, here are some strategies for bringing this level up, without the need for illegal and harmful substances like HGH. If you follow these suggestions and monitor your thought patterns, you can keep your emotions in check. So here is how you can increase your testosterone levels naturally:

1. Balance your diet with carbohydrates and proteins. Make sure to include peanuts, garlic, cabbage, and broccoli.

2. Do not skip breakfast or lunch.

3. During the business week, cut out binge drinking with alcoholic beverages.

4. Exercise frequently as a routine, but allow for sufficient rest.

5. Get about seven hours of sleep per night.

6. Increase the frequency of your sexual activity.

For more on bullish thinking, read Dr. Alden Cass' "Open Book: Think Like a Bull, Avoid Disaster."

Cass is a performance enhancement coach and clinical psychologist for Catalyst Strategies Group ( www.catsg.com) who specializes in working directly with individual and teams of senior investment executives, including high-profile CEOs, top hedge fund and prop traders, investors, and financial advisors to help them achieve their financial and personal goals. He works to modify behaviors that are hampering their performance and to give them the mental edge within competitive work environments. He is a licensed clinical psychologist and an expert on the use of psychology in the financial services industry. He has conducted behavioral healthcare studies on retail stockbrokers that indicated that 23 percent of the group measured met criteria for major depression. His research has been presented at both national and international conferences (APA, ICPP). He is a major contributor to columns in On Wall Street Magazine and Traderdaily.com. Cass has also conducted workshops with the Securities Industry Association, Money Management Institute, Trader Monthly Magazine's Peak Performance Workshop, The Wall Street Branch Managers Meeting at the Federal Reserve Bank of New York, and the London Bullion Market Association, the Silver & Zinc Association, the Investment Management Consultants Association (IMCA), and the Investment Products Association (IPA).

He has appeared in the following media: The Today Show, Fox News Live, New York Magazine, Businessweek, Lou Dobbs Moneyline CNN,CNN money.com, CNBC London, Financial Times, London Financial Weekly, Washington Post Radio, NY Newsday, On Wall Street Magazine, E-Trade "On Air," BBC Radio, Reuter's Business Newswire, New York Times, Boston Globe, Absolute Return Magazine.

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