Trading With Mindfulness
by James Kessick
Up until more recently, meditation was seen as a little non-mainstream. However, the fact that there have been many scientific studies on the benefits of meditation and numerous high profile figures who have extoled the virtues of the practice, has meant that where people were once skeptical, they are now embracing meditation in their droves. Trading with mindfulness is certainly an appealing prospect. Ray Dalio, founder of one of the largest hedge funds about, Bridgewater Associates, credits meditation as one of the key factors to his success.
“Meditation, more than any other factor, has been the reason for what success I’ve had”
– Ray Dalio.
Now that’s some endorsement.
In the Moment – Trade Psychology
Mindfulness is a form of meditation. It’s all about being in the moment and totally aware of what’s going on around you. Even if you were to take away all of the supposed health benefits to meditation, being able to focus on something, without bias, is surely a skill that any trader would wish to have. Getting good at it isn’t as complicated as you might think and really just requires deliberate practice of the trading skills that you probably already have.
Putting out Fires
Being able to take in, prioritize and interpret the endless stream of information available to you as a trader, is no mean feat. It’s definitely very doable though. It may not always be 100% perfect, but then we are still human and we can improve our skill level with some effort. But trying to remain totally focused while you trade is just not going to cut it on its own. If you fail to prepare and have no idea of what to expect given a certain set of market scenarios, you’ll always be “putting out fires” as you trade – you’ll be caught off guard and have to figure out what certain things imply as they happen. This is a tiring and emotionally draining way of working and one where you will find that you’ll struggle to remain fully focused over the course of a session.
Practicing Trading with Mindfulness
There are three basic principles to remaining totally focused and trading with mindfulness: –
1) Trading Preparation.
2) Trading Observation.
3) Trading Calmness.
This isn’t just about getting ready for each trading session. It’s also about having a framework that you can lean on as information comes on to your radar. Having an expectation of what is likely to happen given a certain scenario gives you a point of reference to refer to when that scenario occurs. It means that you’re ready to observe what happens and don’t need to interpret the meaning of the information as it presents itself to you.
Of course any trader will be making observations about the market, regardless of their level of skill. But the quality of these observations will be dependent on a number of key factors. First of all, a trader needs to be prepared. A single market provides an endless stream of information and knowing what you’re looking for allows you to ready your mind for when specifically important market instances occur. These observations must also be made without bias. Having decided that you want to see certain things happen in the market can lead the mind to looking for supportive information and ignoring information that is detrimental to an idea. It is absolutely critical that observation is made without bias. Finally, it is vital that a trader is able to remain focused on the task at hand. As a trader becomes more adept at mindfulness, distractions are less of an issue. However, a trader must do what is necessary in order to shut out potential distractions and interruptions to a great extent.
Being calm as a trader is not always easy – that’s for sure. Many a keyboard has bitten the dust at the fist of a furious trader! But taking trades from an emotional state of mind tends to lead to losses. The aforementioned furious trader might take a revenge trade for example. A trader jubilant from a number of winners however, might take trades from a cocky frame of mind. Emotions not only have the potential to make us trade in an unwise manner, but they also have great potential to cloud our minds and prevent proper interpretation of useful information.
So remaining calm, centered and ready to act is what every serious trader should be striving for – and a big part of this is being okay with trading outcomes. Learning that a losing trade taken for the right reasons is not a threat and is part of a much larger set of trades (as taught by Mark Douglas in Trading in the Zone) is the first half to this. Practicing your response to losing trades is the other – even if you know that you shouldn’t get frustrated and annoyed, it might not be something that you can control in the event unless you practice and rehearse taking your losing trades.
So there you have it – practicing all the things that you probably are already aware of as being useful to your trading might actually constitute the bones of trading with mindfulness already. Put them together and you’ll likely see a positive impact on your P/L and just maybe you’ll also experience some of the broader benefits that meditators claim to receive too.