3 Principles Of Mindfulness Trading

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In a post entitled Take A Break From Your Trading Screen, I touched on the benefits of shutting off your focus and letting her brain take a break.  For traders, where the need of intense focus is immense, being able to step back mentally is vital.

Up until the last several years, meditation was seen as a little esoteric for most people.

Nothing convinces people more than social proof and science and the fact that there have been many scientific studies on the benefits of meditation plus numerous high profile figures who have extolled 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 (Net Worth: $17 billion), founder of one of the largest hedge funds, Bridgewater Associates, credits meditation as one of the key factors to his success.

If it’s good enough for Ray, it may be something worth considering for all traders.  Peak performance is something every trader should seek and if mediation is something that can help you get on that path, is it not something to consider?

 

Mindfulness Trading Is Something To Strive For

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 already having a bias, is surely a skill that any trader would wish to have.

Being objective is a skill you must have as a trader.

Getting good at it isn’t as complicated as you might think and really just requires deliberate practice of  trading skills that you probably already have.  It goes without saying that your trading strategy is something that deserves 100% focus.

It doesn’t take much to have your attention wander and to miss something, especially for day trading, that can affect your current position can cause a downward spiral effect has you try to undo that damage that may have occurred.

Staying in the moment throughout every interaction with the market can not be overstated.

 

Focus Can’t Stand On Its Own

Being able to take in, prioritize and interpret the endless stream of information available to you as a trader, is not an easy task. It’s definitely doable though, may not always be 100% perfect, but 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 don’t to prepare by understanding the market conditions you are facing, 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 will 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.

 

Practice Mindfulness When You Trade

There are three basic principles to remaining totally focused and trading with mindfulness and getting good at these can also be a great stress reduction strategy.

  1. Trading Preparation
  2. Trading Observation
  3. Trading Calmness

Trading Preparation

This isn’t just about getting ready for each trading session. It’s also about having a framework that you can lean on as new information is presented to you. 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.

 

Unbiased Observation Of Evolving Price Action

All traders 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.

You must be prepared as a trader.  A single market provides an endless stream of information and knowing what you’re looking for allows you to be on alert for specifically important market instances that may affect your trading decisions.  Knowing what you are looking for can go a long way in cutting down on the amount of stress you will feel when trading which will help keep your emotions in check.

These observations must 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.  This is known as confirmation bias and this can be a major problem for a trader.

It is vital that you are able to remain focused on the task at hand. As a trader becomes more adept at mindfulness, distractions are less of an issue and you are able to pay attention when it truly matters. However, a trader must do what is necessary in order to shut out potential distractions and interruptions to a great extent.

Ensure you only have what is important to your trading open on your computer.  Turn off your phone, ensure you are not hungry, let family know this is your time…anything you can do to eliminate distractions

 

Calmness During The Heat Of Action

Being calm as a trader is not always easy.  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 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.

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.

 

These Are Tools To Help Your Trading Performance

Practicing all the things that you probably are already aware of as being useful to your trading might actually constitute the foundation of trading with mindfulness already.

Put them together into an intentional mindfulness practice 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 those who meditate claim to receive as well.

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