February 24

Using Mindfulness When Trading – A Case Study

By Yvan

Using Mindfulness When Trading – A Case Study

As a trader, one of the most beneficial experiences for me has been to study and commit to the practice of mindfulness and apply it all to trading.

In today’s post, I’d like to recount a moment when I used mindfulness to help me stay in control of my emotions while remaining objective in the market.

First, I trade two strategies on two different time frames (a long term and a short term) in two different accounts.

The way I designed those strategies is that if one is doing poorly, the other one is usually doing well.

And this helps reduce volatility and smooth my overall performance.

Friday, however, both accounts were in the red.

The view of losses (open or closed) isn’t what you’d call pleasant.

For the typical trader, this is often demoralizing.

Their stress level rises, their heart races, their jaw tenses, blood rushes to their head…they feel nervous, confused, and vulnerable.

Their limbic system and prefrontal cortex go a bit haywire which overrides rational thinking. And they either automatically begin thinking of defending themselves at all cost, or their mind goes completely blank.

I said “the typical trader”, but, honestly, that’s how we’re all wired to be when faced with the prospect of a loss or just a difficult situation overall.

And I’m no different. I’m by no means a Zen master at all times in perfect control of his emotions… I’m painfully aware that.

But, historically, a day like this would have led to an unproductive end for me.

It would have fuelled emotion-based trading errors–buying high, selling low, revenge trading, and all the other usual suspects.

I would have overthought the whole thing and lost all stability in my mind.

But since I’ve been practicing mindfulness, I’ve definitely noticed that I am better able to regulate my over-reactive sympathetic nervous system.

Here’s what I do whenever I’m experiencing difficult emotions when trading:

I stay present with my feelings

Whether it’s frustration, fear, confusion, or conversely greed or impatience, the first thing I do is that I become aware of that particular state.

I become aware of the thoughts in my mind and the sensations in my body, and I’m observing those phenomena as they rise, fall, and dance…

And I try to connect to a place of pure non-judgemental awareness; a place of ultimate presence with the arising and falling of phenomena. I just let myself feel whatever is happening.

I stay present with the situation

So, awareness of myself is the first step. It helps me get to a place of greater discernment.

From that place, I’m better able to respond more rationally to the challenges happening on the outside.

I try to calm my automatic assumptions and catastrophic thoughts, not by pushing them away, but by asking myself neutral, open-ended questions to help me better understand the facts of the situation.

For instance:

“What is really happening beneath my interpretation of the situation?”

“Is what I’m feeling helpful right now?”

“Will it benefit me if I act on it?”

“What’s the wiser way to approach this situation that would help yield a better outcome?”

I refer back to my plan

What does my trading plan say I should be doing?

Every decision that I make in the market, I always check along to way to keep those decisions aligned with that plan.

Of course, by now, I’ve internalized all of this, but you get the point: The plan needs to become the top priority, not volatile moods and emotions.

I stay aware of my inner reactions

I acknowledge that my mind will keep creating distressing scenarios. That’s what it’s designed to do.

I become aware of that tendency without fuelling it further.

Being aware tends to disrupt the automatic feedback loop between your thoughts, your emotions, and your actions. This can help you see the facts of the situation more clearly and act in a more rational way.

I take one or two mindful breaths before any decision

A brief mindful pause can make a world of difference. It can mean the difference between a knee-jerk reaction and a thoughtful response.

That mindful pause can help you go “Oh, I’m about to make a poor trading decision,” and just that fact alone can help you abort that potentially disastrous decision with greater ease.

I remember that it’s not about me

The market doesn’t care about me. It will behave according to its nature; it will do what it does best. My goal is to follow my plan and be consistent in its execution. That’s what creates a consistent performance.

And yes, there will be losses along the way. Losses are part of the game. You can’t make an omelet without breaking eggs.

That’s what I say to myself.

I renew my commitment to the practice of mindfulness

I’ve been meditating daily for many years now, and the practice of mindfulness has made me a better person overall, more aware of my cognitive, emotional, and physical reactions; hence, it’s made me wiser, happier, and definitely a better trader.

But, make no mistake. I’m not implying that mindfulness will make undesirable emotions and states of mind miraculously disappear.

Sometimes they do, but often difficult emotions and states of mind have a life of their own, and I haven’t gone Zen master yet to stop them within the snap of a finger.

But no matter how strong, they just no longer short-circuit my rational thinking process –which is centered on a firm commitment to my trading plan, a careful treading in presence of risk and uncertainty, and a genuine trust in my strategy, its process, and my market experience.

Simply put, mindfulness doesn’t necessarily stop me from feeling a certain way; it just helps me opt for a wiser response to the current situation.

Last Few Words

Mindfulness has been extremely beneficial for me.

I don’t mean to hype it beyond reason, but deep in my heart, this is how I honestly feel.

And the scientific literature supports my experience. In fact, mindfulness has been shown to help:

  • Decrease self-centered focus
  • Break the vicious cycle of automatic thoughts, feelings, and behaviors that contribute to unproductive actions
  • Increase present moment awareness, which promotes genuine understanding.
  • Strengthen stable attention and non-judgmental awareness, which promotes flexible and out-of-the-box problem-solving.

So, as you can see, mindfulness is a must-have tool in your arsenal to help you stay rational, in control, and focused on the process of trading well.

If you want to learn it with me, check out the Trading Psychology Mastery Course.

In there, I help you develop a trader’s mindset. Short and simple.

If you’re up for the challenge, here’s a $50 off coupon to get you started: EQUANIMITY

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