Trading Psychology — How To Develop Your Mental Edge Through Mindfulness

By Yvan

Trading Psychology -- How To Develop Your Mental Edge Through Mindfulness

We get tons of training in thinking and problem solving, but we rarely if ever get any training in awareness. Yet, awareness is often the prelude to any solution to our inability to be and stay consistent in trading.

As traders, most of our troubles are spawned by the ego, which itself is a by-product of our thoughts.

Thinking, while being absolutely beautiful, can become an issue, and a pretty complicated one because we simply can’t escape it.

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Thoughts and emotions are our evolutionary trait, and they’re a by-product of our inclination for self and genetic preservation. They are there to steer us away from physical threats, and they’re very persuasive at that.

But thoughts, more often, are working hard to steer us away from imaginary threats. They weigh us down, and they won’t even let us go to sleep sometimes. This can create an enormous amount of stress and anticipatory anxiety.

So in order to deal with our thoughts effectively, we need a training in awareness.

That is what mindfulness meditation is all about.

Mindfulness is the awareness that arises from paying attention on purpose, in the present moment and non-judgmentally. There are many other definitions of mindfulness, and Buddhist scholars even have lots of different arguments about its importance and where it sits in the entire Buddhist canons.

But that’s irrelevant because we’re not interested in the religious dimension of the practice. Mindfulness, as it is, is just brain exercise. Nothing more.

You can add religiosity to it if you want, and it’s entirely up to you, but for traders, the immediate practical aspect of this contemplative tradition has tremendous benefits.

The human brain is unarguably the most profoundly complex organ in the body, and 90% of its activity occurs beneath conscious awareness.

This means that, even though we think that we have total control of how we think, feel, and behave, neuroscience suggests that it isn’t so simple.

The concept of neuroplasticity is a new and exciting area of science. It highlights that our brain is constantly being reshaped throughout our lives by both our experiences and our thoughts.

We now know that it is the focus of our awareness that determines which brain networks are strengthened and which are weakened, or even lost.

Therefore, when time and time again we let ourselves get caught up in cycles of fear, worry, irritability, these are the networks in the brain that become stronger. So the more we fear or worry, the better we become at it; that sort of response becomes more automatic.

However, on the other hand, if we practice being calm, composed, and focused, we can strengthen these networks too.

As humans, our brains differ quite a bit from those of other animals. This is mostly due to the front area of the brain called the frontal lobe – often called the new brain as it was the last to have developed in our evolution.

When well developed, this part of our brain help us to manage strong emotions better; it helps us respond with flexibility even when we feel overwhelmed. It also helps us tune into the feelings of empathy and insight.

When we worry or fear; when we feel stuck or are obsessively focused on being right, our brain functions are more strongly dominated by the old brain, and specifically the amygdala.

The amygdala manages the powerful flight and flight response which switches on when we feel stress, and it releases hormones and chemicals – cortisol and adrenaline. This cocktail of chemicals clouds rational thinking so that we can focus better on operating this primal flight or evasion mode.

So, as you see, the control we think we have over our actions and behaviors is not so absolute. It is mitigated by different conditions and circumstances.

But with mindfulness, we are developing skills of attention, and the capacity to direct our awareness in a certain way so that we are less likely to be swept up by strong emotions and the power of the amygdala.

It also means that we can bring choice to how our emotions and our thoughts are interpreted, and in doing so, we are playing an active role in changing how our brain develops, in much the same way we can change the shape of our body by doing certain exercises at the gym.

When we practice mindfulness meditation regularly, we become aware of thinking and emotion. As our mind becomes more settled, our nervous system is able to take in more accurate information for flexibility, creativity, and clear thinking which enables us to manage challenging situations more skillfully.

Don’t get me wrong. When we build skills of mindfulness, we still feel ‘negative’ emotions and feelings like frustration, sadness, disappointment, fear, irritability… but the research shows that we recover much more quickly.

We also know that regular meditation practice reduces the size of the amygdala, levels of stress hormones, and strengthens connections to frontal lobes. All this means is that we’re more likely to live with less stress and more happiness.

Ok, so now let’s see how to develop a mindfulness practice.

First of all, commit.

Many say that they don’t have enough time to practice meditation. But it’s not about time, it’s about diligence to practice and the way you shift your priorities. If trading for a living is truly important to you, you will find a way to make it happen and a mindfulness meditation practice will an amazing tool on that path.

Check your expectations.

Just like in trading, when we practice mindfulness with the expectation of obtaining something from it, what we expect has fewer chances of happening. So, keep this in mind: it’s a process, not a goal.

Find a quiet spot.

It really doesn’t matter where you sit as long as you can sit without being bothered.

Pick a time and trigger.

Not an exact time but a general one. For instance, meditate in the morning when you wake up, or at night. The trigger should be something you already do regularly, like brushing your teeth, or arriving home from work.

For instance, every day I get up, meditate, shower, eat breakfast, and then I turn on my computers on. Always in the exact same order. That’s the triggers I have developed.

Sit facing a wall (optional).

The wall is a metaphor for the difficulties we all face in life and sitting facing that wall allows us to face our difficulties. If we can cultivate equanimity while we are facing the wall, then nothing prevents us from doing the same thing when we are faced with difficulties in life.

Sit comfortably.

How you position your body has a lot to do with what happens in your mind. You are free to choose whichever position you are more comfortable with. The most effective positioning for my body for the practice of meditation is the stable, symmetrical position of the seated Buddha.

I use a zafu – a small pillow – to raise my behind just a little so that the knees can touch the ground. With my bottom on the pillow and two knees touching the ground, I form a tripod base that is natural, grounded and stable.

Put on a timer.

If you are just starting out, 5 minutes will do. You can increase your time when you have been used to sitting for a while. My practice has evolved to a point where I now sit for 20 minutes in the morning and 30 minutes at night. If you’re completely new, maybe commit to just 5-10 minutes a day for at least one month.

Choose the positioning of your hands.

You’re free to just place your hands on your thighs or knees, palms facing down.

Close your eyes.

Gradually become aware of the sensations of sitting. How does it feel? How do you feel in your body? How does it feel on your back? How about your legs? Don’t analyze or judge, just witness, feel.

Perhaps take a few deep breaths. Allow gravity to establish you into your seat.

Gradually become aware of the process of breathing. Notice where you feel the breath – is it at the tip of the nose or is it at the rising and falling of the belly? Or is it both? Feel the sensations, from the beginning of the inhalation to the pauses, and then to the exhalation.

Just simple cover your breath with your awareness. Let it come and go naturally.

The moment you see that you are lost in thoughts, simply observe those thoughts, whether they are images; things you are saying to yourself; past, future, sensations, whatever it is, just observe!

Notice how they disappear, and then come back to the sensations of breathing.

You will get lost in thoughts again and again. It’s totally fine. Notice! Observe. See how the quality of your breath is congruent with your state of mind.

The art of letting go.

In essence, what you are doing is that, with every thought that comes into your awareness, you are learning to let go. The practice is always about letting go, which starts with letting be. And you are strengthening your ability to do so.

With enough practice, you will begin to notice thoughts’ transient nature, even more so their insubstantiality. You will be better equipped to transpose this habit of mindful awareness into other areas of your life – when you’re trading, in traffic, and anywhere else.

At this point, you would have developed an ability to detach yourself from unfruitful patterns of behavior, but also things in general that are unproductive and not conducive to your well-being.

If that is not freedom, then I don’t know what is.

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