Dharma and the DOW: What Mindfulness can teach you to improve your trading strategy
So much has been already been written about how incorporating various elements of Buddhist practice into business can make a positive difference to employees’ happiness and even to a company’s profitability. Whether you see this as just another passing “Blue sky thinking” management fad or lament the crass, Western monetisation of an ancient school of philosophical thought, there is no denying the momentous rise in popularity of meditation and mindfulness throughout Europe and the US in recent decades.
Now you can debate the validity of these claims until you reach Nirvana but from a purely secular perspective even a cursory glance at these teachings reveals some important insights about ourselves and the way that we think. Furthermore, clinical studies on mindfulness have shown how the practice can have a demonstrable effect on our bodies; from changes to brain activation patterns, improvements to memory function and a reduction in stress hormones to more subjective experiences such as increased focus, better mental well-being and less emotional reactivity. So what can we learn from mindfulness and what are the possible applications for it to be used by retail traders such as ourselves?
What Is Mindfulness?
So in order to apply the concept of mindfulness to your day-to-day trading actions, we first need to understand what this term means. Mindfulness can be described as the practice of intentionally cultivating present moment awareness and this can be carried out either in dedicated meditation sessions or internally throughout the day as you go about your business.
In meditation, essentially you are clearing your mind, focusing on your breath, viewing what types of thoughts and feelings bubble up organically when you are free of distraction and calmly putting them to the side so that once more you can continue to focus on nothing. You repeat this process over and over again for as long as you can manage or as much as your schedule allows.
In everyday practice, it is simply the persistent awareness of how you can be swept up in events and circumstances out of your control and how you can regulate yourself to stop making unwise and irrational decisions in the heat of the moment.
Countering Emotional Trading With Mindfulness
The fundamental aim of this practice is to stay grounded in the present moment, be kind to yourself when you make mistakes and to not be so easily lead by either outside influences or your own temporary thoughts and emotions. So you might be thinking with mindfulness it’ll be relatively easy to take the emotional uncertainty out of your trading patterns, right? Well, unfortunately, it’s nowhere near that simple.
Firstly, humans are incredibly emotional beings and, worse still, some traders are specifically attracted to this industry due to the rushes of adrenaline and dopamine that accompany every successful (and risky) trade. So rather than thinking you can entirely remove emotion from your trading decisions, try to just think about keeping them in check.
In much the same way as journaling, pay close attention to your state of mind before sitting down to trade. How are you feeling? How is your mindset impacting on your actions? Are they complying with your overall trading strategy? If you’re stressed, try something to relax. If you feel sad then do something you enjoy. These examples are deliberately obvious but often our moods can be both subtle and multidimensional whilst their impact on our choices, and therefore our success, remains huge. Before starting your trading session make sure that you are at your emotional baseline to give you the space to interpret the data rationally and make trades in keeping with your strategic process.
As much as we might will it, no trader can ever be 100% successful. Sometimes you can be following your process to the letter, all the indicators are pointing your way but the unexpected happens, the fates conspire against you and your trade doesn’t pay off. Congratulations, you made a loss.
Now it can be tempting at this point, in fact second-nature to some of us, to then pile on additional and unnecessary layers of judgement following a set-back. I’m so stupid. I’m a bad trader. Things never work out for me. When in reality, all you can say with any truth is that you studied the market trends, you were in the right headspace, you followed your strategy and, in this one individual trade, things went south. Whilst some analysis of what went wrong is useful, to beat yourself up over these errors is needless and will ultimately harm your future trades. To quote the Buddha himself “If you focus on the hurt, you will continue to suffer. If you focus on the lesson, you will continue to grow.”
Now, quite rightly, equity is the thing that most traders focus on but I’m going to briefly explain the concept of equanimity, which boils down to calmness and composure, especially in a difficult situation. In Buddhism, this is protection from what are known as the Eight Worldly Winds: praise and blame, success and failure, pleasure and pain, fame and disrepute.
Now you’ll be hard-pressed to encounter all of these during your trading career but with any luck you’ll have many meetings with success and praise; maybe from your fellow traders, usually from yourself. Quite simply, keep your ego in check. Whilst making successful trades can be a wonderful and lucrative thing, it can lead to arrogance and that in-turn to complacency.
Praising yourself for a winning streak can have disastrous consequences; you start overrating your abilities and underestimating the market. If you stop following your process and instead rely on your gut instinct then no matter how much favour you curry with Lady Luck, sooner or later you’ll bet big and you’ll lose big. Instead stay modest and stay methodical so your trades can look after themselves. Treat wins and losses with the same even-handed coolness and you won’t be blown all around when the winds of change shift.
Whether it’s through meditation or constant, behind-the-scenes adaptation, the key to improving any practice is discipline. Humans crave novelty; we’re always looking for newer, more fun ways to distract ourselves and fill our time. So if the prospect of sitting cross-legged, with your eyes closed thinking about nothing doesn’t sound the slightest bit appealing to you, well, you are not alone.
In fact meditation is designed to be that way; it’s supposed to be mind-numbing, you are not used to doing nothing and your brain chucking all these left-field thoughts and memories at you in an attempt to fight that boredom is exactly where greater insights and a deeper understanding of self can arise. So, particularly for newcomers, meditation can be challenging and requires a great deal of discipline to keep coming back to in order to improve.
In much the same way, you need to get disciplined with your trading. Set aside specific times of the day to make your deals. Get into a routine about how often you’re checking the markets. When you’re in the middle of trading don’t be erratic and constantly flick between all the different markets, data sets and charts your broker can provide. Focus on just one market to begin with and really get to know how it behaves. If you’re studying on a trading course, don’t be tempted to rush ahead. There is a lot to learn. There’s a lot of new terms and mechanisms to get to grips with. You might be desperate to just get out there and start making money but it is so important to become disciplined. Stay on target and let everything unfold at its own natural pace. You will learn more, more quickly and make much less costly mistakes.
We really don’t want to trivialise the benefits a mindfulness practice can bring to you as an individual but the above are just some examples of the many advantages it can bring to you in a trading context. Stay calm, take the wins with the losses, routinely hone your skills and stick to your strategy.
Learn to Trade Online
If you would like to know more about meditation and mindfulness, then there are far greater authorities out there on the subject but if you would like to know more about day trading, swing trading and a whole host of trading strategies then be sure to sign up to our FREE Learn To Trade Online course where over 2 days you will learn how to trade forex, indices & cryptos with fully qualified traders from the comfort of your own home.
Until then, speak to you soon!