Monday, August 10, 2009

Mindfulness in Trading: Asking the Right Questions

My recent post on trading like a seahorse emphasized the importance of being able to jointly perceive threat and opportunity in markets. This capacity is known as mindfulness, and it shows itself in the trader's ability to trade in selective, controlled ways.

When I work with traders live, as they're trading, I typically ask a number of questions:

* What's your thinking behind that trade?

* Where would you take profits on the trade?

* What's your stop-loss here? What would tell you the trade is wrong?

* Where might you think of adding to the trade?

I'm not looking for any specific answers, as I'm not trying to encourage the trader to trade in any predetermined way. Rather, my questions are designed to make the trader verbalize his or her thinking behind the trade. They are intended to promote mindfulness.

Many times, the trader won't have a good answer to one of my questions. That enables us to think the issue through on the spot. In seahorse terms, I become the trader's second eye.

The idea is that, with enough practice, traders begin to internalize those questions for themselves. They no longer need me to prod reflection: mindfulness becomes second-nature.

Good traders, I believe, think about markets before they place their trades. Great traders do that--and they think about their thinking. This makes their trading more intentional, more controlled, and ultimately more rule-governed.

One of the great values of keeping audio or written journals and notes during trading--as well as before and after--is that they serve the same purpose as a real-time coach: they prod you to make your thinking explicit and become more aware of your actions and the reasons behind them.

More on posing questions to oneself in this post and this one.