Friday, March 27, 2009

Four Best Practices for Maintaining Your Focus on Markets

It probably was the wisdom of the unconscious mind at work that led me to post on the topic of preparing for the market day following the post on the challenge of market engagement. After all, you're most likely to stay engaged in market action if you have prepared for a variety of scenarios and are actively searching to see which will play out.

I joked in the preparation post that it's helpful to plan your inactivity as well as your activity. As we were in the middle of choppy, range-bound trade in the morning, that preparation proved invaluable in standing back, avoiding overtrading, and waiting for opportunity. That is why mental preparation is my number one best practice toward maintaining market focus. If you rehearse what the markets might do and how you would like to respond, it's almost as if you program yourself to do the right things in the heat of the trade.

Sometimes, even when we prepare for the day's trade, we get caught in the flow and react impulsively with poorly thought out decisions. Those impulsive maneuvers can cascade unless we actively interrupt them. For that reason, taking a break from trading is my number two best practice toward sustaining focus. During a break, you shift from being the actor to being the observer. You can evaluate what you've been doing, step away from the screen, and re-engage markets with a fresh perspective. The best traders I know don't spend every minute with their noses in the screen; they know that they need to pace themselves, sustain their attention, and keep themselves in a performance zone. Taking breaks accomplish those objectives.

So what do you do during your trading break? Slowing your body by regulating your breathing--breathing deeply, slowly, and rhythmically--interrupts the effects of frustration and anxiety. Focusing your attention on a single stimulus, such as music or a picture, clears your mind and helps you shift to a different state, where you can process information more effectively. These self-regulation strategies are my third best practice for sustaining engagement with markets. Biofeedback is an excellent self-regulation strategy, as it provides direct feedback to traders about when they are in and out of "the zone". With practice, traders can return themselves to an optimal performance state even after a frustrating blowup.

Finally, we're most likely to sustain engagement when we have a purpose that we're working toward. Goal-setting is my fourth best practice for maintaining market focus. As I stress in the new book, process goals are especially helpful in this regard, because you can control *how* you trade, even if you can't always control the outcomes of specific trades. For example, you might set a goal to hold your losing trades for less time than your winners. That goal gives you a purpose for the trading day, keeping your attention even when markets turn dull.

What these four best practices tell us is that an active mindset, in which we prepare for each day, set goals, step back to re-evaluate, and take measures to sustain our concentration, is the key to staying engaged with markets. When we lack preparation, goals, breaks, and self-evaluations, markets--and the emotions they evoke--are more likely to control us. There is a reason that sports teams prepare for big games, take time outs during games, set goals with coaches, and get pulled from games for a spell to rest and talk with coaches. You can't win the game if you're not in control of your performance.