Friday, December 18, 2009

Visualization Techniques for Traders

My recent post highlighted a simple application of biofeedback for trading. Where biofeedback can be especially helpful is in supplementing visualization techniques. In this post, I'll introduce visualization as a useful practice for traders. The next post in the series will focus on proper ways of engaging in visualization; the final post will discuss integrating biofeedback with visualization.

Visualization is a kind of mental rehearsal. Typically, traders will perform visualization exercises as part of their market preparation either before trading begins or during a break during trading.

I find that two applications of visualization are especially powerful:

1) Coping With Stressful Events - By visualizing events that have, in the past, elicited the fight or fight response and simultaneously using constructive coping methods, traders can train themselves to cope with those stressors. An example would be to walk oneself through a trade that is stopped out and, during the visualization, rehearse the kind of self-talk that would be constructive in such a situation. So you would imagine the market going against you, getting out at your chosen spot, and then directing your thoughts to learning from the market action, rather than getting frustrated over the stop out.

2) Reinforcing Best Practices - Here is where you use visualization to anticipate what you plan to do during the trading day, walk yourself through various what-if scenarios, and prepare yourself to respond in a planned manner. The idea here is that the visualization is both a preparation for market action and a preparation to respond to opportunities created by that action. If you have encountered a situation in your mind many times and prepared yourself to act, you're more likely to be ready to take the proper actions when that situation manifests itself in real time.

Unfortunately, many of us tap into the power of visualization, but in reverse. When we become caught up in negative thoughts and images, we are actually using visualization techniques, but in a way that reinforces ideas that undercut our confidence. Just as we want to replace negative self-talk with more constructive alternatives, replacing destructive imagery with constructive visualizations programs us to handle difficult situations well and recruit our best trading practices.