Sunday, September 21, 2014

Trading and Mindfulness: Training the Brain for High Performance

Mindfulness meditation is a practice in which we develop a non-judgmental present-centered awareness.  In the state of mindfulness, we observe what is, without reacting to it as good or bad and without coloring it with thoughts and feelings of past and future.  Mindfulness can be thought of as a means toward non-attachment, separating our desires and fears from what is.

Research suggests that mindfulness meditation lowers stress levels, brings health benefits, improves performance, and helps us regulate emotion and attention.  Research also finds that mindfulness leads to helpful changes in the brain, shrinking the amygdala--the brain's flight or fight center--and enhancing the brain's executive center, the pre-frontal cortex.  As one researcher concludes:

“The picture we have is that mindfulness practice increases one’s ability to recruit higher order, pre-frontal cortex regions in order to down-regulate lower-order brain activity,” 

Think about what this means:  In the heat of market activity, we are most likely to be activating those flight or fight centers that help us deal with emergencies.  Just as we want to be most planned and deliberate, the blood flows in our brain are moving away from the centers that would execute plans and toward centers that would lead us to be more reactive.  

The challenge is to stay mindful in the midst of fast moving markets and rapid shifts in P/L.  

A recent thorough research review found mixed evidence for the effectiveness of mindfulness meditation.  Mindfulness was more effective in reducing anxiety, depression, and pain than in improving positive mood and attention.  I find this interesting, as it suggests that achieving a detached awareness may be useful in reducing both physical and emotional pain.  It may well be that avoiding stimulation of those fight-flight responses is helpful in dealing with painful situations.

Mindfulness may yield benefits to traders above and beyond those studied in the research literature, including enhanced access to intuition and improved performance under stressA new book by Gary Dayton also suggests that mindfulness can be useful in reducing trader susceptibility to bias and in defusing negative emotions.  In my own work, I find a great overlap between mindfulness work and self-management exercises performed with biofeedback.  That makes sense, as early applications of biofeedback were directed toward children experiencing attention deficits. 

Mindfulness will not substitute for sound trading strategies with an edge, but it is difficult to imagine maximizing an edge without self-awareness and self-control.  Practicing mindfulness daily is a great way to exercise the brain's ability to stay grounded in executive functioning even during the most adrenaline-filled occasions.

Further Reading:  Why Controlling Emotions is the Wrong Goal for Traders