Sunday, January 04, 2015

Best Practices in Trading: Meditation

The next best trading practice in our series comes from reader John Hope-Robinson (@johnhr), who describes meditation as an important tool in conquering a fundamental trading flaw.  John writes:

"We traders can be an insecure lot.  We would rather at times be seen as a mysterious genius than just a successful trader.  This need, born from a false sense of reality, can lead us to confuse intuition with 'into wishing'.

We only need a system with a small winning edge to be a successful trader as long as we follow the rules of the system.  Herein lies the Flaw.  So many traders are just not patient enough to wait.  The fear of doing nothing can be so terrifying that we feel a need to act to stop the fear and gain instant relief from it.  This is the core issue.

Through meditation we can learn to be OK during the necessary times where we need to do nothing but wait.  We learn to achieve a clarity and calmness which can allay this perceived need to act.  Meditation could well be the best investment a trader may ever make!"

John rightly points to three key benefits of meditation:

1)  Enhanced self-control - Meditation promotes calm, and it promotes focused concentration.  Both enhance our cognitive and behavioral control, so that we can become mindful observers of our emotional patterns rather than victims of those.  The first step in changing our patterns is becoming aware of them and not identifying with them.

2)  Enhanced access to intuition - It is when we are still that we have greatest access to what we may know, but not know that we know.  Very often experienced traders possess a keen gut feel for markets, but that feel is drowned by flight or fight responses to market action.  Meditation promotes a stillness that enables us to listen to ourselves.

3)  Enhanced well-being - We cannot trade well if we are dominated by fear:  the fear of missing moves, the fear of losing money, the fear of being wrong, the fear of inaction.  Research suggests that meditation can lead to enhanced personal satisfaction and subjective well-being, which allow us to act from a position of emotional strength.

A corollary of this best practice is that some of your preparation time for trading needs to occur away from trading screens.  Using meditation as a midday break--as well as a morning preparation for the day--helps us step back from markets and approach them with a fresh perspective.  Stepping away from markets can be a powerful way of stepping back from the reactive trading of markets.

Further Reading:  Trading and Mindfulness