Trading With Clarity

 

It has become clear to me that clarity underlies my best trading.

If I sit and sit and watch and watch and process and process what the market is doing, eventually it will become clear what is going on.  I can see that sellers are active and cannot push price lower; I can see that fresh market participants have entered the market at price levels making it unlikely we will return to those prices.  I can see a rotational trade between market sectors; I can see when volume and volatility are so low that sustained directional moves are unlikely.

It isn't just patience; it's immersing myself in the market information I understand and letting the market tell its story.  It's the same thing I do as a psychologist.  When I first meet a person, I have no clue what they're going through, so I listen and listen and ask questions and eventually clarity hits.  Success as a psychologist requires comfort with that initial cluelessness.  

For the curious, there is joy in discovery.  For the incurious, there are confirmation biases and attempts to impose "conviction" on markets.  Clarity allows ideas to come to us.  No ego-based needs to project our views onto markets can yield clarity or understanding.  It wouldn't work for me as a psychologist and, for the same reason, it fails in trading.

Further Resources:

How We Can Improve Our Access To Intuition

Awareness and Acceptance in Trading

Three Minute Trading Coach Video:  Creating Purpose In Our Trading

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Two Great Questions To Ask During A Trade

 

What we think about before we put on a trade helps determine our mindset during the life of the trade.  When I am trading well, my thinking before the trade focuses on two topics:

1)  What will tell me the trade is wrong?  - Knowing *exactly* what will tell me I'm wrong and where I would exit is essential to sound risk management of the position.  I am constantly updating my views on what would tell me I'm wrong.  For example, on Friday I put on a trade where I bought the ES futures early in the morning and the position quickly went in my favor.  I immediately told myself that, if I'm right, we should not see a reversal to the prior low.  We did indeed reverse and I got out with a small loss.  That experience helped me see that the market could not sustain buying and was one of the data points that got me into a nicely profitable short position a little later.  Because I am mentally rehearsing being wrong, I am accepting the possibility of loss and taking the psychological threat out of that possibility.  My best trading is not with confidence and optimism.  My best trading is with open-mindedness to the possibility of being wrong. 

2)  What will tell me the trade is working out? - If I'm trading well, I am open to the intuition that this trade is working.  Perhaps I see volume coming into my direction; perhaps I'm seeing a move triggered by a catalyst; perhaps I'm seeing a breakout of a key level.  At some point, I get the sense, "This is working".  My best trading occurs when I'm prepared for that possibility and can add to the trade, particularly when I've identified the trade as a medium-term opportunity.  In Friday's trade, we broke to new lows in the NYSE TICK, which told me fresh institutional selling  was coming into the market.  Using the next bounce in TICK to add to the position helped me make the most of the opportunity.

The combination of knowing where you're wrong and identifying when you're right allows you to keep losses small and maximize gains.  Notice that both questions keep a trader market-focused and not focused on previous wins, losses, P/L, fear of missing, etc.  The right trading psychology is not positive or negative; it's focused.

Further Reading:

A New Way to View Trading Challenges

How We Can Become More Intuitive in Our Trading

Two Hallmarks of Quality Trading

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A Different Way Of Viewing Your Trading Problems

 

Think about the important relationships in your life.

What are the greatest challenges and problems you experience in your relationships?  What are your greatest weaknesses in your relationships?

Those are what you will repeat in your relationships with markets, and those are what will undermine your success.

What are your greatest relationship strengths and your most fulfilling relationship experiences?

Those are what will show up in your relationships with markets, and those are what will underpin your success.

Great things come from loving relationships; problems in relationships occur when we place our own egos and needs ahead of our love for our partners.  

Ayn Rand pointed out that, before we can say "I love you", we have to be able to have an "I".  No relationship can provide self-esteem where it is lacking in ourselves.

How would you trade if you had loving relationships with markets?  

How would you trade if you expected relationships to provide you with your self-esteem?

How well would your relationships work out if you approached them the way you approach markets?

Knowledge is necessary for trading success, but it's wisdom that unlocks that knowledge.  Love is the key that unlocks.

Further Reading:

Radical Renewal

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How We Can Improve Our Access To Intuition

 

The heart of discretionary trading is pattern recognition.  Some traders track patterns in fundamental data; some follow price and volume behavior; some attempt to quantify patterns in sentiment and breadth data; some focus on patterns that follow events, such as earnings releases.  When we have experienced many examples of patterns, we internalize them and develop a "feel" for their occurrence.  It is that feel that we call intuition.

In the Radical Renewal blog book, I raise the issue of how our egos impact our trading.  What is ego?  It is our self-talk.  Whenever we focus on hopes, fears, frustrations, and needs, we end up talking to our selves about ourselves.  Such self-talk can be useful in planning and thinking through issues.  We need our egos to navigate the world and accomplish things.

The problem occurs when our self-talk becomes so loud that it drowns out our intuition, our feel for patterns.  There is no way we can be sensitive to patterns in what a market is doing if we're raging to ourselves about the need to make money, the fear of losing, or the fear of missing out.  If intuition is the whisper of the soul, self-talk is the shout of the ego.  Often, we lose our feel for what we're doing as we become most self-focused.  This happens in all areas of life, not just trading.  

Many self-help and coaching techniques simply substitute one kind of self-talk for another.  Filling our minds with positive talk might feel better than burying ourselves in worries, but both lead to clutter that drowns out the whisper of intuition.  What we need is a quiet and open mind so that we can amplify the whisper into a clear and consistent voice.  This is why many traders find meditation helpful:  in controlling and quieting the body, we can focus the mind and let patterns speak to us. 

One exercise that I have found remarkably effective in quieting the mind and improving access to intuitive knowing is simply to take a brisk walk very early in the morning.  The streets where I live are completely quiet and the air is often cool and refreshing.  During the walk, I focus my attention on all that I see and look for the beauty in my surroundings:  an attractive house, colorful flowers, a cute squirrel, the morning sky.  My mindset is one of appreciation and gratitude, focusing on all that I am privileged to be surrounded by.  I don't think about my work and the day ahead; I don't think about what happened the day before.  The mindset is entirely focused on the present.

Think about how many trading problems occur because we are not simply present in the present.  We are caught up in what just happened and we become focused on what might happen.  We talk, talk, talk to ourselves and never reach the quiet state where we can simply listen.  We become masters of intuition when we can operate continuously with a focused, open mind.  This is a strength that can be exercised and developed:  the simplest walk can help us turn the soul's whisper into a reliable voice. 

Further Reading:

Radical Renewal - Spirituality and Trading

Intuition, Luck, and Anxiety in Trading

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