Dr. Gary’s trading psychology is focused on two types of essential mental skills traders should have for achieving the optimum trading performance: High value mental skills and high value trading actions.
HVM’s: High Value Mental Skills:
Trading Psychology: Why Mindfulness is Beneficial to Traders
New advances in psychological science applicable to trading psychology include mindfulness as a potent technique in helping traders make important behavioral changes. Mindfulness comes from the Eastern Yogic and Buddhist traditions, whose practitioners have studied the mind and its workings for thousands of years. Mindfulness and the use of mindful awareness are currently changing the landscape of psychology in the West. Research supports the application of mindfulness in a wide range of aims. Some of these include: increasing focus and concentration, reducing stress, helping individuals overcome significant psychological challenges, and enhancing performance-based activities such as sport and trading.
Traders should be especially interested in developing the skill of mindfulness as a way to develop their trading performance and reduce stress. Learning the skills of mindfulness can be of benefit to the trader in at least three significant ways:
1. Improved focus and concentration. Developing the skill of mindfulness can help traders improve focus and concentration. Like tennis players who often report ‘seeing the ball better’ when mindfully aware, the trader applying mindful awareness may begin to “see the market better” along with the directional cues it gives. In this regard, the practice of mindfulness is much like what athletes call ‘being in the zone.’ Mindfulness promotes higher levels of concentration and an increased capacity to become absorbed with the market.
2. Staying in the present. A big challenge many traders face is to keep their minds in the present moment rather than reliving past events or projecting what they may believe into the future. For example, a trader might fail to enter a trade because as the entry point is approached, the trader’s mind is reliving prior losses. Rather than risk another loss, the trader avoids the trade even though it was a sound set up. A trader focused on the future or the past rather than the present may miss important market cues and indications that signal a change in direction. The trader may hold onto the trade because of his or her market bias. Mindfulness is of great benefit to the trader because it can help the trader not only stay present, but improve the ability to notice when he or she becomes distracted and slips away from a present focus on the market.
3. De-centering from thoughts and emotions. Perhaps the greatest benefit of mindfulness is that it is a skill that can help the trader to trade the market rather than trade their emotions. For many traders, trading can be quite stressful. When a trader becomes stressed, the desire to escape that stress can become so great that the focus on the trade is lost. The trader’s attention shifts from the market’s action to the trader’s internal state of stressful feelings and thoughts. Consequently, the trader may lose his or her ability to manage the trade and poor results are usually the outcome. Mindfulness can help the trader learn to step outside his or her thoughts and feelings and pay attention to what is most important for their trade. Psychologists call this ability defusion.
Mindfulness is becoming an important part of trading psychology because mindfulness helps us to see our internal state (including what the mind is telling us and our feelings) from a more detached perspective. Researchers are learning that the more we struggle with our thoughts and feelings, the more entangled with them we can become. Elite athletes, for example, have difficult thoughts and feelings during competition. They have learned, however, to maintain their focus on their play rather than attend to their internal state. Through the skill of mindfulness, we begin to see our thoughts and feelings for what they are – normal passing events – and not something that demands an immediate response. In this way, mindfulness is a mental ability that helps keep the trader’s mind focused on the trade.
Mindfulness is a worthwhile skill to develop. In addition to the specific benefits relevant to trading outlined here, research has shown that mindfulness can also help promote relaxation, reduce stress, improve immune function, reduce pain, and heighten mood. Mindfulness can help traders maintain focus on their goals and what matters most to them in their trading and their lives. Mindfulness skills are so important to traders that I have written a book called Trade Mindfully, Achieve Your Optimum Trading Performance with Mindfulness and Cutting Edge Psychology, published by Wiley. You can find more information Here.
Click the Link to Product: Practice Mindfulness to Overcome Erratic Trading
Click the Link to Product: Build Trader Confidence & Minimize Fear
High Value Trading Actions:
When traders think about trading psychology, they think about the negative – things like fear, greed and other unwanted emotions that impair trading or limiting beliefs that work against reaching goals. Certainly, trading psychology deals with unconstructive emotions and thoughts. However, there is another side of trading psychology, the positive psychology that can help traders develop the mental skills needed for trading. This is what I call High Value Actions.
High Values Actions (or HVAs) are actions that bring high values to traders. HVAs are actions that:
- are under the trader’s control
- relate to the process of trading
- help expand the trader’s ability to read and trade the market
- put the odds of making successful trades in the trader’s favor
- help bring about trading confidence and more positive emotions to traders
In a nutshell, HVAs help the trader keep attention and focus where it needs to be – on the actions most important to trading – not on the negative emotions and thoughts that pop up sometimes automatically when making a trade. By knowing and concentrating on the actions that have high value for traders, traders can improve their ability to trade well and eventually reach new levels of success. Far too often, a trader’s focus is misplaced. When attention is placed on worrisome thoughts and uncomfortable emotions, traders are distracted and trading becomes a struggle with emotions.
HVAs come directly from the affirmative aspects of sport, human performance, and positive psychologies. HVAs are powerful tools developed specifically to help build the trader’s personal trading skills. They lead to worry-free trading, put traders “in the zone,” and so that traders can reach a better understanding of what is happening in the market.
There are many HVAs a trader can master in the process of becoming competent and successful. We can break down HVAs into three main trading areas:
- high quality preparation
- effective execution of trades, and
- accurate assessment of trades made and trading actions taken.
High quality preparation HVAs that get you ready for trading would include developing a trading plan, locating areas of potential trades for the next day, setting performance goals and practicing performance-related mental skills. Execution HVAs involve such actions as identifying the trade, assessing risk-reward, entry techniques, and trade management, among other activities. Accurate assessment HVAs include evaluating trades and noting where improvements in trade setups and trading performance can be made.
Below are the links to several tools that can help you develop HVAs: