The Ultimate Trading Psychology Guide
This is the ultimate trading psychology guide. That doesn’t mean it has to be a long one; in fact, I will make this article concise and actionable. Meaning, you can start implementing the technique I’m about to explain and improve your trading psychology right now, right where you are.
But first of all, let me issue three caveats:
- I’m writing this article with the assumption that you already have a proven trading system or strategy with which you approach the market. If you don’t have one, the guys at TraderLion have you covered.
- I take it that you’re over the “system hopping” phase and that you’re at a point in your trading journey where you just want to learn to trade your system or strategy successfully, with ongoing emotional stability.
- I trust that you fully understand the concept of risk management and betting small to have the numbers work in your favor over time.
All of this should go without saying, but one never knows and it’s useful to clear things up right from the outset.
Alright, so… how do you maintain control of yourself in the market so that your emotions don’t get the better of you?
How do you keep your mind and heart in the right place as you trade your way to financial freedom?
Equanimity – Taming Mindlessness and Emotional Reactivity
The answer is found in the cultivation of a state of mind called equanimity.
Here’s a short video where I explain what equanimity is:
As I explain in the video, equanimity is a quality of impartiality, and that impartiality helps you experience your emotions from a place of freedom while maintaining a greater sense of clarity.
Now, meditation is a great way to cultivate equanimity deliberately, on purpose. Actually, I would argue, it’s the only way to do so.
The power of meditation lies within its simplicity. The basic idea is to be present with your experience by remaining acutely aware of the fleeting nature of the thoughts in your mind, the ebbing and flowing of your breath, and the changing nature of feelings, sounds, and sensations.
By doing that – by stepping back inside yourself and observing your inner landscape- you can bring your overall state from reactivity to equanimity, from chaos to focus, and from struggle to ease…
My own personal experience as a trader, and as a meditation practitioner and teacher, tells me that meditation works. But by no means is it a magic pill that will eradicate all your trading psychology issues, but I’d say it’s the closest thing to one.
However, as with anything, it’s always best to give it a fair trial and practice it instead of endlessly theorizing about it.
Eventually, the results will start speaking for themselves, as they have for me and others.
How to Cultivate a Daily Meditation Practice
As with any other habit, you have to go about it strategically, or else you’ll do it once or twice and you’ll quickly fall off the bandwagon.
Because, for many, meditation is boring AF. Let’s be honest. People can’t even sit at a restaurant or while transiting without compulsively scrolling on their smartphones. And now you’re asking them to sit quietly with themselves and meditate? No… the mind won’t find that agreeable. It’ll protest… it’ll revolt…
So, there must be a strategy with which you approach that new habit in the making.
Here’s what I suggest:
There are many meditations on my YouTube channel –without the attention-killing advertisements. So, feel free to scroll and find one that fits the moment whenever you want to meditate.
Now, although the practice of meditation is pretty straightforward, at times it can get difficult. As hinted above, there’s often boredom in the mind. There can be laziness as well. Also, as you turn your attention inward, you might see a considerable amount of judgments and difficult emotions.
And sometimes those occurrences are quite hard to work through.
But as one of my meditation teachers once told me:
“Making your mind your friend isn’t easy. But the more you do it, the more you come to see that easy, hard, comfortable, uncomfortable, like, dislike are all just potential objects of mindfulness. And when you do, that’s when the real befriending of mind begins.”
So, keep this in mind as you seek to firmly anchor meditation into your daily life. Observe (impartially) whatever’s arising – the harsh, the easy, the comfortable, the uncomfortable, and slowly you’ll begin to befriend your mind.
But wait… meditation is great and all, but it won’t bring much change into your trading psychology and your life without this:
Vigilance and Ongoing Practice
Imagine this: You wake up in the morning, you meditate, and then you start your trading day.
You feel very peaceful as you go about your pre-trading routine – checking Futures, reading the news, reviewing your action plan, etc., etc.
Then, the market opens, you wait for your opportunity and you execute.
So far so good.
But soon after, the market comes back down and you reap your first trading loss.
Your reaction is automatic and immediate: you get angry, annoyed, and bam! There goes your inner peace and equanimity.
You wait and place another trade. But now, you’re on a quest to get back the money lost, so you increase your size on this one.
As luck would have it, this trade is also a loss.
At this point, the equanimity you’ve experienced just moments ago has completely vanished and you end the trading day feeling miserable because:
- You reaped losses for the day
- You didn’t follow your trading rules
- You let your emotions bully you
The thing is, as a trader, you will be confronted with losses and challenges. This is just part of the trading endeavor. Your meditation practice will do nothing whatsoever to help your trading psychology if you don’t actively seek to apply it in your life off the meditation cushion.
What good does being calm, focused, and centered while meditating do to you if you are just going to abandon that equanimity and peace when the meditation session is over? You know?
Your meditation practice won’t help you rise above the challenges of trading if you just abandon it at the first signs of difficulties.
So, meditation on a cushion is great, but the real practice begins when the meditation session is over.
See, most people are bullied around, not so much by the market, but by their emotions based on what’s happening in the market.
If the market is up and their position is in the green, they feel good. If the market is down and their position is in the red, they feel crappy. Their moods and emotions continually swing like that because they can’t separate their emotional lives from what the market is doing.
But with a strong meditation practice, you can begin to develop a more balanced approach so that you can remain more rational and be less miserable as the market does its stochastic dance.
This doesn’t mean that you have to close your eyes and focus on your breath when things get tough; rather it’s about cultivating a friendlier relationship with yourself, your thoughts, your emotions, your feelings… yes, as a meditation practitioner you do this formally on the cushion every day, but you can absolutely do this with your eyes opened, amid challenges and difficulties.
Look, the market will serve you challenges that will act as fertilizer for your personal growth. What you do with that is really up to you. All I’m saying is that mindfulness can be an amazing tool that can help you fine-tune your mental game as a trader. So, give meditation a fair trial, and see whether that rings true for you.
Alright…I’m very passionate about meditation, so I could go on and on, but I’ll stop here.
Repetition is the key to remembering, so let’s do a very quick recap:
And as parting words, I would like to thank the guys at TraderLion for this opportunity to share this piece with you. Don’t hesitate to reach out to them or me if you feel you need help on this journey.
While we can’t do the work for you, we can definitely guide you, and that can make a world of difference.
The journey to trading mastery isn’t easy, but it’s very fulfilling once one reaches a certain level of proficiency. And my only wish is that you don’t give up and keep working through what’s difficult until you reach a satisfying level of proficiency –but then again, never stop learning because that’s what the journey is all about.