Trading Psychology: Why Mindfulness is Beneficial to Traders
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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. To learn more and get a free mindfulness exercise, you are invited to register for free mindful skill builder.