Meditation, Visualization, and Positive Self-Dialogue

Discussion in 'The 'On Professionalism' Thread Series' started by jack, Aug 25, 2013.

  1. jack

    jack Administrator Staff Member

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    This is the third installment of the On Professionalism thread series.

    The previous installment thread can be found here:
    Exercise and Understanding the Impact of Trading on your Emotions

    The index and first installment can be found here:
    On Professionalism



    Meditate:

    Meditation is probably one of the most helpful non-trading related activities that can be applied to trading and trader development.

    My father converted to Buddhism a few years back, so the last time I visited him (overseas,) I spent quite a bit of time at temples talking to Buddhist monks. This was my first exposure to meditation and all I could think about after my initial session was how this could help with trading.

    I started googling around and sure enough traders have reported positive outcomes of turning to mediation all over the net.

    The idea is to calm your body into a state of relaxation, and then focus on a singular, simple thought directly until you've sorted it out. Dwell on the one thought for as long as it takes to feel you have fully addressed it. Do not deviate or venture off onto other thoughts, focus on that one thought till you are satisfied with the completeness of your compilation. I've quoted the following below as a starters guide to mediation:

    Start to focus in on the frustrations you're having and what's causing them. Think about things one issue at a time and try not to deviate. If your mind easily wonders from subject to subject, go back to focusing on your breaths till your mind is at ease again and repeat the thought pattern of what's frustrating you.

    Try to think about the source of this frustration. What's causing it? What could be done to avoid it? What are you doing now that's triggering it, can you stop that trigger easily? Can you remove yourself from what triggers it?

    Continue this pattern for about 20 minutes.

    At first, this will be hard to focus the entire time (heck, if you get 5 solid minutes of focused thought your first attempt you're doing great,) but with practice you will find that meditation can help you really sort out life troubles and get to the root of what's causing you grief.

    For now, practice meditation in general on any of life's issues you wish to work through. In later installments of this thread series we will be returning to meditation to use actively in sorting out trading performance issues.



    Visualize:

    A common tool used by pro athletes is visualization. The idea is to mentally visualize what your actions will be in a variety of different scenarios, so when such a scenario happens, you already know what you are going to do.

    During a meditation session, instead of focusing in on one thought, instead visualize a series of trades and, one by one, go through all the possible outcomes (good, bad, a scratch, etc..)

    Start with a trade that is going for well for you. What did the chart look like in setting up the trade? Where did you get in? Do you feel confident? When will you put your stop to break even? Are you going to let it ride? You won't be nervous and take profits too early, watch as it moves slowly but steadily higher to your target.

    Then visualize a flat or scratch trade. You had all the confidence in the world going into the setup, the chart looked good, the signals looked good, even the fundamentals told you that you were in the right direction...but the trade is just sitting there. Visualize it going in your favor a bit, then pulling back and going against you. Visualize it creating a pattern you know implies the trade will soon go negative.Do you feel frustrated with the market not going anywhere? How are you going to react to the market letting you down like this? It's not quite stopping you out, but it's not working for you either despite giving it ample time to do so. Do you cut the trade? Do you sit there and wait til your stop is taken out and it becomes a loser? Do you tighten your stop to be taken out for less loss? How do you handle it?

    Now visualize a horrible trade. One that started moving against you right as you pulled the trigger and got in. The trade appears to be moving two ticks against you for every tick in your direction. Do you feel panicked? Be calm. Focus your thoughts on executing well. Cut your loss, or just let your stop be taken out. Don't try to change anything or extend the trade out longer than you first set out. Just be happy the trade has been cut and will not cause you any more pain.

    Even if the price moves in your direction after you get out, in fact, visualize it stopping you out and then going back in your direction. Understand how that will make you feel, but repeat the scenario in your head until you can be happy that you made the right choice regardless of what happens after you are stopped out (since there's always the potential that holding onto such a trade could only make things worse or even become a fatal trade that blows the account.)

    The idea is, when you face a real trade that goes horribly wrong, you're just going to relax and do what you've been practicing in your mind. You'll start to feel good about cutting losers early on your account, and feel more comfortable letting your winners run instead of taking off the table too early.

    Positive self-dialogue:

    Never talk down to yourself if you make a mistake. Never call yourself stupid. The action, bad trade, etc, might have been dumb, but you aren't. Get in the habit of positive self-dialogue. Congratulate yourself when you get through a day without violating one of your trade rules or breach your acceptable risk limits. No one else is going to do it for you, and your family/friends might not understand trading well enough that they can identify when you've executed well (not in terms of return, but in sticking to your rules and not being risky. All they are going to hear is the numbers you tell them, and their view will be simply if you made or lost money that day, nothing more.)

    Remind yourself that it's OK to screw up once in a while and it's even more OK to correct a screw up once you've identified the mistake and before the mistake makes things worse. You are human, mistakes happen, there's no shame in admitting this. This thread series is about overcoming "normal", don't get me wrong, but we can't become stone cold, ice in our blood, trading robots overnight.

    So if you make a mistake, such as over leverage yourself on a trade, or let it run against you way too far, etc... Do not let it ride out hoping and praying things work out for you, just close it out as soon as you notice the problem, and then congratulate yourself on doing the right thing instead of punishing yourself for the loss. This is really important, since if you keep telling yourself that you're "stupid", you'll end up believing it, and it will eventually prove to be true without fail.

    It's OK to make a mistake. We're human, It happens. Chalk it up to a learning experience, write down what happened in your journal*** and what might have triggered the mistake. Meditate on how you will avoid it in the future. Visualize you cutting the mistake again as soon as you notice it. Then move on with your trading day.

    *** Journals are very important, so there will be a lot more on this in another installment.

    Do Not Worry About Individual Bad Trades!

    DO care about your long term account equity trend.

    Aspiring traders often get wrapped up in a single trade which can make or break their week's, month's, year's profit objectives. The problem with holding onto these high risk trades for a "home run" result is that you really, really care about the outcome of the individual trade. That makes hard, if not impossible, to execute well when the market changes and you need to make a decision on how to manage risk. As a trader, specifically a trader who wants to survive a career length of trading, you want to avoid these 'all or nothing' trades like the plague.

    You need to "be in the moment", and be able to cut a loser and even reverse your position knowing you took a loos, without caring about the money at all. If you stand to lose 20-50% on a single trade when you cut your loser, you can't help but care about the results of the trade, and that makes doing the right thing (ending the trade) will be VERY hard for you to do.

    You're going to have to break your trades down to a risk level that you can easily accept as a loser. Not only a single trade, but accept if you take multiple losers in a row. Even with the best strategy in the world, you will eventually hit a few losers in a row...and if the pain is too much that you start making bad execution decisions, then you care about the loss and are risking more than you should. The idea (like we talked about in the visualization segment of this article) is to feel good about cutting a loss before it gets worse, regardless if what the market does next. I can't expect you to feel good about cutting a loser which decimates your account, so we must strive to keep the risk controlled.

    In my forex business, I personally trade with a risk of 0.5% to 2% max of my account on any given trade. Since I usually only have one trade on at a time, this means I can walk away from any horrible trade with hardly a scratch on my equity curve. I could suffer 5 losses in a row and still wake up the next day and "be a trader". (In contrast, should an independent trader suffer 5 losses in a row and blow out their trading capital, the next day they wake up and start driving a cab or job hunt.)

    This is the key to the game, surviving and preserving capital, if you trade risking your house with each setup (even with a 80%+ win rate system) eventually you'll have no house.

    It's easy to walk away from a 0.5% loss. Click, done, order closed, moving on.

    There's even a benefit to this mentality: You don't want to get tied up in a bad trade with 10% drawdown on your account, since good setups could appear elsewhere and pass you by completely since your buying power and risk is already allocated. When buddy is tied up in a bad trade, I've already cut my loss and possibly made it back by moving on to the next setup.

    If you think you can't make much risking only 0.5%-2% a trade? If you let a good trade run, you can easily get 5+% return (if not more.) Some great systems even aim for a 3+:1 risk reward ratio, so risking 2% to potentially gain 6+% on a winner is outstanding and will compound the account well over time. That kind of return, given the risk, is the most "holy grail" like thing you'll ever touch in this business that won't burn your account to the ground. (As there is no "holy grail" system or method, just good risk management and position sizing on a proven strategy.)



    The next installment in the On Professionalism thread series can be found here:

    Purposeful Practice, sizing up, and why to Keep a Trading Journal
     

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