I recently received an email from a reader who reported his first solid, profitable week in a while. He was particularly happy that, during the week, he had tamed some of those trading demons that led him to overtrade and make bad decisions.
Interestingly, the trader didn't do anything radical to turn his trading around, and he certainly didn't change his fundamental approach to markets. I'll let the trader's own words explain the simple step he took to turn things around:
"I started to do brief meditation after each losing trade and it really helps to tame the demon. By keeping emotion in check helps me to avoid any trading disasters I had so many times in the near past."
In other words, the trader taught himself some meditative techniques to slow down his mind and body, and he stuck with these techniques until he could calm himself down in a very short period of time.
He then took the meditation a step further and used it to center himself proactively after each losing trade. Instead of waiting for himself to become frustrated and risk making bad decisions, he didn't allow frustration to build in the first place. By repeating this through the week, he began the process of creating a routine that, eventually, can become a positive habit pattern.
This is one of the simplest, but most effective psychological techniques I know. It is very difficult to become controlled by emotions when you're keeping mind and body in a controlled state. What is really happening is that you're building your sense of control and self-efficacy. Over time, using a technique such as this, you internalize the confidence of knowing that you are in control of your trading: one loss doesn't have to spill over to affect subsequent decisions.
For specifics about behavioral exercises to interrupt negative trading patterns, check out this post; this follow up blog article; and my two trading books. The trader's unique application is to utilize these methods before he can become frustrated and make poor decisions. This proactive use of psychology can be applied to any situation that triggers trading problems, from performance anxiety scenarios to periods of overconfidence.
* Building Self Efficacy
* Questions to Ask When You're in a Slump