Monday, August 10, 2009

Mindfulness in Trading: Asking the Right Questions

My recent post on trading like a seahorse emphasized the importance of being able to jointly perceive threat and opportunity in markets. This capacity is known as mindfulness, and it shows itself in the trader's ability to trade in selective, controlled ways.

When I work with traders live, as they're trading, I typically ask a number of questions:

* What's your thinking behind that trade?

* Where would you take profits on the trade?

* What's your stop-loss here? What would tell you the trade is wrong?

* Where might you think of adding to the trade?

I'm not looking for any specific answers, as I'm not trying to encourage the trader to trade in any predetermined way. Rather, my questions are designed to make the trader verbalize his or her thinking behind the trade. They are intended to promote mindfulness.

Many times, the trader won't have a good answer to one of my questions. That enables us to think the issue through on the spot. In seahorse terms, I become the trader's second eye.

The idea is that, with enough practice, traders begin to internalize those questions for themselves. They no longer need me to prod reflection: mindfulness becomes second-nature.

Good traders, I believe, think about markets before they place their trades. Great traders do that--and they think about their thinking. This makes their trading more intentional, more controlled, and ultimately more rule-governed.

One of the great values of keeping audio or written journals and notes during trading--as well as before and after--is that they serve the same purpose as a real-time coach: they prod you to make your thinking explicit and become more aware of your actions and the reasons behind them.

More on posing questions to oneself in this post and this one.
.

4 comments:

Gangineni Dhananjhay said...

Brett,

Excellent thoughts as usual. My attempt at practicing mindfulness is always keeping a notebook before, during and after Trading. I keep all my observations, analysts remarks, Media commentary and whatever comes to my mind in a notebook so that it goes through my conscious processing. I have observed far more clarity when I tried to trade this way. My impulsivity also reduced. Having to write down slowed my approach to markets thereby reducing overtrading. Now I am beginning to enjoy my recording of thoughts rather than impulsive execution of half baked trades in search of random action in the markets.

Your posts helped me form majority of my approach to market thinking and I have started to blog about it as a way of reminding myself at

www.hilotrader.blogspot.com

nemo said...

So you're getting them to think about the principles of the trade?

nemo said...

Or are you becoming the "Third Eye" :)

De'Trader said...

Hi Brett, this question fired me up. If you don't mind I'd like to share my opinion.
1. What backed up my trade, it can be market sentiment, the underlying technical itself (I trade stocks). Sometimes the reading between both of them are contrarian so I choose the bigger odd and take profit very early to minimize risk.
2. I am not too good at profit taking, but the principle is I won't let profit into losses so partial profit suits me. Another indicator is previous Hi-Lo and daily ATR.
3. Again I hate putting stop losses. So my stop losses is when the big money come against me I got out. It's rare occasion actually. The other is when market about to close, I got out.
4. I love scaling down, but with a very careful manner. ATR and S/R will be my weapon to scaling down. I only risk 10% of my account for total contract I buy.

Some advice will be very great, thanks