How Meditation Can Help Change Our Trading Psychology

Recently I came across this video by Dr Brett Steenbarger -explaining “Three Powerful Techniques for Changing Your Trading Psychology” after reading the following book, Trading Psychology 2.0 From Best Practices To Best Processes.

In his video, Dr Brett Steenbarger discusses what it takes to become a profitable trader, I would like to share my experience in one of the technique : Meditation.

In 2024, I have the pleasure to be invited by close friends to practise a meditation course which is conducted by a seasoned practitioner, so in this article, I would like to share my experience and how it has helped me in controlling my psychology.

I believe we have seen news and article reporting on traders turning to meditation as a vital resource for building resilience in the volatile arena of financial markets. This growing trend is not a sudden fad or feel-good sideline activities.

Meditation have long been used for health purpose, most recently, it has been improved to provide practical outcomes and measurable benefits.

Especially so when we are in an environment (trading) where stress is the norm and high-stakes decisions (using our own hard-earned money) are made in the blink of an eye, meditation can offer us the serenity and clarity needed to navigate challenges with unparalleled finesse.

The practice of meditation provide us with the essential mental and emotional tools which is designed to enhance various facets of their trading game.

While technical expertise is necessary for trading, but we need to understand that often when our body is tensed up from the news or analysis we read or analyse, our body will start to react, once that happen, the mind start to wander wildly.

Then a complex interplay of emotions like hope, fear, and greed would surface, if at this point the person does not have the emotional control, then we will be drifting aimlessly and susceptible to the storms of the volatile markets.

Now you may have question on why body relaxation is important, because once we relax our body, our mind would also relax, and not think of anything else and able to focus and not FOMO.

Once we have managed to make the body and mind relaxed, then we would be able to move to the next stage where we will experience the process of calming the mind now.

After we have relaxed our body, we will feel that our mind is able to focus through deep breathing, slowly calmness is felt, this is important as we are trying to achieve the state of emotional equilibrium.

In this process, it helps us by providing the techniques to acknowledge our emotions without letting them dictate our actions. Because emotions like fear and greed are especially detrimental when it comes to trading.

Ask ourselves this question, how many times have fear lead to untimely exits from positions that might otherwise be profitable, or it might prevent us from taking on opportunities altogether.

And greed can trigger us to over-leverage or hold onto positions longer than advisable, hoping for that extra gain. Either way, these emotions cloud judgment and lead to decisions that are out of sync with a well-considered trading strategy.

With meditation, we can calm the mind and slowly get ourselves into a slow down state then we can actually do a mental rehearsal, a visualization of what is missing maybe in a trade, and you might want to go in but miss it, then you will vividly imagine the frustration.

We would also vividly imagine how we feel wanting to get into the market, wanted to chase it by taking a revenge trade.

So we imagine all those thoughts and all those feelings so we are literally recreating the very stress and very stressful emotions that we wanted to change.

While we are still breathing deeply and slowly we vividly imagine how we want to talk to ourselves in that stressful situation.

We will vividly imagine how we want to behave in that situation, so we imagine calming ourselves down talking to ourselves in a realistic way, telling ourselves that there will be plenty of opportunities and so what we are doing is normalizing the situation until we bring ourselves back down to that relaxed state.

By constantly practise meditation, we are actually trying to tell our body and mind to focus on the present moment, cutting through the noise of distracting emotions. This heightened state of awareness enables us to spot our emotional triggers and prevent us from undermining a well-thought-out trading plan.

As we know that risk management is important part of trading and it can stand as a pillar of success. Trading might not be just about maximizing profits, but also about minimizing losses and safeguarding our investment capital. No trade is devoid of risk, but the ability to assess, manage, and make informed decisions based on those risks is a quality that distinguishes us.

Mindfulness, a form of meditation, emphasizes being fully present and engaged in the here and now. It encourages awareness without judgment, allowing us to observe our thoughts, feelings, and external circumstances as they are.

When applied to trading, this form of mental training can drastically improve our risk management capabilities. Being fully present enables us to assess market conditions more acutely, paying attention to details that might otherwise go unnoticed.

I am still practising as I see this as a lifelong learning, improving the mindfulness can help us not only in trading but also in our daily professional and social life.

The key takeaway is to train our mind to be fully present and engage in what we are doing, while help us to observe (not judge) the thoughts, feelings that flow through. External emotions and circumstances will be present always (that is life), so we handle it by disengaging from emotional biases or preconceived notions that may cloud our risk assessment.

Appreciate if you could share your thoughts in the comment section whether you think meditation can help to change our trading psychology and mindfulness can help us to be more focused on the present and our trading strategy by eliminating FOMO, fear and doubts?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.