The mindfulness of trading – tips along the way

Those of you reading this are probably already aware of finance, trading and probably cryptocurrency, although only a small percent of the planet is actually involved directly in trading crypto on a regular basis as a source of income. However, many more are engaged in forex or stock market trading on a daily or weekly basis. Well, the principles are the same. All trading of stocks, shares, forex or crypto is based on technical analysis (TA), and all TA is the analysis of price action of a particular asset.

Sentiment dictates
But price action is not only a mathematical and logical scientific measurement. It is more than that. Price action is an indicator of human psychology, of sentiment. It is the final outcome of what went through the minds of the herd as they all fought to buy and sell the asset at a specific time. Price action is the last thing that happens, as a lot goes into the decisions that result in the movement of price up or down. And it is the motivations behind the direction of price that is most important to read when wanting to predict price or pre-empt the herd in their general mindset while trading. And that’s why knowing human psychology is so important.

Know your emotional nature
To succeed in trading, we need to learn not only how to read charts but we need to know how to read psychology – both that of the masses, and more importantly that of our own minds. Because that is what is driving the trader to make the buys and sells when they do. And that is what is showing itself finally on the price chart of an asset. You are seeing in price movement the overall mindset of the bulls versus the bears as they compete for the asset.

Poker face and the cool head
Few of us have learned to take emotion out of our trading. We are all driven by instinctual emotions that traditionally kept us alive for thousands of years, so they are hard-wired into our DNA, making us react with fight, flight or freeze, depending on the situation. In the end the secret is to rise above the unchecked emotions if you want to be a successful daily trader. Trading can in fact be your tool to self-mastery, to understanding your own psychology and thus getting to know yourself because all your emotional reactions will be triggered, for better or worse, as are the emotions of all the traders involved that are pushing the price of their prospective asset up or down as they buy and sell.

FUD and FOMO
You may have, for example, heard of the two classic terms that describe very accurately what is going through the minds of bears and bulls, or sellers and buyers. And both terms are based on our fear – fear of missing out (fomo) for the bullish mindset, or fear, uncertainty and doubt (fud) in the bearish mindset. Either way, we need to understand our own level of fear as a trader, and how to keep it in check, whether it’s the fear of taking a loss, or the fear of losing a profitable opportunity. Both levels of fear are driving us to execute buy or sell trades all the time. All traders have them and the combined levels of fear are what is pushing us to buy or sell and thus is actually what is determining the final price of an asset.

Personal experience
I have had personal experience in my own amateur trading over the past two years, where more than once I will analyse a chart pattern, then set my buy or sell order accordingly based on price patterns and history, only to second guess myself as price moves up and down in volatility, and change my entry or exit point out of fear, and then watch price move as originally predicted all along. My own fear has a way of getting in the way, bewildering my cool and calculated analysis and causing me to lament the loss of a potential valuable profit because I was fearful. This is a classic “shake-out” as price wildly swings and forces weak hands to sell or buy at the wrong time just because fear had led us to feel as if we may lose now if we don’t act, only to cause our premature decision to make us miss the real price move we were waiting for.

Greed
A second emotion that drives all traders is greed. We are, after all, in the trading business to make more money, to accumulate profits, and so when we see the amazing potential profits that can be made, we become eager to grab them as they pass before our eyes. As a result we buy in too early, or sell too late, due to the desire to capture more gains. Sometimes we chase price action as it climbs, out of fomo or greed, as opposed to keeping a cool head and waiting for the better entry point. And there will always be more opportunities, but when we see one pumping, we sometimes are overtaken by greed to jump in, only to find we are buying the top, for example, or not selling when we hit the top because we thought price would fulfill our desires and climb higher.

Ego
And when we see that our choice was wrong, we sometimes refuse to change our trading strategy or take a loss, because few want to be seen as wrong. Our ego does not like taking the hit, even though the real hit is to the bank balance. We need to be as cool as a poker player, and not caught up in the exuberance of a casino amateur if we want to succeed repeatedly in the long run. We need to be able to analyse not just charts and price movements but also our own psyches. Are we trading compulsively because we have a gambling addiction, brought on by the dopamine release and excitement of each trade? Are we thinking small and not investing accordingly or getting out too early from a winning trade because we come from a place of low self-esteem or sense of self-worth, where we cant see ourselves as big winners?

Taming the mind
Besides over-thinking a trade, or being afraid to make a trade, we need to observe our minds to see if there is a tendency to over-trade. Experts will tell you that staying on the sidelines and having no position open is also a position. To keep your trade capital in fiat or Tether is equally as important as having a trade open and holding a particular asset on the day. Besides that, feeling irritable after trading can also be a sign of too much attachment, as well as being too easily swept along by the volatile ups and downs of price action. Medically we need to learn to reduce cortisol production, and we do this by keeping calm under pressure. Cortisol is a killer in the long run, and is too toxic for us to constantly be pumping it into our system due to the emotional attachment we have to wealth. It is the fight or flight chemical that flood our blood stream when in danger, but trading is seldom that dangerous. We just get too involved or carried away.

Experience is the best teacher
All of this and more is learned when you actually jump into the markets and begin trading yourself. I have seen these symptoms in myself as I attempted to trade over the months, and despite thinking that I was learned and wise enough to be above the pitfalls, I still fell into the emotional traps and caught myself acting upon my psychological weaknesses time after time. But with time those times grew less and less and I have been able to observe the patterns of my particular make-up and slowly rise above them. By making them conscious to yourself in the live trading scenario, you get to become conscious of what would normally be unconscious behaviour patterns. And making them conscious is half the battle won.

Conclusion
This is just the start, there is so much more to learn, but starting small in day trading is best, learning the ropes with small amounts of capital at a time, never all in at once, is the way to get a feel for day trading. Make the mistakes there so that when you have larger amounts to risk, you already know yourself and the market mentality enough not to fall for the same traps as before. Have you done any day trading or investing? Let us know your experiences and suggestions in the comments below.