Enhancing Trading Performance Through Meditation

Stress and mental pressures are an every day reality of trading the markets.  Our ability to deal with these emotions can have an impact on our bottom line.  How do you deal with losing trades?  How do you feel after closing out a winner only to see it run another 200 pips minutes later? Do you revenge trade after a losing trade in an attempt to win your money back? 

It is my opinion that there aren’t many traders out there who can honestly say they have not succumbed to the above. Realistically, these kind of scenarios can be very stressful, especially when the trader in question is experiencing a bad run of losers.  What separates the winners from the losers is how they deal with the inevitable adverse situations which often occur when trading the financial markets.

What Is Stress?

The natural stress we experience is designed to help us escape from physical threats. One of the easiest ways to envision how stress affects us is by imagining your ancestors being chased by wild animals.  The correct way for your body to respond to this life threatening situation is to give you a scare and alert you to the impending danger. This comes initially as your brains HPA system (Hypothalamic-Pituitary-Hdrenal) activates.
A release of Hormones follows including Cortisol which is designed to help you deal with this threat quickly. There is also a release of Neuropeptide S which modulates stress and makes us more alert (this also has the affect of decreasing sleep). All us this happens in order to help us get the heck out of a danger situation, as our blood is flooded with cortisol and adrenaline.  The problem comes when we allow ourselves to get into a stressed state of mind when the situation does not warrant this kind of reaction.

Can Trading Performance Be Enhanced Through Meditation?

If a trader allows themselves to get too stressed the negative affects include suppressed activity in the frontal brain area, this is associated with important things like shorter-term memory and rational thought. Needless to say that a rational mindset is a prerequisite of trading well in the long term.  The “fight or flight” reaction also interferes with our capability to deal with various intellectual tasks and behaviours as the stressed state manifests itself.  Energy is taken away from important functions, including the immune system, which can obviously have a detrimental affect on our wellbeing and trading performance.
There is a way to counteract this though.  Meditation and mindfulness helps with stress management and evokes a relaxation response as our heart slows down. This helps the body recover and the digestive system once again functions while the body repairs itself.
Aside from the aforementioned benefits, learning how to focus our mind is essential as traders; the ability to resist distraction through focusing our mind is associated with impulse behaviour (think impulsive trades versus well thought out trade ideas) and emotions (think revenge trading).
A study from 2010 looked at the WMC (Working Memory Capacity) of Marines who were taught mindfulness meditation prior to deployment in Iraq. The study concluded that the marines who were not taught how to meditate experienced a diminished WMC, the study established that the Marines who were practising meditation, for an average time of 10 minutes per day (over a 2-month duration), maintained a healthy WMC and experienced additional positive benefits (1). With this in mind it seems reasonable to assume that mindfulness and meditation can be of benefit for traders who encounter stressful situations on a daily basis.

Self Control And Trading

Self control is another area that many market participants are lacking in.  Ultimately traders are doomed to fail over the long term if they can’t exercise self control when trading the markets. Traders need to stay involved in the process of trading, stay in the moment and be mindful.  Let’s once again look at meditation and think about how it could be of benefit to traders.
The process of meditating has the practitioner concentrating on the breath.  As thoughts come in to our mind that may be more attractive than the breathing we are focusing on, we are training ourselves to re-engage with our mindful thoughts and return to thoughts of the breath.  A parallel can be drawn with having a trading plan, and resisting the temptation to veer from this plan if situations arise which appear to be attractive at the time (in the heat of the moment).
Yale researchers established that a 1-month mindfulness training routine brought better results than the ALA (American Lung Association’s) recommended treatment path for quitting smoking. This study was conducted over an average period of 4-weeks and participants managed to cut down their smoking intake significantly with many quitting completely.
Researchers have found that people who practice this kind of meditation increase the flow of blood to part of our brain which is essential for self-control, this is called the anterior cingulate cortex.  This benefit is said to come after having just five 20-minute sessions.  Once again it seems reasonable to draw a parallel with breaking negative patterns like smoking and negative trading habits including over trading, impulsive trading etc.
Ultimately trading success is heavily dependent on your psychological state of mind after a winning strategy has been discovered.  With this in mind it is surely in our best interest to investigate any edge that sets us apart from other market participants, including mindfulness and meditation.