I recently became a member of Green Faucet with the express intent of interacting with other traders to see the markets through a different set of eyes. I came across an interesting article by Ray Barros entitled “A Program for Success” that got me thinking about our subconscious, it’s role in our trading and how we can maximize it within the psychology of trading.

Current neurological research shows that the more functions, we can  assign to our subconscious, the more energy we’ll have for the decision-making process. Successful routines not only include the mundane chores such as updating our data , trade journal etc but also :

  1. The visualization process in preparation for the day
  2. The setting of goals
  3. Identify and performing the 20% of activities that bring about 80% of the results.
  4. Planning and preparing for trading each and every day
  5.  I’d pin these routines everywhere where you can view them – at least until they become part of you – until not doing them makes you feel uncomfortable. 

This immediately got me thinking about the concept of outsourcing these “mundane chores” that we do daily/weekly to our subconscious. Let’s face it, we’re all far to busy than we want to be and any task that we can relegate to our mind computer is something we all should be doing. Now we just have to figure out how to go about setting a plan in motion and observing how/if any changes in our trading occur. Now lets see if we can come up with some action steps to correlate with the above suggestions to improve our trading from a psychological standpoint.

1. I find that guided meditation works very well for me, so in the past I’ve recorded some of my own affirmations and combined them with meditation music to form my own session. You can customize them to whatever is going on in your trading. I have a general state of mind, dealing with fear in the markets, but you can pick whatever aspect of your trading you want to focus on and you can find some mantras here.

So the format would be like this. Relaxing techniques (10 deep breathes) to calm my mind –> then I listened to Chopin’s (Piano Concerto No. 1 in E minor, Op. 11, II. Romanza- Larghetto) to get me in a meditative state open to suggestive concepts –> then I use one of the trading mantras from here that I just read in my own voice that I record. I always feel refreshed after I listen to this, and as I type this I’m reminded that I haven’t done it in awhile and it’s something that I definitely want to work back into my daily routine. One of the benefits to writing this blog is it’s a way to remind me of the things I need to do, to keep me sharp as it’s way to easy to become lax in one’s daily routine.

2. One way and there are many ways to set goals, but if you want to incorporate the subconscious and let it do a big chunk of the work, Napoleon Hill in his book “Think and Grow Rich” has a great suggestion on how to do so. He recommends writing out your main goals that you want to work towards (and be specific as possible) on a piece of paper and read it once before you go to bed at night and once when you wake up. This has a way of implanting it firmly in your subconscious so it actively seeks out habits and reinforces them to help you achieve whatever goal you’ve set for yourself.

I’m currently reading “The Answer”, which I highly recommend, by John Assaraf and he best describes this as your RAS (Reticular Activating System).

The RAS are the nerve pathways at the base of your brain that connects the spinal cord, cerebellum, and cerebrum and acts as a filter for all the sensory input your brain draws from your external world. Your reticular formations stands guard at the doorway of your mind, sorting through the torrent of incoming information and searching for those specific bits that best match those information patterns already established in your brain.

3. Have a routine so you’re able to knock out that 20% in a more efficient manner. I’ve been doing this a long time and I have a very specific routine that I go through every night that allows me to narrow down the universe of 1000’s of stocks to a couple of dozen that I want to really want to focus on. Without a plan of action it’s easy to get overwhelmed with all the information that we have access to on a minute by minute basis. One you have your system in place and you’ve done it over and over, you don’t even have to think about it anymore. You can literally outsource your work to your subconscious as you are pouring over charts.

Think about the very first time you looked at a chart. Go ahead…try and remember. Did you see double bottoms, a cup with a handle, or a  positive divergence? It’s highly unlikely because you didn’t even know they existed. Were there even any secondary indicators on that chart or was it a simple price and volume chart? And who could even think about using multiple time-frames? It was many years before I even considered using a intraday chart. It’s inevitable as you grow and develop as a chartist that your subconscious is going to be more actively engaged in helping you focus on what charts will make you money and the ones you want to discard. 

4. Plan your trade and trade your plan is what all the gurus tell you. Let’s take this concept a step further and show you how to play defense. If you’re watching CNBC, MSNBC, or Bloomberg, you are bombarding your subconscious with all types of contradicting ideas, fear mongering, excessive optimism, and detrimental trading behaviour. The other day when the Fed met, which is regarded as one of the most important events in Wall St, at the end of the day I didn’t even know what the Fed released in their minutes. You may find that unthinkable but you will do better if you pay attention to the reaction instead of trying to interrupt Bernanke-speak.

Turn the news off. Everything will be reflective on the chart and try not to hold through earnings or big macroeconomic news. Share this post with all your trader friends to help them trade with more zen. My goal was to give you very specific action plans that you can actually implement into your daily trading and not fluff. Leave a comment below and share what you liked most about this post.

10 Responses to “Outsourcing, Zen, and the Psychology of Trading”

  1. Outsourcing Says:

    This is great article Jeff, it gives an idea more on business outsourcing.

  2. derek Says:

    very good…so many variables already I find it essential to automate as many things as possible to keep my mind as empty and open as possible when the game begins

  3. Abdul Rahim Says:

    I always plan and trade. I don't get influence from my friends opinion. Last month, I start becoming bullish and took half the profit off the table ( $3700) but today I have to cut loss (about -$200) because the press paint disaster all over. I am staying defensive for now and I have started planning again. Thanks to you Jeff and others for sharing informations. I realised that some sector of US market is still very bad and funds will be investing more in emerging countries (E-7 countries). But because U.S market is so dynamic (liquidity & capitalisation), I will always trade them.

  4. Abdul Rahim Says:

    True Jeff, they act like this is all new! Media is all power. So I will be watching this week on dvd, movie call "POWER" (RICHARD GERE,JULIE CHRISTIE, GENE HACKMAN,KATE CAPSHAW,DENZEL WASHINGTON,E.G Marshall and BETRICE STRAIGHT). For the week, the only good news is that the VOLUMES were not supportive of the selling done. The Dow Jones index is the only one that still sit on the 50 days SMA. Lost of confidence in the economic recovery led to the selloff. Fed's recent actions indicate that it is still uncertain about the recovery, thus is eroding the market's confidence in the Fed ability to deal with the situation. And this is one of those times when technicals don't mean a thing when news take precedence over common sense.

  5. Abdul Rahim Says:

    So, market changes sometimes, so are some of our technicals (when applying) expecially during divergence period. We have to look for new reasons to trade them. This week, even with low volumes, market able to brought the stocks down. I am taught in class to avoid trading during divergence period. But I am curious to understand their play. Of course, we can never OUTSMART the market because they have more "tools" in hand. But it's also interesting and educational to be able to recognise their (THE MARKET) focus on a given time and situation. It's much easier to be able to detect them (their studies ) on a single stock/etf in play and ride on with it. Well, this week alone, "NEWS" have been able to direct the market. The news network is so powerful even Mike Tyson got himself trouble many times.

  6. A Frey Says:

    Interesting points. Being in the financial services industry myself (I work for Fisher Investments) I’m always looking for interesting investing insights. Our CEO Ken Fisher just released a new book: Debunkery: Learn It, Do It, and Profit From It . I believe Ken writes about common misperceptions investors have that create stumbling blocks when investing. I look forward to reading what he has to say.

  7. Jimmy Says:

    Sit quietly
    Stay centered
    Listen to the dharma
    Of the non sentient beings

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