What is trading psychology? Let us first get clear on what I mean when I type that.
According to a quick Google search, Psychology refers to “the scientific study of the human mind and its functions, especially those affecting behavior in a given context.” Our context is trading, obviously, and it goes without saying that our behavior is crucial.
In another definition, Merriam-Webster defines psychology simply as “the science of mind and behavior.”
So, given the above, how do we make sense of and put into practice habits that help us remain calm and behaving correctly under all trading circumstances? In what follows, I will explain what I’ve found useful, and what many of my clients over the years have found helpful.
Ultimately, this is an area of trading that is a little subjective, and you’ll need to decide what makes sense and is most helpful to you.
Spirit, Mind, and Body
In my personal understanding and experience, the trio of Spirit, Mind, and Body should not be considered or treated separately. And with Body I refer to that which affects our emotions and behavior / actions. These three areas are so deeply intertwined that separating them could be confusing, dangerous, and ineffective.
Therefore, if what follows feels more spiritual / mental / emotional / habitual than you would have expected for a discussion of trading psychology, please note that this is by design. You can only truly make sense of the human psyche by considering all of the factors at play.
But first, determine if you need help with trading psychology. Whether you’re navigating the area of trading psychology successful is easy to measure:
Is it possible and easy for you to remain calm, control your thoughts and emotions, and act in accordance with the plan you’re trying to implement, while you’re in an open position on the market? And is this true regardless of what the market is doing?
If you can honestly answer yes to the above questions, you don’t need any help. You can navigate to another part of the website that deals more with “pure trading” type topics.
The Important Relationship between Trading Psychology and Risk Management
Something else to consider before we take a deep dive into the realm of mind and the psyche is if the stress and discomfort you feel while trading is not maybe healthy.
It’s important to ensure we’re not making the most basic error in trying to keep our thoughts, emotions, and actions in line with our trading plans.
If you’re trading too large or taking unwise amounts of risk, it’s 100% to be expected that you’re unable to remain calm. And that you’ll panic and do stupid things while trading…
This should not be interpreted as you having an issue with trading psychology, but rather as you acting without wisdom or care. You have a problem with risk management, and problems with risk management tends to end very badly.
Consider the worrisome thoughts and negative emotions as a message from the spiritual or unconscious side of your being to change your reckless behavior.
First ensure that you’re trading an approach or system that’s well defined in terms of probability and risk. Without this your thoughts, emotions and actions will run wild, and rightly so…
For more on this, explore the risk management section of the website (coming soon).
Okay, back to trading psychology. In what follows we’ll assume you’re trading a well-defined approach, with proper risk management in place!
Trading Psychology: Trading in the Zone
I’ve always thought that we lost someone special when Mark Douglas passed away suddenly while in the process of writing his third book. His first two books — The Disciplined Trader and Trading in the Zone — come highly recommend.
These books are maybe not where I’ll start reading to sort out an issue with trading psychology, but they come highly recommended regardless. More on where to start and focus on the reading page linked to lower down.
The “zone” Mark refers to in his second book is nothing new to our world.
We see it in golfers who walk down the 18th fairway on a Sunday, only one shot clear of the pack yet playing the best golf of their lives.
We see it in people in grave danger who manage to remain calm, and act with complete wisdom, calm, and clarity.
If you have ever been awestruck by a beautiful sunset or landscape, and your mind stopped in complete wonder, that was the same zone that Mark refers to in his book.
Trading Psychology: Presence
The zone is what spiritual teacher Eckhart Tolle calls presence. It is a state of consciousness that’s higher than the human mind and the realm of thinking.
And ever since I became aware of the existence of such a state of consciousness in 2005, I’ve grown more and more aware of the importance of trading (and living!) from this state.
I wish I could say it was an easy or quick switch. I wish I could say that living from the state of presence comes naturally. The truth is that the ego mind is a tough thing to control / overcome and this has been a particularly serious struggle for me.
Yet, today I would that say I manage to get into the state of presence fairly quick and easy shortly after waking up on most mornings, and I manage to stay in that state without too much effort during the day.
Yes, there are exceptions to that, but I know how to deal with those days as well. I have had more than enough practice!
I believe with everything in me (and I say this after more than 15 years of serious spiritual seeking and practice) that the state of presence can bring you to the end of suffering on all levels – including trading.
Trading Psychology: Why Do We Suffer?
Suffering only happens on the level of the mind.
Your thoughts create suffering. So, if for any reason you’re thinking thoughts that cause you negative emotion, there’s a simple and potentially instant switch to a state of inner peace (instant in theory, but often not in practice).
Transcend thought by accessing the higher state of consciousness that’s also called flow, the zone, or presence. This is hard work initially, but with practice, it can be as simple as breathing in one deep breath consciously and exhaling that breath along with your identification with the thoughts that are causing you to feel negative emotion.
Are you still tracking along?
If not, take a deep breath now.
Very consciously, breathe in and out. Remember, there’s a part of you that knows spiritual truth. Your mind might disagree with what’s written here, because to the ego-mind change means death.
And the ego mind is just your mind when you find identity in your thoughts.
But deep down the real you knows the truth.
Identification is key. You’re not your thoughts. You’re infinitely more than your thoughts.
This might seem deep, esoteric, or complex. Yet, it’s one of the simplest and most profound truths to human existence. And, of course, to human success.
And to trading success!
Now, for some possibly unexpected bad news…
Trading Will Not Solve Your Problems
And, yes, I’m serious. After trading for a decade and coaching traders for more than half that, I know trading on its own does not offer you any solution to your “problems”.
Yes, trading can help you make more money. It can help you grow your savings. It can help you change your life circumstances. But if you’re mentally suffering, trading offers you very little.
Let me explain…
From a psychological standpoint, a problem is experienced mentally. As explained above, you can very quickly drop a thought, and feel inner peace – the peace that passes all understanding, as the Apostle Paul said.
So, if you transcend thought, your problems are solved. And not in a superficial way. I’m not teaching you to be an ostrich with her head in the sand.
Trading Psychology: The Good News
Your state of consciousness is everything!
Your state of consciousness determines your outer reality. By changing your state of consciousness, you’re literally creating a better world and a better future, for yourself and for others.
If you don’t believe this contact me. I’ll point you in the direction of studies proving how a group of people can light a lightbulb in the next room only through their mental states and intention. I’ll tell you about the studies showing how people are healed through the intention of others sending them positive thoughts, even though they are thousands of miles away.
It has been stated by spiritual teachers that one person living in alignment with their Source is more powerful than one million people who are living on the level of problem vs solution, pain vs pleasure – the level of the human mind.
Yes, trading can bring you more money, and fast!
But consider these profound words by Eckhart Tolle:
“You may win ten million dollars, but that kind of change is no more than skin deep. You would simply continue to act out the same conditioned patterns in more luxurious surroundings. Humans have learned to split the atom. Instead of killing ten or twenty people with a wooden club, one person can now kill a million just by pushing a button. Is that real change?”
To experience real, lasting change and a proper solution to your problems, I suggest you trade from a higher level of consciousness. This brings you real power. And it transforms your future.
The state of presence taps you into Infinite Intelligence.
And our world desperately needs more people who have laid down their egos and are tapped into Inifinite Intelligence.
Have you had enough superficial solutions? Are you ready to stop trying to solve problems on the level of the mind and to step into a life of true power and transcend all your problems?
When you leave your life at the mercy of Inifinte Intelligence, things change for the better. Significantly! And fast.
Trading Psychology Sub-Topics
Below you will find links to further articles and lessons on the topic of Trading Psychology. If something is not yet clickable, I’ve not yet had a chance to post it. Please bear with me.
We’ll mostly focus on habits that help you live and trade with more presence. But I also include helpful tools for managing any mental or emotional state.
By taking the advice offered here seriously, you can turn into a Jedi-Mind-Master of sorts who is truly antifragile — whatever lemons life sends your way will promptly be turned into lemonade!
Habits that help you to access the state of presence on a more regular basis:
- Conscious Breathing
- Life Energy Awareness
- Experiencing Deeper Levels of Spiritual Awareness
- Emotional Freedom Techniques (EFT) or Tapping
- A Fresh Mental Focus
- Manifestation Techniques
- Soft Phrase or Word Focus
- 47-247 Focus — Telling a Fresh Story
- Working with the Emotional Guidance Scale
- Spiritual Reading
Disclaimer: Please note that I am not a qualified or certified psychologist or psychiatrist. Always seek the opinion of a qualified specialist before engaging in any course of action that affects the context of spirit, mind, and body. I write from a place of self-study and personal experience, and my advice might not be appropriate for someone with different circumstances than me or people I have coached in the past. I’ve been an online business and trading coach over the past decade, and my understanding and application of important psychological matters should not be construed as professional advice.