Mindfulness, practice and the relevance to trading – Part B

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Mindfulness, practice and the relevance to trading – Part B

Back to part A

3. The Middle Way according to Buddhism:

Middle way: the path that the Buddha discovered during his search for the end of suffering - a path that leads to serenity - when the Buddha was looking for how to end suffering he tried to live in both extremes. He lived as a prince in a palace (the Buddha was the son of a king) and enjoyed all the pleasures of the senses and he lived as a penniless monk and experimented with torture and self-starvation.

He came to the conclusion that none of these extreme ways could bring him peace.

And so he reached the middle way.

The Middle Way in Buddhism is the Noble Eightfold Path and includes eight steps that we will not detail at this time (I do recommend to dive further into this world, even through Wikipedia and there are countless books and lectures on the subject) but the general principle says not to be tempted by the pleasures of the senses, and not to live in asceticism, not to stop when it becomes difficult or discomfort arises and not to continue at any cost.

To know that there will be moments of discomfort in life but not to dwell on them at any cost. 

There are four gaps that can cause us discomfort:

  • I want and I don't have
  • I don't want and I have
  • I want and I have and I'm afraid to lose
  • I don't want it and I don't have it and I'm afraid I will have it

Same in trading:

I'm not tempted by deals that sound too good to be true, I don't settle for deals where the risk-to-chance ratio won't satisfy me. I won't stop when it's hard and I'll deal with discomfort when it comes and I won't stay in a losing trade at any cost.

I will be aware of the four gaps and I will not include them in my trading because they have no place there and when they do come up because this is how human nature works, I won’t let them manage me.

I don't want to be the richest day trader in the world nor the poorest...

I want to define for myself the steady income that I want to generate every month and stop there.

Not to be tempted to continue trading when I finish my daily target or the amount of trades I set for myself after which my confidence is hurt and I have to stop trading.

It is true that the middle path according to Buddhism is much deeper and consists of eight stages, each of which is a world in itself and in some of them I can also find some context (perhaps we will make a separate post about it later) but even at the basic level of the concept you can see the relevant context for trading.

4. The parable of the arrows:

Very briefly…
A man walks in the forest,

suddenly an arrow hits him (what? It can happen, it happens frequently...)

The injury hurts.

And then he thinks to himself, why did I go through the forest, I knew I should have gone another way, why do I always get into trouble, how does it always happen only to me...

This is the parable of the arrows in a nutshell.

There is a difference between the first arrow, the real painful impact, and then there are the additional arrows, which we cause ourselves and thus intensify the suffering.

And again…

The connection to trading is clear.

A losing trade is just one trade from a series of trades and according to the statistics of my strategy there are X trades that will not be successful from each series of trades and this is just one of them.

The losing trade is the first arrow and additional arrows are added to it such as why I always lose (a generic arrow that defines me as a failure) or why didn’t I press the button in time (arrows that torment me for execution errors) or other arrows such as why did I enter the trade at all, why didn't I enter a moment earlier, why didn't I go out a second earlier (all these arrows are not supposed to be sent because I am supposed to follow a trading plan and a very clear strategy that has an answer to why, when, in what amount and what is my risk-to-chance ratio).

The main problem is that we do not distinguish between the first arrow and the other arrows and treat all arrows as a whole.

It is very important to pay attention and distinguish between the first arrow, which is unavoidable and the additional unnecessary arrows.

Recognizing (as opposed to identifying) is an opening to change on the way to becoming a successful day trader!

5. The Four Noble Truths:

  1. Dukkha - the truth about the existence of suffering - there is suffering in the world, know it - Coming to terms with the existence of suffering and its essence.
  2. Samudaya the truth about the roots of suffering - find the origin or cause of suffering - what is the source of suffering, if the disease is the suffering then what causes it, what makes me sick? Craving, rejection, the gap between what is available and what is desired and more…
  3. Nirodha - the truth about the cessation of suffering - understanding that one can be freed from suffering and live without lust, desire, aversion or illusion - there is a possibility to be cured from the disease.
  4. Marga - the truth about the path to the cessation of suffering - the noble eightfold path - what are the ways of treating the "disease" of suffering, the eight principles of life that will make a person into a person who lives without suffering - a noble person.

And in trading:

  1. Dukkha - not all trades will be successful and that's fine, there will also be losses and I have to be ready for them.
  2. Samudaya- the source of losses is clear, it can be caused by my mistakes as a trader that result from trading out of fear and failure to execute well-planned trades or naturally as part of the statistics of the strategies that I know, built, researched and these will be those trades that will fall in the low percentages of the loss (because there is no strategy that succeeds 100% of the time even if it is a great title for some videos on YouTube).
  3. Nirodha it is possible to reach a state where one produces regular income from day tradingand the losing trades can be accepted as part of reality and not be considered a source of suffering but part of the statistics.
  4. Marga There is a way to free yourself from the suffering and stress of day trading and that is to embark on a journey of change and understanding that everything starts with me as a trader and the difference between a successful day trader who knows how to generate a steady income from day trading in stocks and a day trader who does not know how to generate a steady income that can be trusted begins and ends with writing rules and a correct trading plan.An understanding of my psychology as a trader and adherence to the same laws and the same plan and hence to trading without fear that will not cause me to make mistakes in the execution of the trades, which will cause my strategy to get the maximum and produce the optimal and maximal return it can produce.

6. “Freed from desire, you can see the hidden mystery. By having desire, you can only see what is visibly real”. The Tao Te Ching, a Chinese classic text written around 400 BC and traditionally credited to the sage Laozi. This text, along with the Zhuangzi, is a fundamental text for both philosophical and religious Taoism, religious and social movements, poets, thinkers, painters and alchemists.

If there is no strong desire for a specific achievement, there is no obstacle and if there is no obstacle there is no fear. When there is no fear, there is nirvana and that is where I want to be.
Similarly in day trading - I am not dependent on anything and I have no strong desire to succeed in a specific trade,each trade is part of a series of trades and statistical probability, hence I have no limitations and can trade without fear.
And from a slightly different direction - I arrive to a single trade without expectations,I know that each trade has X chance of success and Y chance of failure, therefore one failed trade does not destabilize me and I can continue my trading day without being angry or judge or punish myself, without perceiving myself as a failure. The size of the expectation is the size of the disappointment and I have no expectations from a single trade!

And if we take the comparisons to the mindfulness method and memorize the following mantras before and during trading:

  • Breathe - you’re alive!
    Whether it's doing a short five minute meditation before I begin trading or While trading every few minutes I remind myself to breathe.
  • Don't ignore anything!
    Always pay attention to where you are, be constantly attentive to all the details (color, taste, smell, sound, sensation and breath) as a tool for finding and returning to the here and now.

    Before I start trading, I light a candle and smell it with all my heart. I check with myself how I feel and if I detect stress or over excitement I stop because day trading should not be exciting in any way. This is not an evening at the casino, it’s work, I don’t go into trades with too many fluctuations or spikes that will put me in a state of tension, I am a professional trader who strives to be in a neutral and meditative state.
    I listen to the financial news on Bloomberg or YAHOO.
    After each trade I stop to check how I feel about everything and again and carry out a system scan - Where am I, what is the taste in my mouth, what do I hear, smell, feel and importantly, am I breathing.
  • To recognize but not identify with - One of my most important rules as a trader!
    Concentrate on the facts and only the facts, there is no need for your interpretation or thoughts - What you see is what it is, recognize it and that's it.
    The fact is the market is rising.
    That's it! It doesn't matter if I think that in a second it will go down, it doesn't matter if I have a feeling that it will break records today.
    Am I able to change the share price? Do I have enough money to drive the price and determine what the market will do next?
    No!!
    I recognize what is in front of me,
    and check if it falls into my strategy - Yes or no, as simple as that!
  • Identification and validation by naming:
    I recognize the reason why I enter a trade, I name it, which basically means to validate it.
    Then I stay in the trade through breathing (giving space for thoughts), manage the trade and stick to my STOP LOSS and TAKE PROFIT, which I defined in advance.
  • I manage the situation and don't let the situation manage me:,
    And I manage it according to my rules and trading plan!
  • I choose what to listen to: –
    While trading, I choose to listen to what keeps me focused in contrast to other noisy trading environments or WhatsApp groups that could make me jump from trade to trade without understanding what I’m really doing because I am not as experienced as some of those traders.
    I choose to concentrate on my own trading and I don't care if this or that trader just made $20,000 and I only made $200 or even if I lost $300 while someone in the group posted that they made $500,000.
    All these stories don't interest me while I'm trading.
    There are traders that I consider as mentors and I know that I have a lot to learn from them, so I will watch their videos in my own time and learn from them at my own pace without taking the risk that I will be tempted to enter a trade just because they did. If its not part of my trading plan so I won't do it!
    By the way, in those trading rooms they often emphasize not to enter into trades without calculating the risk and not to mistake performances of professionals as common practice.
    That's why I choose to trade in silence and this is also the reason why I chose this profession: silence..
    *An example of very restless days when I was dragged around and traded without any rules was the period when they short-squeezed the GameStop stock. I was monitoring REDDIT, bought and sold like crazy, sometimes I earned what seemed to me a lot of money and in those days I was excited. However, the bottomline was I ended with a loss.
    Since then I have learned about myself and I know that I can still get dragged if everyone says "quickly, Tesla is going up" I could find myself quickly looking at the graph and pressing the buy button (less today but it can still happen...)
    Generally, I prefer not to trade while I read or hear the opinions of others,
    only facts.

In conclusion, when I do something, I do it wholly with all my heart, both in my day-to-day life with the small and the big things as well as in trading. This starts with preparation for the trading day and for each and every trade!

One last thing that mindfulness, Buddhism and trading have in common and perhaps the most important is that we are always learning, we are always students.
No matter how long I will study Buddhism, practice and participate in groups I will remain a student. Similarly as a trader, no matter how many years I will be a day trader, I will always be a student too, I will always research strategies because the market is constantly changing and there is always more to learn especially about myself as a trader.

And this is the connection between mindfulness, Buddhism, practice and day trading.