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Understanding The Mind

Understanding The Mind-Trading Psychology Basics

Understanding your mind or thinking self is a crucial element in mastering trading psychology. How else can you know what makes you take the wrong decision whilst in theory you know how to do all the right things? Failure in trading doesn’t only happen because of wrong analysis or ignorance but because we do not understand how our mind convinces us to trade in ways that we weren’t supposed to. 

Let’s get introduced to Mr. Mind

For one moment, let’s assume that our mind is a completely separate entity. Let’s give our mind a form and a name, let’s say it is a gentleman, called Mr. Mind. Now, Mr. Mind always follows you, wherever you go. You cannot really get rid of him. Isn’t that annoying? He never stops talking, never. Sometimes he talks about pleasant things but a lot of other times, his chatter isn’t that enjoyable. He loves evaluating, interpreting, commenting, judging, expressing unrequested opinions, ideas or prompts to act on. He always has stories to tell about what you are doing, about if and how you should be doing it or not doing it. Most of his talk is about something that happened in the past or something that is going to happen in the future. He ‘s an expert in selling his point of view and has always the right argument to convince you about what he’s trying to put across.

It’s impossible for you or for me to avoid listening to Mr. Mind for one simple reason. He lives in our heads. That’s so inconvenient! It basically means that you cannot get rid of him unless you get rid of your own head at the same time!

As we all know, that wouldn’t work. We therefore must find a way to live with Mr. Mind and not get immensely bothered by him. If we do get bothered and believe all that he has to say, even when it is discouraging, then we will not act according to our values and goals.

Mr. Mind is our thinking self, or in other words, our thoughts, memories, beliefs and ideas.We cannot really empty ourselves from those, neither we can stop our thinking self from thinking.The chatter will be incessant but it’s up to us how loud we want to hear it and how we will let it affect our decisions.

 

Mr. Mind is rarely focused on the present, even when we think he is.

For example, we are sitting in front of the computer, trying to decide whether we should take a particular trade or not. Mr. Mind is telling us that we lost 25% of our balance over the last week. He is asking if we are sure about which position we want to hold. Fundamentals are strongly indicating a downtrend and some technicals too. However, we had a similar experience last week. We felt sure about the trend direction after crosschecking our data.  Still, we lost. We made a mistake. Maybe we will make a mistake again. Maybe we should refrain from trading for a while until we understand the market better. Of course, we were not entirely wrong last week. The market did go further down after a short correction. Our prediction was correct. It is just that we opened a bigger position than we should have, feeling confident due to a previous successful trade. So it was a miscalculation rather than an incorrect analysis.

If we choose to listen to what Mr. Mind is telling us about our past mistakes and their consequences, it is possible that we will experience anxiety, regret and disappointment. If we have done our analysis properly, but we still choose not to trade because of how these thoughts make us feel, our emotions would have interfered with our trading decisions.

Apart from reminding us of the past, Mr. Mind often warn us of possible future consequences.

“I might lose it all”

“It will be embarrassing to be wrong again” he claims.

 

The aim of Mindful Trading is to focus on the present moment, on the here and now instead of the past and the future. In this way, we cannot be swayed by our emotions.

This is the purpose of this website and we will gradually see the detailed workings of how mindfulness works and how to apply it to trading.

It is also important to understand why the majority of us fail to manage our emotions & thoughts no matter how hard we try. A detailed explanation is presented here.

 

 

What is Trading Psychology?

What is Mindfulness?

Mindfulness in Forex Trading