The Zen of Trading- Or How to Become Better Traders

I am currently in a losing trade. I have bought NZDUSD at 0.6972. The price is 0.6955 an hour later. I am patiently waiting for the price to curve up and come back in my favour. We are constantly swinging between emotions of fear (of losing) and greed (to make more). The longer we stay in a losing position, the more we lose objectivity and the higher the chances of making a loss. No matter how hard it is at times, we need to stick to our plan and don’t sway aside even for a trade. One trade could potentially be the beginning of a losing streak- the last place where you want to be.

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The Zen of Trading- Or How to Become Better Traders

I am currently reading an excellent book written by Robert Pirsig- Zen and the Art of Motorcycle Maintenance. One of the scenes inside will continue to reverberate in my mind for the years to come, especially when I am in front of the trading screens. The protagonist of the story is an eccentric man called Phaedrus. He is teaching a rhetoric student who is all jammed up when given the assignment to write a five-hundred-word story about her town. This story really reminded me of the zen of trading- or how to become better traders. Back to the story- she cannot write a single word- what could possibly be interesting enough to write about. (This reminds me so much of myself when I am sometimes trying to give you the best content.) Phaedrus liberates the girl from her writer’s block by changing the assignment. He asks her to write about the front of the opera house. She could begin with the upper-left hand brick. At first the student is incredulous, but then a torrent of creativity unleashes and she can’t stop writing. The next day she comes to class with 20 great pages.

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The Zen of Trading- what is important to become better traders

What does the story above teaches us and how can we improve our trading based on it? Imagine making smaller circles. The story above is helping us distinguish success from failure from the pursuit of  trading excellence. The theme is depth over breadth. The learning principle is to plunge into the detailed mystery of the micro in order to understand what makes the macro tick. Traders are constantly bombarded by a lot of information– radio, TV, Internet, Social Media, etc. Books, different trading strategies, trading gurus, information in all kinds and forms radiates from everywhere. One of the greatest obstacles for traders is to be able to turn themselves into the successful zen of trading. How to accomplish that really?

Does less information help traders become better

Based on the thoughts above, one can ask the question- what is more important- to be well-informed, so you can take a better investment decision; or too much information can hurt your trading performance. There is some truth in both statements. You need to be well-informed to take the right trading decision, but at the same time should not be constantly switched on and distracted by different medias. Maybe you should make a plan of how to minimise the constant flow of information by creating your own rules. As an example, you can use the schedule below:

  1. Keep Two Lists- one with “To Do Urgent” and a second list with “To Do Long-Term“

  2. Do your main trading research between 6-8am, and then try to minimise your exposure to minimum

  3. Try to not switch on Social Media on Saturday and Sunday

  4. Try to use social media and other information channels no more than 2.5 hours a day

  5. Use diary and write down all of your goals every morning

Many times I have written about trading and that it is one of the hardest professions you can pick. You are in a losing trade and you can’t take your eyes away from the screen. You are supposed to not break your rules, but it is so hard. Before you realise it, you have closed you position just before it reverses back and hits your target. Another likely scenario is, you are too impatient to wait for a retracement and open a long position before realising how impatient you are. Obviously, price reverts (it always does) and then you panic and instead of holding on to your trade, you take a loss. It is often, much easier to write about those matters than do them, but when it comes to discipline, you should stick to your rules. Nothing is more painful than betraying yourself and your own principles.

The Zen of Trading- Or Why Better Traders are Made not Born

When there is nothing exciting on the screen, we are more prone to make a mistake because we are more easily distracted. If caught in these rhythms, we are like a tiny current-bound fish, floating along the surface of an ocean of failure. This could be detrimental for your trading and definitely won’t make you a better trader. What will make you a better trader is if you find yourself in a situation like that, to try to take it on a piece by piece, gradually soaking the information in your mind. Then, after a lot of meditation it would be easy to see whether something works or not.

Combining Pirsig’s Brick with Disciplined Trading

  • Example: Let’s say I am looking to take a long trade on a major support level after a pin bar was formed. We have all the possible factors in place:
  1. Major support level on a Daily timeframe

  2. Confirmation from price action from the Pin Bar

  3. Trade with the trend after a retracement to the support level

Initially, we will feel uncomfortable taking this trade, especially if we have not traded before or have little trading practice. Over time, we are not really thinking about taking the trade- we just do that mechanically. Then, when even more time passes, we start looking around for other instruments to trade and more patterns that match our criteria. Finally, we feel comfortable with taking a few trades at the same time, being better traders and gaining more confidence. A dangerous moment. When we gain too much confidence instead of thinking things over, we get excited and make mistakes. This breaks our structure and destroys the routine we have created.

  • Tip: Don’t let this happen or at least try to minimise the times it happens to you.

How to escape the trap of the overconfidence?

A lot has been written on that topic (including myself), but I am still a firm believer that a novice trader is prone to repeat this mistake no matter what. Again, the only way out for the novice (and experienced too) is to stick to a pre-written plan. Keep a diary and follow your rules (or the rules of an experienced trader). Making smaller circles is also important. You need to make sure that you understand the smaller print, so you can make sense of the main message. Do those on a daily basis and you will be consistent before you realise it.

Instead of conclusion– so what does it take to become a better trader? It takes courage, commitment, persistence, hard-work and most of all- character! A lot of self-proclaimed “trading gurus” out there are saying it is easily accomplishable- the truth is that if it is one thing, that thing is definitely not EASY. I hope you will understand me and stop looking for a holy grail- it is inside of you and you- just reach out! Good luck with your learning and let the zen of trading be with you!

This material is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.