INTRODUCTION

If you have picked up this book and are reading it, chances are you have had some trading difficulties or have tried but have not yet been able to take your trading to the level you desire. You may have experienced one or more of the following in your trading:

• Cut winning trades short even though you know your trade setup is solid.
• Failed to pull the trigger on a perfectly good trade because of fear of loss.
• Let losing trades run hoping for a return to breakeven.
• Added to a losing position in the hope that the market would turn around.
• Made profits in the morning but gave them back in the afternoon.
• Became more aggressive after losing money.
• Took unplanned trades when the market suddenly moved.
• Stopped trading or reduced position size after a loss.
• Traded greater position size than prudent money management practice would advise.
• Held trades longer than they should have been held looking for a “home run.”
• Failed to take a perfectly sound setup because the last two trades were losers.
• After a day of big profits, your confidence soared and your trading suffered.
• Consistently made small money but have been unable to elevate your trading performance.

These trading difficulties hurt. They not only hurt your account, but they also cause mental and emotional suffering. No other profession tests your psychology as does trading. These difficulties and unskilled trading behaviors arise from the underlying mental and emotional challenges traders face. Most likely you have made considerable effort to overcome these difficulties but the methods you tried have probably failed you. After a while, you may question whether anything will ever work, or worse, you may question your suitability for trading.

This book is different from the methods you have tried. It offers mindfulness, a state‐of‐the‐art method backed by scientific proof, and a specific trading psychology process: together they can unlock the door to managing your mental and emotional challenges and to excellence in trading performance. If you are determined and are willing to commit to the effort, this book will definitely help you.

I am trained as a clinical psychologist. I became involved in trading and trading psychology more than 15 years ago. Like other traders coming into the market, I have experienced most of the difficulties listed above. Personal experience and the experience of working with other traders taught me that the conventional trading wisdom of controlling and eliminating one's emotions from trading does not work. Quite the contrary, the more we struggle to try and control our feelings, the more our attention is distracted away from our trading, and the more erratic our trading becomes. Not only does the conventional wisdom not work, it is wrong. Countless traders have traded poorly and failed to learn the trading skills following conventional wisdom because trying to get rid of our thoughts and feelings in the usual problem solving way actually is the cause of our problems. We become stuck in a rigid and intractable mental pattern and our trading suffers.

Albert Einstein once said, “You cannot solve a problem from the same consciousness that created it. You must learn to see the world anew.” Einstein could have been talking about trading when he made this remark. We have to think differently to overcome the universal mental challenges of trading. This book will show you how.

I began to think differently about trading psychology when I saw something wonderfully mind‐blowing at a psychology conference. A video presentation showed a psychologist treating a person who was depressed and suicidal. Within a single therapy session, however, the person had changed markedly. She was no longer depressed and no longer suicidal. She no longer needed psychological treatment. I couldn't quite grasp what the psychologist was doing because it was very different from what I had learned and practiced as a psychologist—it even seemed counterintuitive, but I knew deep in my bones that whatever it was, it was damned powerful.

The different way of thinking about psychology is called Acceptance and Commitment Therapy, or ACT. When I first saw that presentation, ACT was new. There wasn't much written about it and only a few had experience with it. That has all changed. Now there is an explosion of books, scientific papers, and conferences and more psychologists are adopting it because it is so effective. Settings outside the therapy room are also beginning to embrace it. Susan David and Christina Congleton, for example, have written about the mental agility that ACT promotes specifically for corporate executives and industry leaders in Harvard Business Review Online. Wouldn't you like some mental agility in your trading instead of mental struggle?

One of the core components of ACT is mindfulness. Mindfulness, as you will learn in this book, is incredibly important for traders. Although it has its roots in Eastern traditions, modern scientific research shows that it has powerful ability to positively impact us psychologically and even enhance the structure of our brains (as seen through neuroimaging studies). ACT's approach to mindfulness, along with its other advanced psychological techniques such as defusion and commitment to actions that bring high value to our trading, can dramatically change your trading psychology for the better. Instead of struggling to try and control your unwanted thoughts and feelings, mindfulness and other techniques allow you to be a sort of mental aikido master where you can sidestep them and redirect your focus onto what's really important, your trade.

It's not sufficient, however, just to develop mental agility if you want to achieve excellence in trading. At its core, trading is a performance‐based activity. We develop trading knowledge, skills, and abilities and then apply what we know and can do by performing in the markets. The best performers in any field are guided by coaches, mentors, and specialized training. The structured guidance affords opportunities to learn skills and overcome mental challenges. Most traders do not have structured guidance. They are left on their own. This book sets out to change this.

What matters most in any performance activity is having and adhering to a process. A process is a well‐defined series of actions or steps taken to achieve a desirable result. The more consistent we become in a sound process, the better we can apply our knowledge, skills, and abilities and the better our trading results will be, all other things being equal. My ideas about a trading psychology process were born in a graduate course on sport and human performance psychology taught by Charlie Maher, an accomplished sport psychologist. Charlie's course helped me shift my ideas of trading psychology. This shift involved moving away from traditional psychological methods and techniques of trying to change one's thoughts and emotions to applying psychology directly to the process of trading: how we prepare to trade, how we execute our trading, and how we evaluate our trading performance.

This is the first book about a trading psychology based on the power of mindfulness and the bedrock of process. The combination of a robust trading psychology process with mindfulness and other cutting‐edge mental skills can help you excel in your development of both the psychological aspects and the technical aspects of trading.

■ How This Book Is Organized

This book is divided into three parts. Part I (Chapters 1 through 4) discusses the unique challenges traders face, both mental and emotional. In a very real sense, in order to succeed at trading, traders need to know how they fail. Part II (Chapters 5 through 8) introduces mindfulness, what it is, how it can help traders meet the mental and emotional challenges of trading, and how to do it. Part III (Chapters 9 through 11) presents a robust trading psychology process, made up of three distinctive time frames and the associated high‐value mental skills traders can develop that can take them on a continuous improvement path to excellence and mastery of the trading game.

Part I

There are many psychologically influenced challenges to overcome on the path to trading success. The unaware trader can very easily be blindsided by cognitive biases and heuristics—mental rules of thumb we use effectively and routinely in our daily lives, but are inappropriate for trading. Emotions, too, can be a significant challenge for traders. Cognitive biases and emotions can cause you to hold onto losers, take trades at the wrong time and in the wrong direction, jump into unplanned trades, and other erratic trading. The chapters in Part I show you the root cause of erratic trading behaviors. Real-life examples of traders1 in actual trading situations make the concepts clear and comprehensible. Practical exercises and forms are provided so you can begin to identify and constructively address the mental and emotional difficulties and erratic trading behaviors that you experience in your trading. All exercises in this book are available in larger, PDF format for download at the author's website (www.tradingpsychologyedge.com).

In Part I we also look closely at fear and its various forms, along with stress, other strong emotions such as anger and boredom, and emotional hijackings—those...