The Most Important Mental Skill for Traders

09/08/2015 6:00 am EST


Gary Dayton


Of all the mental skills a trader can learn, mindfulness is perhaps the most important trading psychology skill, says Gary Dayton of

Mindfulness comes from ancient, eastern traditions associated with Buddhism and yoga. Although people associate mindfulness with spiritual practices, it is a practical mental skill from which everyone can benefit. It is changing the landscape of western psychology. For traders, mindfulness has numerous important benefits.

Exciting Research on Practicing Mindfulness

New scientific research shows mindfulness practice can actually alter brain structure.  Researchers studied the brain's gray matter to see whether or not it changed after practicing mindfulness. Those who practiced mindfulness for just 30 minutes a day over eight weeks had significant changes in the hippocampus and amygdala regions of the brain. These are the brain areas involved in learning and memory, emotional regulation, and perspective taking. This is the first time research has shown physical brain changes due to mindfulness practice.

What Mindfulness Means for Traders

There are many advantages mindfulness can bring to traders:

We can read the market better when mindful.Mindfulness promotes improved concentration and attention. As the brain research shows, it also improves memory and helps in learning. Traders can help themselves in better reading and understanding the complex patterns and movements of the market by practicing mindfulness.

Reduce emotional trading. Mindfulness helps us regulate emotions. The current research tells us that the brain's emotional center is positively influenced by mindfulness practice. Through mindfulness, we can become inoculated against emotional trading and emotional hijackings-the bane of consistent trading. This is a big plus for traders.

Develop a consistent, accurate perspective.We stay present when mindful. We see reality clearly. Past events (recency bias) or projections about the future are less likely to affect trading. Distracting thoughts that cause poor trading behaviors such as hesitating to take a trade and cutting winners short can become less influential, e.g., "My last three trades were losers; I better sit this one out" (past event) or "This trade looks like it could go against me, I better get out" (projection of the future). Mindfulness can help us develop the perspective that what the mind is saying is unrelated to a trade's expectancy and often unrelated to what ultimately happens in the market.

Developing Your Mindfulness Practice

Start by setting aside five to ten minutes a day; increase the time with practice.

    • Sit quietly and simply watch your breath. Pay attention to your belly rising and falling or the air flowing across the tips of your nostrils

    • Notice how the mind wanders repeatedly. It will slip into the past or the future.  Gently return the mind to the breath and the present 

    • Notice how you feel afterwards

    The overarching goal to mindfulness is simply to be aware of when your mind wanders and then to bring it back to the object of focus, your breath, in this example.

    It is by practicing mindfulness that you also practice and develop the skill of noticing when you become distracted and the skill of returning your mind to purposeful attention. Like any skill set, it takes effort and practice. Traders who develop these mindfulness skills can quickly recognize when their attention becomes distracted by scary or irrelevant thoughts and return their focus back to the tasks of the trade rather than succumb to the mental and emotional chatter that can lead to poor trading.

    Mindfulness has important benefits for traders and is simple to practice. And now science is confirming the power of the practice.

    By Dr. Gary Dayton of

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