Get into Your Trading Zone

08/06/2013 6:00 am EST

Focus: TRADING

There are times when everything just clicks for a trader, and that’s when he or she has a mental edge, writes Stephen Vettorel of FXTrader.com, but the challenge is how to get there and stay there.

Get in the Right State of Mind to Trade Successfully
Psychologist Abraham Maslow conducted early studies into peak states of mind similar to what traders and athletes describe as entering the zone. He studied self-actualized people who often reported peak experiences where they experienced a higher level of existence. Recently, psychologist Mihalyi Csikszentmihalyi has studied people who experience "flow." Flow is an optimal mental state. It's the pure joy a person experiences when he or she engages in a challenging activity for its own right. All attention is focused on the task at hand. It's so engaging that one's sense of self is lost in the task. One of the best examples of flow is mountain climbing. It requires focused attention and it's extremely challenging.

When trading the markets, there are moments when everything just seems to click. These are moments when a trader is in tune with the ebb and flow of the markets. They sense what will happen next, and with absolutely no self-doubt or hesitation, they can freely and effortlessly execute trade after trade. At that point, the trader moves into a higher level of psychological existence, losing his or her sense of self in the process of trading. All attention is focused on the trade. It's a pleasurable, rewarding mental state. In this ideal state of mind, a trader has a mental edge, but the challenge is how to get there and stay there.

The Problem
Although it’s desirable to trade in a peak performance mental state, it is often difficult to achieve. Traders are human, and humans have a natural inclination to avoid risks, and feel a little apprehension when putting their money or their ego on the line. Perhaps it’s impossible to always trade in the zone, but it may be useful to strive to reach this ideal state of mind.

Mental Edge Strategies
Research studies have shown that flow experiences tend to occur when eight conditions are met. The more you can meet each of these eight conditions while trading, the more trading will be an enjoyable flow experience for you.

1) The task or goal must be possible to complete. In other words, immediate goals can't be too abstract or too high. When it comes to trading, for example, it is best to just execute a trade rather than being overly concerned with profits or achieving unrealistic performance standards.

NEXT PAGE Conditions to Strive For

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2) A person must be able to intensely concentrate on what he or she is doing. While trading, it's vital that you have a detailed trading plan and control risk so that you can focus on monitoring the trade. It's also essential that you maintain control over your psychological conflicts and life stressors so that they don't interfere with your concentration.

3) The task must have clear goals. See below.

4) The task must have immediate feedback. Trading tends to be a flowing experience because the goals are often clear and the feedback immediate. Again, a detailed trading plan helps you keep the goals clear. Similarly, the proper signals specified beforehand allows for immediate feedback.

5) A flow experience involves deep and effortless involvement. People are so involved that the everyday worries of life tend to be cast aside when in a flow state, but this is difficult to do if you have too many worries. That’s why it is vital to devote effort to reducing worries that lurk in the back of your mind. By avoiding trading with scared money, you will feel more calm, for example. Also, if you are having a bad day, it is useful to stand aside until you regain your ability to cultivate a calm state of mind.

6) While in a flow experience, people have a decisive sense of control over all their actions.

7) One loses the sense of self while in a flow experience. Some traders report that when they are engaged in trading, they are so focused on their experience that they are no longer self-conscious; there is no self-doubt or self-reproach. They just focus on trading.

8) Finally, time seems to just slip away while in a flow experience. Hours can go by like minutes, for example.

What is the best way to achieve these eight conditions? It is always useful to remember the basics, such as managing risk, using a reliable trading strategy, and thinking in probabilities. Unless you use these basic strategies, it will be difficult to achieve a mental edge. The rest of the conditions will present themselves after you gain a wealth of experience. Facing the unknown is fearful. The more you know, the less fear you will have. So if you don’t tend to experience flow right now, be patient. Over time you will gain a familiarity with the markets that will allow you to enter an ideal mental state. And finally, you must love trading and see it as inherently valuable. If it is only about the money, you will dread doing it. But if you approach trading for its own sake, as an intrinsically rewarding, enjoyable experience, you will trade more profitably in the long run. And more importantly, you'll enjoy the journey along the way.

By Stephen Vettorel of FXTrader.com

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