Want to trade better? Listen to a Zen monk

“Our joy, our peace, our happiness depend very much on our practice
of recognizing and transforming our habit energies. There are positive habit
energies that we have to cultivate, there are negative habit energies that we
have to recognize, embrace and transform. The energy with which we do these
things is mindfulness. Mindfulness is a kind of energy that helps us to be aware
of what is going on. Therefore, when the habit energy shows itself, we know
right away. “Hello, my little habit energy, I know you are there. I will
take good care of you.” In recognizing it as it is, you are in control of
the situation. You don’t have to fight it; in fact the Buddha does not
recommend that you fight it, because that habit energy is you, and you should
not fight against yourself. You have to generate the energy of mindfulness,
which is also you, and that positive energy will do the work of recognizing and
embracing. Every time you embrace your habit energy, you can help it to
transform a little bit. The habit energy is a kind of seed within your
consciousness, and when it becomes a source of energy, you have to recognize it.
You have to bring your mindfulness into the present moment, and you just embrace
that negative energy: “Hello, my negative habit energy. I know you are
there. I am here for you.” After maybe one or two or three minutes, that
energy will go back into the form of a seed, in order to re-manifest itself
later on. You have to be very alert.”

Thich Nhat Hanh

Negative Habit Energies

There is more to ourselves than our selves.

When I am trading poorly, I stop observing the market. I become
convinced of a scenario, locked in a bullish or bearish stance. Though I
am not psychotic, there is an important sense in which I am out of touch with
reality. I convince myself there is opportunity when there is none.
I feel impelled to pick a bottom in a falling market. At those points, I
am driven by emotional needs that are outside my conscious awareness. The
Russian philosopher and mystic G. I. Gurdjieff described people as sleeping:
they walk, talk, eat, love, and work the automatic patterns and routines that we
identify as our selves.
That is how I trade when I trade poorly. I am operating mechanically, in a
kind of sleep, impelled by forces that I do not control. I trade with my
habitual self, not myself.

When I am trading normally, I closely observe the market. I watch
volume at each price level to see if the market is facilitating trade or
rejecting that level. I observe the proportion of volume hitting bids
and the proportion lifting offers, catching swings in the short-term sentiment
of large traders. I study the most recent market regimes and closely scan
the correlated markets that lead my market: interest rates, oil prices, and
various sectors. Throughout these observations, I am formulating
hypotheses, and sometimes I test these hypotheses with trades. When I am
trading normally, I behave like a scientist, using the outcomes of trades to
inform me about
the market and aid the reformulation of my hypotheses.

When I am trading well, I observe myself observing the market. I am
aware of market action, but I am also conscious of my own reactions. My
Internal Observer knows that, if I feel boredom or panic, other traders probably
feel the same way. The Observer also knows my habits: that I will be tempted to pile
on during breakout moves or place a trade shortly after a loser to get my money
back. The Observer doesn’t fight these tendencies. Instead,
it dispassionately observes them even as I observe the market. I know I’m trading well when
I say to myself, “Here is a place where I used to take that impulsive trade.” I perceive my robotic tendencies, but they no longer
control me. It is difficult to identify with a pattern and simultaneously
stand apart from it as an observer. In the observing mode, I am more
myself; my self recedes to the background.

Charles Tart, in his excellent book Living the Mindful Life, cited the
patriot Patrick Henry as a source of spiritual wisdom for his words:
“Eternal vigilance is the price of freedom.” We only have free
will when we activate the vigilance of self-awareness. We rarely think of
trading as a spiritual discipline, but Zen Buddhists know better. Every
task in life, Thich Nhat Hanh teaches, can be performed with or without awareness, from
gardening to the pouring of tea. Like muscles, free will is strengthened
with use. Gurdjieff used to call out to students to
“Stop!” at random intervals, so that they could take the time to step
outside themselves and activate self-awareness. Thich Nhat Hanh’s Plum
Village community in France used the ringing of bells for the same
purpose. These are alarm clocks that rouse us from sleep. It is not
so difficult to remember ourselves–our goals and trading plans–but it is very
difficult to remember to remember. At its best, trading teaches us to
awaken; it rewards consciousness and punishes habit. It beckons us to
replace our selves with ourselves.

Brett N. Steenbarger, Ph.D. is Associate Clinical
Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical
University in Syracuse, NY and author of
Psychology of Trading
(Wiley, 2003). As
Director of Trader Development for Kingstree Trading, LLC in Chicago, he has
mentored numerous professional traders and coordinated a training program for
traders. An active trader of the stock indexes, Brett utilizes
statistically-based pattern recognition for intraday trading. Brett does not
offer commercial services to traders, but maintains an archive of articles and a
trading blog at