In the past few weeks we have seen the market move between some fairly extreme ranges. The 15 day Average True Range of the S&P ASX 200 has moved from 35 points at the beginning of March to 56 points – this is a 64% increase in volatility inside 20 trading days.
This movement presents a challenge for traders because there is a distinct difference between movement and opportunity – many traders assume that they are one and the same, unfortunately they are not. Noise is the antithesis of trading, and whilst it may occupy the trader, it’s unlikely that it will make them any wealthier. However, since many traders trade for entertainment, this is not an issue for them while for the rest of us it is a major issue.
With this in mind I felt it was opportune to revisit an article I wrote some years ago on stillness and trading. I view trading as a profession of stillness and patience not activity. This notion can best be described by a series of Japanese philosophical concepts. The first is known as Mushin or no mindedness. Such a notion is often confusing since the idea of no mindedness implies a vacuum with limited resources. This is incorrect. The closest western concept is unconscious competence. It is a mind that is free from extraneous considerations. As such it is free to act unencumbered by emotion. Mushin by definition is also firmly rooted in the present, so notions of past and present are irrelevant and by extension fear and worry are not present since these concepts depend either upon a concern about events past or a fear of future consequences. Therefore, what has occurred with past trades is irrelevant, as is what might happen with any future trades.
The second stage is Zanshin which is a state of mind that enables you to retain control of both your conscious and unconscious mind, whilst engaged in a course of action. It is the ability to engage both the market and be aware of the impact of your engagement upon your subconscious mind. Zanshin is activity based. You are aware of the trade and all the possible consequences of that trade. The notion of Mushin still permeates this transition since both states of mind are fully present in the moment. Worry cannot seep into the trading system if it is set in the present.
The final phase is Jikishin or the taking of opportunity without fear or hesitation. Consider these moments within the context of a given trade. Trading systems consist of a generic set of principles. A set up followed by a trigger leading to an eventual exit. Mushin is our set up phase it is our point of stillness where we wait. Zanshin is the movement out of Mushin into an active phase. We have taken our trigger and are aware of all the things that could happen. The notion of Jikishin floats between entry and exit since both require action without fear.
The question that naturally arises is how to obtain this stillness when there is a veritable cacophony of distractions surrounding the trader – to this I do not have a definite answer but I do have some suggestions.
- Do not trade just because you think everyone else is – most people are all talk when it comes to trading so ignore everything that comes out of their mouths. This is particularly true for members of the financial press.
- Learn to look at the big picture – take a step or two back from the screen and look at what is happening from a distance. Cultivate the air of an observer.
- Turn the screen off and go and do something useful with your time – the market and all its opportunities both real and imagined will be there tomorrow.
