Within the current mentor group we have been having a bit of a discussion regarding the desperate need for activity that drives many (most) traders . As such I thought it was revisiting this concept on the blog.
Traditionally Westerners equate activity with productive effort, as such the more noise and the more fuss you make the more productive you are. The same philosophy drifts into trading, as such trading becomes an activity-based endevour, which then migrates into entertainment. Research by W.B. Canoles, S.R. Thompson, S.H. Irwin, and V.G. France in their paper An Analysis of the Profiles and Motivations of Habitual Commodity Speculators found most tellingly that being in the action is more important than the financial consequences for the vast majority of traders they interviewed.
Activity rather than the consequences of that activity are more important to the trader. In the words of Thoreau it appears that all men lead lives of quiet desperation and trading is a way of outrunning this desperation. When we consider the reasons behind the motivations of many traders it is easy to see how seductive “action” related metaphors are to us.
My view of trading is very different. 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 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. Yet 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.
It is easy to see how such a philosophy contradicts that put forward by Western ideals such as the need for a work ethic which in turn prompts traders to create activity for the sake of it. The basic philosophies are very different since one is activity based the other based in stillness followed by brief moments of action. Yet at all times your mind remains still and free.
Trading is an internal endevour since our trading only takes place in our mind. For example as I write this I have a dealing screen open that is telling me the prices of options on the Dow. My only representation of the market is my screen; my only perception is what my subconscious mind filters. It would be difficult for me to point to the market where these options were traded since that is most likely another aggregation of screens which are in turn reflections of other peoples perceptions.
Too often traders look outwards for what is essentially an internal problem. The ability to create a calm still mind solves a myriad of trading problems, as does the creation of safe metaphors. Whilst notions such as Mushin are difficult for those who are first exposed to them it is possible to build metaphors that are calm. Other traders have told me that they regard trading as surfing, sailing or skiing, all endeavours they find pleasant, safe and most importantly peaceful.