Role of a disciplined mind in a stock trading

There is a Buddhist Saying. “One who rules the mind, rules the world”!!

This is absolutely true, beyond doubt whatsoever, especially in the context of setting up a flourishing business in the stock market. What does this exactly mean? Why does your mind play such a big role in the stock trading business? What are the rewards of developing a good mind? What are the consequences of not developing it? I am going to throw light on these aspects now.

Ours is a MONKEY mind. The Zen Buddhists have always equated the mind with a “drunk” monkey bitten by a scorpion! It is always going to jump from one thought to another thought and from there to another…just as a monkey jumps from one branch to another. Noted spiritual teacher Sri Sri Ravi Shankar explains that there are six distortions of mind that compel us to take distorted decisions which subsequently bring us failure. The six distortions are: lust, anger, greed, jealously, fear and pride. He doesn’t say that these emotions are “BAD”. They are not. However, they have the potential to blind us completely. These emotions cloud the natural decision-making powers of the mind. In that way, over indulgence in these six emotions or (distorted emotions rather) is potentially dangerous for our growth of the highest order. Any human being, who gets trapped in these distortions always remain mediocre through out his life. There is hardly anything worthwhile that can be achieved by such person.

In a stock trading business, these six distortions do their damage to the maximum! Fear of losing your trade, being greedy, lustful and hopeful to go over the top, being jealous of fellow traders and being over proud of your last trade etc. and the flow of such emotions go on and on and on. In fact, if anybody wants to experience the entire range of human emotions that is possible, there is no other place like the stock market.

Do not forget this ever in your life, that the most important asset you can ever have, for the sake of stock market or otherwise, exists right in between your ears! Yes! Your mind! The worst you can do to yourself in life is falling prey to the above-mentioned six distortions. And that happens due to an undisciplined’ mind. Our traditional education system hardly ever trains us, as kids, to achieve a disciplined mind. And the price to be paid in subsequent life is very heavy.

Now what is the exact meaning of discipline? My definition of discipline is ‘FREEDOM”. Yes! Freedom. Freedom from the clutches of your past distorted beliefs, from the past wrong conditionings, and from the ‘fatal’ concepts that we hold in our minds. And when that happens, the flow of thoughts in our minds becomes quite natural and disciplined. It is in this state of mind that we get clarity of thought and a sense of what is right and what is wrong. We do what is best for us in the moment WITHOUT PAYING MUCH HEED TO WHAT OTHERS THINK ABOUT US AND OUR DECISIONS. A disciplined mind is thus a FREE mind!

Stephen Covey, author of the world-renowned book, “The 7 Habits of Highly Effective People”, writes in his book that our life is nothing but a “series of habits”. The better we inculcate the good habits, the better our life is. In my experience, I have realized that this is absolutely true! Good habits can be formed only by a disciplined mind. If you want to become a successful stock trader, good habits are the prerequisites. Let me explain this point with an example.

It may happen sometimes that you may earn a good profit in your trade. But your method of trading and the strategy employed by you is wrong. However, you begin to think very casually at this point. You feel, “Who bothers…whether my trading method is correct or not? I made a profit – which means I am correct. Results are all that counts, you know!!”. Remember one thing. Whenever you obtain results by being “wrongly right” a day comes when you do everything “rightly wrong”. If you get a positive result from your mistake, it becomes a very dangerous game! Because that would urge you to continue your mistakes and this is extremely dangerous in the long run…(If you survive in the long run!). In other words, if a trader benefits wrongly in 2 of his 10 traders, he slowly develops the habit of booking losses 80% of the times!

Now, why does this happen? And what are the solutions to it? The solution is RIGHT FOCUS, which again can be developed only by disciplined minds. Mr. Stephen Covey has mentioned a very interesting case in this regard. He calls it a P and PC balance. P stands for production and PC stands for production capability. He gives a very interesting metaphor here. He explains this with the example of a HEN and her EGGS. Eggs is the P, where as HEN is the PC. Most people FOCUS on the eggs i.e. the production, thereby completely ignoring the hen i.e. the production capability. This is not the smart way of living. Because your focus is not required on the eggs at all!! It is the job of the hen!! Your job is to FOCUS ON THE HEN!!

Now, who is HEN in your stock trading business?? The hen is none other than your TRADING SYSTEM!! One of the biggest mistakes a trader ever does is to ignore his trading system. Leave alone ignoring, many traders don’t have a trading system in the first place! They don’t have a HEN and they are looking for EGGS!! How on earth is this going to be possible? Then where is the focus of these traders? Unfortunately, they focus on all those things, which they need to LEAST focus on for their trades! They watch the news channels, they look out for TIPS on their mobile phones, and they look up to their brokers for some ‘help’. In other words, they just want the ‘eggs’ at any cost without bothering about the REAL SOURCE, which is going to earn them their eggs. Such traders have to realize that the advice they receive generally come from those people who do NOT have any stake in their claims!!! These traders are ‘guided’ by their friends, brokers etc. who advise them WITH A DISCLAIMER. Moreover, even if the advisers do trade themselves, they are generally loss making trades.

I have personally, nothing against your broker or your friends. Their intentions may be good. But just open your eyes and check our whether their advice is really helping you? In my experience, brokers generally teach you STOCK-HOPPING!! If ‘abc’ stock doesn’t give you your profits, go for ‘pqr’ stock…then ‘xyz’ stock. Stock Hopping is as good as a monkey jumping from one tree to another. This serves nothing!!  On the other hand, your own trading system offers you an opportunity to earn profits by sticking to single scrip and not abandoning it unless and until you earn a profit out of it. Your system signals you about the exact quantity you need to trade with. Again in my experience, I have never come across a broker who offers advice to his clients with regards to the QUANTITY of trade. And quantity management is THE most important part of any good trading system!

Your trading system provides you a unique opportunity of combining the price management and the quantity management at the same time. None of your current ‘advisers’ could do that. Your trading system works when you trade in the same scrip. It teaches you that if you book losses in a stock, you have to trade in the same stock till your earn profit and recover all your losses. Your advisers advice you on one scrip and then move on to another. At the most they give you stop loss limits. But they never give you any idea as to how your subsequent trade is going to be, whether its going to be long or short, with what stop loss limits, with what quantity. Advice on just one STOCK is not trading. It’s gambling! This is one of the most important reasons why people do not make money in the stock market. This is why, I always maintain that get your FOCUS right! And then…’success’ follows, as it has no other option.