Trading the Vision How Visualization Affects Your Trading

Holly Flanders, 1980 and 1984 Olympian in downhill ski racing, put it this way: "In racing it is very important to visualize everything! Your reaction time is not something you can think about and react to. It is something that is already trained inside of you. It is something already a part of your muscle memory. We use visualization every moment of our training. "

Using todays technology, the muscle memory or imprinting that Flanders refers to can be measured and documented. In his book Mental Tennis Vic Braden says, "Weve done a number of tests with people wired up with EMGs [electromyography sensors] to measure responses. In one of these tests, we asked a high hurdler to imagine himself actually running a high hurdle race. Sure enough, we began to see faint muscle contraction patterns that matched those used for leaping over high hurdles."

Through visualization and mental rehearsal, a pathway of patterns or imprints is laid down in the brain; it is an extraordinary mind/body connection. Athletes who have learned to visualize in high-pressure situations automatically call upon this connection. By doing so, and consequently performing with lessened self-consciousness, they avoid potential mental blocks that might impede their performance.

Trading excellence also demands peak performance under pressure. Not surprisingly, an analogous sort of visualization or mental rehearsal is employed by the worlds top traders.Before they trade, each does hours of homework of one kind or another.

Ed Seykota describes his homework as "spending quality time with my charts" and says this preparation is one of the most important things he does. Richard Dennis has said, "I think most traders do too much thinking on the spot. They should come in with 90% of the decisions made and just be putting frosting on the cake." David Ryan, the top stock trader, prepares for a trading week by looking over some 4, 000 stock charts every Saturday. (He winnows down the ensuing impressions into approximately 100 trade candidates; of these, he gives detailed study to five or ten trading ideas for the following week. He says this process is akin to "treasure-hunting:")

Linda B. Raschke, who is both a short-term and day-trader, says, "I always do my homework the night before, and I always go in with a plan:" Raschke builds what she calls a "little road map in my head:" She explains that "it teaches me to anticipate. Anytime market action is deviating from my road map, Im out of there because the market is not doing what I expect it to be doing."

What happens in the cogs of these traders minds during this process? Marty Schwartz, who says he spends three or four hours alone over the weekend just doing his pre-Monday-opening homework, says, "You see certain things by poring through your chart books. Im looking for a mosaic in the stock market, so Im looking for an impression over [the] period of time that Im doing my homework."

In describing his own visualization process, the successful trader Paul T. Jones says, "One thing about discretionary traders is they always spend time poring over their charts." He continues, "Suddenly, a light bulb clicks on and you start visualizing in advance the script the markets are following." Jones, who "scripts" markets by looking at the cyclical, seasonal, and sentimental factors at work, also says, "Youve got to have a game plan and its certainly got to be far reaching enough timeless that you can be comfortable standing moves against it youve got to anticipate them. Youve got to strip everything away and down so that if the deal jackknives on Sunday night youre prepared for that, if the Federal Reserve Board eases next week youre prepared for that-and youre not being reactive, but proactive:"

You may have heard of Amos Hostetter, who was a key figure in the early days of Commodity Corporation, and who died in 1977. Commodity Corporation was the training ground for a host of up-and-coming traders in the 1970s and 1980s, and Hostetter was a mentor to many of them. Some of these traders, like Michael Marcus, have gone on to accumulate great fortunes. I consider myself fortunate to have been among those exposed early on to Hostetters trading ideas and principles.

Hostetter emphasized the importance of what he called "dreaming." He defined a traders dreaming as the playing out of various scenarios in the mind in order to anticipate areas from which market changes could likely come. He used the facts at hand, the fundamental and technical conditions, as clues to guide him to the areas where he might expect potential surprises to originate. Hostetter believed that the trader who keeps himself prepared for surprises, in both directions and in advance, is in possession of possible explanations for such surprises, and hence will be less hesitant to act (or less likely to overreact) if and when they come.

Bruce Kovenor explains: "One of the jobs of a good trader is to imagine alternative scenarios. I try to form many mental pictures of what the world should be like and wait for one of them to be confirmed. You keep trying them on one at a time. Inevitably, most of these pictures will turn out to be wrong that is only a few elements of the picture may prove correct. But then, all of a sudden, you will find that in one picture, nine out often elements click."

Hostetter dreamed; Jones scripts markets; Schwartz looks for a mosaic. Kovenorforms mental pictures of alternative scenarios; Raschke builds road maps of price action. The common ground here is visualization &anticipation-the process of mentally working out various potential scenarios. If one has in mind a clear framework for understanding market action and trend logic, then such scenarios branch off as natural extrapolations from current price action. This holistic approach to trading is trading as an art.

This homework process maybe a filtering and pattern selection process, like Ryan describes; or it maybe amore elaborate visualization and scenario building process like Jones and Kovenor describe.

Whether their trading preferences are holistic or filtering, all these successful professionals have one thing in common: They spend a lot of time poring over charts and data. By thus preconditioning their minds, these well prepared pros can readily adjust to new market- generated information as they go along.

The process of building alternative scenarios lessens a traders uncertainty, reduces his or her emotionality and complements trade execution. Such a prepared trader is unlikely to feel the pressure of turmoil in reacting to an unexpected situation. To minimize reacting emotionally, which is almost always damaging to a trader, we need to learn to anticipate, to be proactive, not reactive. Preparation, homework, and hard work are key.

Read More www.street-noise.net