Mark Douglas 5/7 Emotional Response

[Music] if I set up an exercise where let's say let's he had a coin and you thoroughly analyze this coin looks like a normal coin being thoroughly analyzed it and found that it was unevenly weighted what'd ya find a coin okay I found it lying yeah it was unbelievably weighted on the head side over the tail side and you flipped it a thousand times and found that it it's gonna come up on a percentage basis tails seventy percent of the time well the cents is gonna flip down because it's weighted instead we tailed seventy percent of the time and hence thirty percent of the time and you know just time to be get into a situation where someone says to you you know what they let you flip that coin your coin and they say you know thank you because you can you say to them you know what I'm really good at flipping coins and and and I can do better than 5050 and the person says okay I'll give you $1,000 for every time you're right would you pay me $1,000 for every time you long now what you're going to is you're going into a situation where let's say we're over ten flips we're gonna you're gonna flip the coin ten times in a row now first of all what is the likelihood it was likelihood that you would be right all ten times in a row well in this case of the weighted coin it's better but but under a normal coin it would be highly unlikely you'd be able to be able to correctly predict 10 flips in a row but you know that you have an edge a probabilistic edge so to make to take maximum advantage of the edge that is built into that coin how are you going to bet what no no how are you going to bed what are you gonna call on each flip you're gonna call tails ten times on the roll right no think about doing anything but calling tails ten times on the row what are you expecting on each end you'll flip no what do you expect and each individual flip you don't know right well here's what you here's what you're really expecting 1 you don't know but you here's what you do know you do know something if these are gonna be header cables you'd hope that it's either gonna be head or tails okay and and you know that yet heads are gonna come up and tails are gonna come up so in essence you are expecting both heads and tails you are going to go into the 10 flips expecting both heads and tails so if you call tails and heads come up are you wrong yeah you called pails why it why are you up you call tails why aren't you on one oh you're waiting for the average holder over the series of lips in other words you're not long on each individual flip because you have a because each individual call is serving a higher agenda the agenda meaning I want the 70% percentage meaning that I'm going to end up with $3,000 most likely on average so every time I call tail I'm calling tails 10 times in a row but every time I do in a heads come up am I gonna feel like a loser am I gonna think that I was wrong no I'm serving a higher agenda I want the 70% when we test develop and test an edge and find out that it comes up with a 70% win-loss ratio and say that I'm gonna take the next 20 trades 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 am I gonna care about the sequence the wins and losses is it gonna matter what the outcome to each individual trade is no all I'm looking for is the bottom line at the end of 20 trades that's it this is what this is all about when you can learn to think this way at the very core of who you are you will be able to execute your trades flawlessly it wouldn't even occur to you not to do exactly what you need to do in each and every instance to the degree to which you cannot do it in each and every instance is a degree to it you still don't believe you don't have as a core part of your identity a probabilistic or functional belief system and belief system accountabilities and I'm going to show you how to get it installed go ahead I'll bet on what then on what okay yeah yes correct now I've set the exercise up very specifically and I said what can't work the plenum matters no I just said no no keep something in mind you're taking out of context okay you're applying you're applying a principle there's something I'm not talking about column all I want to do all I'm doing I'm talking specifically about about how to play this how to play this innocence on money management respect no I'm just doing it from the perspective of what our emotional responses this is just all based on emotional response in other words what's our perspective in relationship with others were operating on a certain perspective it will dictate a certain emotional response if I'm operating out of a probabilistic perspective then there's nothing to be afraid of yeah this all has to do with our emotions in our response in other words you know in other words understanding that what we believe is going to is going to determine how we see the world we see the world through our beliefs the decisions we make are based on what we believe in relationship to the information we're exposed to what we experience that was how we feel about the results or how we behave will be consistent with what we believe and how we experience our results meaning what our state of mind is are we happy are we regretful are we elated are we joyful are we fearful in other words how we experience our outcomes is also a function of whatever beliefs were operating out of what we want to do is get to the point where our beliefs are completely aligned with a probabilistic perspective so that we can do exactly what we need to do when we need to do it unencumbered with fear because here's what happens when the operating on the fifth gonna give you a little quick example and I'm gonna go into the whole belief system in more detail and then set up the exercise okay yeah support I got existence market comes back up nice trading range from backs up to resistance coming down to support okay now I'm looking at the start I'm saying okay the market rallied off support here essentially means what an imbalance between the buying sellers why I don't know who who put the buy orders in to absorb the sell orders as it was coming down I have no idea I don't care I don't need to know it doesn't make any difference remember the example yesterday where you know I had my customers buying support and intraday basis by exploring today basis and it fell apart the next time because the guys who were supporting that price and the in the bond fit weren't out too much and so as a result their orders did not go in there buy orders weren't there to go into the inventory and and there were more sell orders than buy orders so whoever was selling it each time in other words one of the reason they had to enter these sell owners they were not met with with any any resistance I'm not resistance in the sense of it but Lord prices take the path of least resistance and there weren't enough buy order the enough buy orders to absorb those sell orders and so and and then and then more buyers came in the market or whoever and then Martin came down again and they're out to lunch so fell apart now here in a situation where now the markets coming down to support and I'm a typical trainer operating out of the fear of being wrong the fear of losing money the fear of missing out the fear of leaving money on the table okay and as a result of not have not having learn how to think in probabilities or having having realized that that this is what this business is all about that analysis will not will not prevent me will not prevent the experience of me tapping into the accumulated emotional pain of what it means to be wrong and lose money that most that analysis cannot prevent that from happening so what I have to do they have to take it out of and great or wrong win or lose context and this is what this this is what we're doing here well taking your trading will lead to finding it so that you have no reason to you have no reason to associate the experience of an outcome of the trade with what means to be long that doesn't mean you're gonna there does mean it has anything to do with whatever memories and beliefs you have that define what means in long investing life in any other part of your life it just means that or trading you're realizing this has nothing to do with being lawmen this has nothing to do with losing you are expending it you are occurring expenses New York so you're not a loser take it out of the right or wrong River lose context and and you're exploiting to experience freedom and here's how because of the way the way these fears impact our perception of information and our behavior remember I said yesterday that fear causes us to focus on the object of our fear so that we end up experiencing the very thing we're trying to avoid will actually create what we're trying to avoid just based on what we're afraid of so the market gives us at the most fundamental level the market gives us two kinds of information to consider it was a whole array of information obviously but at the most very most fundamental level you take now back to the core we have two types of information two distinctly different types of information to consider what what would that those two types of information be well sort of up ships and down takes objects and objects that simple right there's an uptick in an optic and up to the foundation I'll pick up the dump it dump it dump it dump it okay now as as we learn about behavior patterns and trading patterns we learn things we learn to make distinctions in the collective behavior distinctions being like what do we call this and if I'm a technical perspective what do we call this an uptrend and what do we call this we call this a downtrend okay so we actually learn we learn to make these distinctions in in mark in the Box behavior that have meaning before we learn what the meaning of these patterns are they are essentially meaningless meaning that we can before we learn the distinctions we can look at a chart and it's just literally random information that has no meaning until we learn the distinctions so in essence we build up these distinct so that we can recognize what's already in our brain outside of us so when it when it when it appears we can say yes I know what that is you guys with me on this and so every other distinction that is possible in the markets behavior that we haven't learned about yet is essentially invisible you guys with me on this if we haven't learned to recognize it it's invisible so there there are always opportunities available that are in essence invisible simply because we haven't learned to make the distinctions so now I'm a typical trader who has learned to make this distinction in define certain patterns as an uptrend and downtrend that it has meaning to me because once enough trend starts I'm saying that you know it's like a lock we know the principal don't don't like the trend the trend is your friend until something happens to say otherwise and what's a real underlying the underlying meaning between the trend is your friend you don't fight your friends do you you were able to get in fights with your friends so don't fight the trend because it will make you money that doesn't mean you can't pick lows and pick highs but trends are a good way to make money and it's a distinction in market behavior all around the typical trader and I'm operating out of this fear of being wrong and the fear of losing money and so as as the markets coming down to support here I want to get into this trade and so I put a buy order in you know somewhere here and get filled okay and put a buyer in the market go up a little bit now as a typical trader I probably will not have defined predefined my risk because of the typical trader it's like pre defining the risk sets up an irreconcilable counter irreconcilable count addiction for me okay it's like I'm not getting into this trade month I think it's gonna work now if I if I go through the if I go through the exercise of telling me how am I going to let this market move against my position right here to tell me that it's not going to work in other words in essence it forces me to gather information that would tell me why or tell me that this trade might not work and I might gather so much information that I talk myself out trade has anybody ever not I've never talked themselves honorable winning trade okay so you know and in talking ourselves how to a winning trade that that ends up working is most the times more painful then then getting into a trade that just doesn't work so if I've gone through this process of having taught myself by my going through the exercise of trying to define the risk meaning the dollar value that I have to assign this trade to find out if it's going to work the dollar value of the distance between where I get in and structurally where I get out and end up and I've talked myself out of the trade in the past chances are all I'm gonna do is make sure that before I put my buy order and I really convinced this doesn't work otherwise again why am I gonna do it so in essence there is no risk I'm not expecting to lose I am NOT expecting to lose so the market start to go in my favor and you know there you know now remember I said the market gives us two fundamental types of information to consider uh particular context I don't want to be in pain doing I don't want an experience that taps me into what it means to be all the accumulative or emotional energy of what it means to be wrong and my memories of what it means to lose now the markets giving me two types of information to consider it's giving me up ticks and then giving me down ticks if I don't want to tap into what it means to be wrong and what it means to lose what and what of these are the two types of information that I'm being offered what is going to create or have what is going to have the most significance in my mind no you're not you're not you're not following me you don't want to be in pain people you don't want to be in pain well no no no this is an example this is to keep my purpose this but this is the typical trader this is not based on your new awarenesses of probabilities okay okay what of the information I'm being offered I'm going to place more significance on one type of information than the other because because of what it's going to mean to me emotionally what information am I going to place the most significance on the updates why because the uptakes take me out of pain I'm expecting it and always not expecting the way in it and the updates are taking me out of pain so for example every every series of down ticks I'm in pain every series of up ticks takes me out of pain and gives me a sense of relief down ticks pain up ticks relief down takes pain up ticks relief oh it's finally all over it's finally all over but in the meantime I'm getting a predominance of more down ticks than up text and other words I'm placing an inordinate amount of significance on the value of the objects in relationship to the objects in essence distorting what I'm actually seeing I'm not actually seeing a downtrend the downtrend has become invisible to me I am capable of receiving a downtrend it exists in my mind as a distinction but because of my unobjective nough status of the because of the way my fears are impacting of my perception I am actually not seeing a down strain the downtrend is invisible to me because all I'm really seeing are these objects objects up ticks and so I'm afraid of being wrong I'm actually creating the experience I am afraid of losing money and actually creating the experience it's all going on inside my mind eventually what will happen and I went over this just looping yesterday eventually what will happen is that this market will go down so far that that because I'm just not operating out of fear of being wrong here I'm also operating fear losing money I think that that my fear of losing money will become stronger than my fear of admitting that I'm wrong because once I admit that tapped into the pain as soon as I come to the threshold of admitting okay I'm wrong I get tapped into the pain and and what's shielding me from that is the fact that so far my threshold for losing money hasn't been hit yet because when the fear of losing one more dollar becomes greater than my fear of admitting that I'm wrong is when I'll get out of the trade and then as soon as I get out of the trade with nothing at stake any longer I look at this downtrend and say why did that just sound I didn't settle because this distinction was invisible to me this happens in degrees like this is an extreme case but this this this happens in degrees in virtually every trade we put on until we work through these fears so let's say just the opposite happens let's say you know instead of the market doing this market you know does this [Music] now who hasn't been in a trade in a profitable trade now he's getting exactly what he wants he's getting exactly what he wants how far you gonna think it's gonna how far do you think he's gonna let that go in his favor what no way no way how many times have we've been in a winning trade we're a market came back and took our profits away and then up an elusive trade happen enough where for example he placed starts placing an inordinate amount of significance in this case on the dumb takes instead of the up kicks okay okay it's like oh oh my just taking my money away oh the markets taking that money away oh well not just taking my money away you'd never get that level anyway you'd probably you'll probably blow out of it you know right so afraid of leaving money on the table that he that's exactly what ended up doing we can't be effective trader out the traders operating out of these fears we have we have to we have to find a way to we have to find a way to operate out of a carefree confident state of mind now Johana brought up something just just after the break where where she thought I was saying well maybe implying that you know what we have to give up both the idea that that you know the negative and the positive meaning that you know that training doesn't really have anything to do with losing so we don't have anything to be afraid of that training doesn't have anything do with being wrong so we don't have anything to be afraid of that but on the other end you know that we also have to neutralize our our excitement or our happiness or our joy from winning know the case not the case at all people who pay play craps they're spending money to have fun they like being surprised when the Machine randomly pays them off that's fun so no we're not giving up the positive but there is there is an issue that that that we have to address there is such a thing as overconfidence we've got competence you know and this is confidence like this is fear that way over here and then beyond fears tear these are states of mind through all the degrees and then beyond confidence is euphoria before you as a dangerous state of mind to be in as a traitor so what I am saying in states that yes you do not want to be trading in a state of euphoria because in a state of euphoria the risk doesn't exist when we crossed the threshold into a state of mind of euphoria we have we don't have the capability of perceiving risk and then we'll end up doing all those things we used to do when we believed the risks didn't exist in the first place and if I'm implying that you have to develop some pretty sophisticated skills of self-awareness to be able to recognize when this happens yes I'm implying that there's a lot about this business that you know there's no one getting away from the fact there's a lot of skills to learn and they're all psychological after you learn how to read the markets everything is psychological everything that's why you hear a lot of people talk about you know the psychic trading is one of the best vehicles for for for growth and and personal development that there is there really is because it is very difficult to create illusions about the bottom-line statement you know just if you lost ten grand you might be able to look at and see you know the minus sign isn't there put a plus sign in your mind but otherwise it's pretty difficult there's a lot of ways that we can create illusions about what's going on in our own everyday lives it's real toughest traders you hear traders talk about you know meditating this is the reason why because meditators meditation gives us a sense of gives us a - sense of self-awareness meaning that what you're doing when you meditate is you're becoming you can learn to become an objective observer to your own stream of thoughts videos of thoughts all those thoughts have significance and they'll give you indications as to what kind of state of mind you're in and what you're about to do that may or may not facilitate your goals or be appropriate you talk about traders who keep journals traders who you know used to be losers went to the threshold got to the threshold consistently and one of the reasons why is because now their copious general journal people this is the reason why because keeping journals will give you will give you clues and you know give you clues as to where you are where you put your state of mind is and what what other agendas might be you know asserting themselves on your ability to see the market if I'm gonna be perspective so so we have to you know yeah so is anybody I mean I just want to get sent does everybody really clear about amount you know the fact that we we have to acquire a particular state of mind that allows us to trade without fear and and that and that analysis it is not going to accomplish that it seems like it can every time we we do analysis and we put on a winning trade or we put on the trade and the market goes on our favor it seems like analysis has done what what it's supposed to do it's not that that can't happen it's just that there isn't the kind of relationship between between the outcome and the reasons why you put the tray down in the first place where you can you can make that connection it isn't real it's an illusion we're giving and here we're getting into that right now understand I just want to make sure they were all who all together on where we're going here

Channel: Eddie L

Views: 49,777

Rating: 4.9395161 out of 5

Keywords: Mark Douglas, trading, psychology, seminar, video, training, course

Id: d63wOozW1Vs

Length: 24min 40sec (1480 seconds)

Published: Tue Apr 17 2018