Mark Douglas How to think like a professional trader 4 of 4

in this fourth section I will cover the underlying dynamics of confidence and fear so that you can build a framework for understanding how to create a carefree state of mind when you trade ok the next section that we're going to get into is exploring the dynamics of confidence and fear in other words what what was the from this morning and in just a little while ago not so much a little while ago especially from this morning what's the primary problem why why why do we have so much of a problem or what creates the problem with the tuna trade by trade perspective in other words if I'm looking at the market if my technical indicator gives me a signal to buy right now ok what's in a buy and if I'm not pre defining my risk if I'm hesitating if I'm jumping the gun if I'm you know if I put my trade on and and and you know I want to move my stop what is it that's going on right now what's compelling me to make these kinds of errors fear and and what's behind the fear ok but that's good but I want but yeah because you don't want to get tapped into being wrong losing missing out all that other all that pain but remember I said what was what was a universal characteristic of all humanity in terms of how we feel about our expectations being fulfilled well yeah but you all know when they are but what I'm saying is that it's because I'm expecting this trade to work ok once you got you guys got to get this ok the reason why I'm having a problem is because I'm expecting this trade to work this trade it's not because I'm thinking that I've got a I've got a series of trades remember the pattern with the pattern within flipping the coin the pattern is that if I've got an edge well I'll give you another example let's say that I've got a coin that's waited waited heavier on the tail side so that it's going to come up on a percentage basis 65% of the time heads and I get someone to take the other side of a bet where I get to call the flip every time what am I going to do am I going to try to determine when tails is going to that 35% of times tails is going to come up I'm gonna call heads every time that's a pattern okay the way it relates here is that I've got a technical methodology that gives me winning trades let's say 65 percent of the time I don't know which of those of the next 20 trades or 25 trades that come up I don't know which ones are going to be the winners and which ones are going to be the losers if I'm going to trade my methodology appropriately that really obligates me to take every single trade I can't be picking and choosing my trades based on what I think is gonna happen because I hopefully I've already established you don't know and if you think you know you're just making it up in your own mind let me repeat that if you think you know you're just making it up is this is everybody all right with what I just said and so it obligates me to take every single trade that comes up because I don't know which ones are going to be the winners and which ones are going to be the losers it means that if I'm having problems it's because I have a certain expectation about this trade or about this trade or about this one so what if I'm expecting a random outcome what if I change my expectations well I feel differently about it if I change my expectations will I feel differently about it is there anybody in this room do does anybody who trades look like ivory it's been in this one I don't think I've ever met anybody who trades who hasn't at least gambled at some point in their lives right what do you expect when you put money into a slot machine and push the button good well one of those answers goodbye I like that what else loud if it is the same thing what are you expecting really on this one seriously what do you expect you know what you're expecting you're expecting something to happen right you're expecting the wheels to turn you're expecting something to show up now think about what I'm just saying because you know what what I just said is exactly what I expect when I put on a trade I'm expecting something to happen I don't know what but over a series of trades if I do everything right I'll make money because I'm managing my expectations on each one of these trades I'm managing my expectations so that I do not have the potential to define and interpret these up-and-down ticks the information the market gives me and some sort of threatening or painful way because what I'm going to tell you what are we going to get into now is the effects of that when you put money with that what do you mean how realistic go ahead no no take the microphone how realistic is a 65% win ratio on your methodology I'm not understanding the question how realistic is it well if you can't go by any individual specific trade which you say over 20 trades you can say you expect to win 65% of the time correct that based on past performance okay but then again looking at over any individual 20 or 50 sample how realistic is maybe that's 65% saying that you are that's a real number I'll find out I don't know I don't know how will I know how could I know I'll find out that's why you trade in sample sizes that are limited in other words I don't make an assessment of how well it's working until after the end of a sample size if if at the end of a sample size I get a high enough percentage of winning trades than where I'm satisfied then I'll take another sample size if I don't then I'll find ways to tweak my indicators to improve my results so for you to say how realistic is it I have no idea of knowing what's gonna happen in the future when we get right down to it it is possible would it not be possible for me to get in to start a sample size that trade 1 and end up where every single one of them was a loser am I gonna know that in advance and see that's where paper trading is so critical is that by paper trading you will get a realistic assessment as to how well your edge works and people have no problem paper trading they'll pay per trade to find out if you know if they're met that they can you know they can their methodology works and to gain confidence in it it's the other part that they won't they won't participate in meaning that they won't take that same take take a similar exercise to see how well their own psychology matches up to what they need to do to be consistently successful in other words to set up an exercise paper trading is an exercise is it not it's an exercise in developing skills and understanding your methodology is it not so wouldn't it be just as reasonable to set up an exercise to learn how to execute properly so you've managed your expectations what what do you consider a proper sample size 2025 trades I don't think it has to be more than that I really don't if that's not working within 25 trades and you then there's something that there's something you have to change okay so it's all about our expectations when I put money into a slot machine I'm expecting something to happen if it comes up a loser do I get all worked up about this this tapped me into my accumulated emotional pain of every time I've been wrong and lost in my life I mean look at their there are there are people who trade and and and and because of their expectations make every error in the book and can't make consistent money and the reason why is because of the record like I said because their expectations and yet if they put money into a slot machine where essentially the only difference between technical training and a slot machine is the fact that with a slot machine you have to put your money in first and then wait for a pattern to emerge with technical trading you have to wait for a pattern to emerge and then technically put your money on the line the problem is because the way our minds think we think that because the pattern emerged that somehow or another it's giving us an edge on that particular individual trade and there's just no way of knowing that but over a series of trades it does so it's like technical analysis gives the individual the the availability of being the casino technical analysis lets you own the slot machine because you've got the odds in your favor the casino makes the slot machine available to us because they've got the odds in their favor but - but derive the benefit of those odds you have to be able to execute properly and you have to think about this properly it is just a numbers game based on the odds that means that you can't put an extraordinary in it let's say next an extraordinary amount of significance on each individual trade because if you sat and played a slot machine you wouldn't think anything of it if you if you put you played a dollar slot machine and you sat down with the idea that you know what I got a hundred bucks in my pocket and you didn't win you know you might have you know is it ten times in a row you didn't win you're still you're still gonna push the button because eventually you think eventually I'm gonna hit eventually I'm gonna hit so it's all right you see it's all right same thing here this trade didn't work well eventually eventually I'll get a winner this trade didn't work eventually I'll get a winner this trade didn't work well eventually I'll get a winner no I don't know about this next one now that's almost always the winner now if it turns out that your methodology has diminished and it's let's say in its capacity to produce a winning percentage because the underlying nature of the market is changing in relationship to this fixed formula then you know that's why you trade in smaller sample sizes or a sample size where you don't lose an inordinate amount of money to find out it's not working but you do this right and you're the casino regardless of all the dynamic traders regardless of all this other stuff I'm talking about it doesn't matter none of that stuff's important as long as you understand the under cent long as you understand how the underlying dynamics relates to the formula so that you don't put and you know an extraordinary amount of significance on a formula that's just giving you a pattern in collective behavior not individual behavior and it's individuals who move the market so those individuals there can always be an individual or group of individuals who come into the market that do something that completely negates the outcome of your pattern and that's alright because there's no way to know that in advance it's alright when you look at it that way then you won't get all worked up then it's just a random outcome just like a slot machine it's just a random outcome because that's what you're expecting you expect a random outcome you got a random outcome and there's no emotional significance because here's what happens when you don't look at it this way let's take a typical trader who's operating out of the for Fears okay we got support we got resistance we've got a nice training range the markets coming down to support okay now a typical trader operating out of those four fears the fear of being wrong the fear of losing money missing out you know depending on the intensity of these fears and they give it a moment he might have a hard time putting that trade on right he's got a Bible pattern you know all that happened here is that when the market had an imbalance in conviction remember all price movements a result of an imbalance in conviction the markets came down to this point right here there wasn't one person in the world not one now let's say that's not one person in the world in the whole world that would offer that would take out the bids to offer this market one tick lower than this price right here not one okay and then all of a sudden there's an imbalance in conviction where there are more buy orders and sell orders it drives the price up to here and the same thing happens drive the price down to here same thing happens here here now it's coming back down that from my perspective I'm looking at it like this how much room do I have to give the market to tell me that the people who bought here and the people who bought here are going to come back into the market and do it again because right now there's an imbalance in conviction on the sell side that means that enough orders buy orders have to come into the market to absorb all the offers to absorb all those offers with an left over to create upside movement do I have any way of knowing whether or not they're going to come in no I know but the odds are in my favor at least I hope they are in any case I'm willing to risk a certain amount of distance from my entry point to find out that's all of it that's all it means to me if they don't come in it means you know what the guys that were bought here bought it might be out to lunch and that happens I am not kidding you I know that for a fact I've experienced it because I intimately knew you know a lot of the big traders in certain markets that would buy here and buy here and I'm thinking ok they're coming back in and they were out to lunch say hey where were you guys but to the typical trader that doesn't think this way what's going to happen if he manages to get the trade on it's gonna be because he thinks he's right because he thinks he knows what's going to happen next right and he's not gonna put in a stop because to predefine his risk how much money does they have - how much room and dollar-wise how much room distance of the dollar value of this distance that it has to give the market and tell him that this trade is either working or it's not or that to let it go any further is it worth finding out that's all it means to me but he's not gonna think that way he's going to think by gathering evidence that this trade might not work he might be talking himself out of taking it and so by the time he actually manages to get this let's get this order in the market and buy somewhere in here he has convinced himself that he's right now I remember I said earlier and I think I just said it once so you might not have gotten it that fear has and has an effect on the way we perceive information when we're in a state of mind of fear we are perceiving information in a threatening way in other words we Hara having an expectation of pain you remember I said that to experience emotional pain there's two kinds of pain physical pain and emotional pain emotional pain requires an interpretation the up and down ticks that the market offers us are not inherently pleasurable or painful by their nature there is such a thing as painful information I mean painful from the environments perspective if the environment if someone is someone's hurling insults at you their intent is to cause you emotional pain but that doesn't mean you're going to experience the emotional pain unless you interpret it that way if they're hurling insults at you in a foreign language you don't have the slightest idea about what they're saying you may look to you like they're saying something isn't so nice but then again you don't have you don't know what the words are and so what do you feel nothing the interpretations come from our beliefs the interpretations come from our mental framework in other words the pains already inside of us all the words are doing is tapping us into it once we learn how to manage our interpretations we can manage the way that we feel we can actually determine how we feel and I won't State of Mind so this trader is operating out of a fear of being wrong so like I said he convinces himself that he's right that's the way he gets the trade on so let's say the market now I said that fear causes us to focus on the focus on the object of our fear so that we end up creating the very experience we're trying to avoid this trader is trying to avoid being wrong now we have self protective mechanisms there they can work at an unconscious level there are mechanisms inside of us that will protect us from information that we perceive as threatening it causes what was typically referred to as perceptual blindness where there are things going on around us that we cannot perceive even though we have the ability to perceive it but we're being blinded from it if I'm afraid of being wrong what of the information that the market is making available to me what am I going to focus my attention on the up ticks of the down ticks you're right the up ticks not the down ticks meaning that what I will do is I will place an inordinate amount of significance and although the way my mind will automatically weigh this information in terms of what's significant and what isn't it will give more significance to the up ticks than the down ticks because every time I get an uptick it will be taking me out of my pain I'll say oh it's finally all over and then we'll get more down ticks and then we get a couple up ticks and say oh it's finally all over in other words what my mind is doing to protect me is saying that these few up ticks are far more significant than all these down ticks now do I have the ability to recognize a trend in other words being able to define and recognize a trend is one of the most fundamental characteristics of learning technical analysis a trend is a high series of higher highs and higher lows or lower highs and lower lows but in this moment a might be able to recognize this as a trend no because I'm too focused on getting myself out of the pain which means that I'm focused on these up ticks now our trader is operating both out of a fear of being wrong and a fear of losing money now what ends up happening is this is that if this if this were to represent all the negative energy inside of his mind of what it means to be wrong there's also negative energy inside of his mind about what it means loose and as the market was further and further against his position his belief about losing will start to gain more and more significance you start to rise to the forefront of his consciousness and make itself known make its presence known until finally he gets to a point where he cannot stand losing one more dollar and that one more dollar in essence is when the pain of losing one more dollar is one degree greater than the pain of admitting that he's wrong in other words when this pain is greater than that pained by one degree he'll get out of the trade that's what he'll admit that it's a losing trade and get out you guys with me on this now he would say that the market did this to him but what I'm saying is that is blatantly not the case his fear did that to him he created the very experience he was trying to avoid he was trying to avoid being wrong and he made himself wrong and ultimately this is always a spot with a market you know where the market does that anyway good guys with me on this okay now this trader gets out of this trade right here he looks back at this chart pattern and he why did I just go short why didn't I just go short the ability to recognize this as a downtrend let's say he was blinded from his ability to recognize us as a downtrend the distinction existed inside of his mind in other words he can actually make the distinction of what a downtrend is but in that moment while he was in that trade he was blinded to his own distinctions because he was operating out of a trade by trade mentality he was operating I would say he was operating out of a trade by trade mentality this trade took on the significance of life or death just like any any other trade that he puts on does it to be a consistently successful trader it ain't gonna happen if you think that way the pros don't think that way determine your risk either works or it doesn't and then go to the next trade determine your risk the works or it doesn't go to the next trade that that's all it is that's the whole game now let's say that this doesn't happen but this happens but say instead of it going against them at the market does this now what ticks do you think he's gonna be focused on the upper the down ticks the mark is doing exactly what he wants by the way now the market is doing exactly what he wants and what ticks do you think he's gonna be focused on on the down ticks and why the down ticks because he's been in too many times the trades in the market has taken away his profits and so he plays an inordinate amount of significance on every down tick and in essence ends up doing what leaving money on the table so what he does is let's say he gets out right here so he cuts his profit shorts and lets his losses run in Chicago vernacular this is called like this is called like an elephant and eating like a bird what that now if this trader had a belief in a random outcome that he didn't have to know what was going to happen next to make money what do you have these problems what would he be expecting if he had a belief in a random outcome that there was just a random distribution between wins and losses and endi give him a set of variables that define his edge if he believed that if he believed that only took one trader somewhere in the world that negate the positive outcome of his edge if you believe that no matter what reason he thinks he has for putting on that trade that the reason why it works or doesn't work will almost never correlate to the actual reason that he that he conjured up if he believed all these things how would he be handling this come on how would he be handling it tell me okay when he got into the trade he's going to say that okay when it reaches this level right here I'm gonna get out if it goes down to this level down here I'm gonna get out yeah he may have ended up leaving some money on the table but at least he's going to be in that percentage that he had already predetermined it's going to create him to be a winning percentage of trades would he have the same be saddled with the same emotional problems that he had if he if he was operating out of a fear of being wrong or losing money no no because you didn't have any emotion in the trade it's saying hey it's following my predetermined plan that I have in place and it either works or doesn't right that's right because I trade from a series of trades perspective I don't know what each individual trade is going to do this is the way the pros do it by the way this is thinking like a pro you want to make consistent money this is what you're gonna have to think otherwise you already know what the problems are trading will take on a take on a quality of being exasperated because you can see the potential and it seems like you're always just that just like that close I'm getting it and you never get there how we feel our state of mind in any given situation is always real and the absolute truth now I want you to make a distinction here and any given moment we're in a state of mind state of mind could be any number of things we have a lot of ways to define states of mind you could be a state of mind of like satisfaction dissatisfaction happiness joy fear terror these are all states of mind confidence in the state of mind as a state of mind confidence when I'm confident I feel I feel compelled to step into a situation compels to thrust me forward into an experience of course if I'm fearful then what am i doing I'm pulling back because I feel threatened in some way I'm perceiving the information that's available in that moment as threatening but you've got to remember for me to perceive it that way it means I'm interpreting it that way here's where people get real mixed up about this sort of thing is that the state of mind that we experience in any given moment is always the absolute truth you can't deny the fact if I'm if I'm feeling fearful right now than I'm that I'm feeling fearful that's just the way that it is I'm in that state of mind the particular interpretation that got me into that state of mind however could be completely dysfunctional you guys with me on this the interpretation that comes from what we believe could be completely dysfunctional you see as pass technical traders if we believe that somehow or another our methodology is telling us what's going to happen next on any particular trade the reason why we're having problems is because that is a dysfunctional belief it was never true now the states of mind that result from that belief are real so for an example if I put on a trade and it turns out to be a winner I think that I'm right and as a result I feel great if I put on a trade and I think that I lose well then I feel like crap because I was wrong the reality is neither one was really true because when you win you weren't right and when you're wrong you weren't wrong because whatever reason you had to put on the trade in the first place again had almost no correlation to what actually happened with the market in other words why the market did what it did you just happened to put on a trade at that time that worked and all technical patterns do technical indicators I mean pen price patterns is get you into a situation where there's a likelihood a likelihood a likelihood that when you get into that trade it'll work that's all they were ever represented to me you understand what I'm saying that's all they were ever represented to be I'm not saying they don't get you know screwed up somehow in terms of the way people represent them but that's basically that's all that basically they ever they ever were it's not on a trade by trade basis now we're gonna get into the last part of it we're we're heading down the homestretch guys heading down to the homestretch are we all right up to this point as far as anybody have any questions about the fear and confidence and the relationships that we're talking about that what we're talking about is the fact that we've got it if we want to we want to think like a pro so that we can experience the kind of results that the pros get which are consistent it means that we have to change our perspective from trade by trade to a series of trades does anybody have any questions about that and why that's essential so if you know that why do we have to go to a series of trades perspective why hold on one second sir you're taking all the fear out of and you know that through a series you'll be right more the times and you will be wrong and you take all the fear out of it and just work on that basis without any emotion correct no and why isn't there any emotion when you take give me specifically why you think there is no emotion what are you doing it out more of a mathematical concept and not I think it's gonna do this you're taking to see they're gonna be righter it's gonna be wrong and you either walk away or stay in it I want you these words expectations and your in your answer okay I don't have any expectations it's either gonna work or it's not yeah another words this particular trade you don't know what you think something's gonna happen but you don't know what when you when you put money a slot machine and push the button you think something's gonna happen but you don't know what and if it comes out to be the put jackpot well hey your dad feels great you're surprised right when I put on a trade I'm I feel the same way literally I don't know I don't have to know I just have to do what I need to do to make money I come on a consistent basis which means I have to take every one of these trades I can't pick and choose the only reason why I'd pick and choose is because I think I'm right so when you change your perspective from a trade by trade to a series of trades it automatically manages your expectations in a positive way I'm gonna set this up for you as an exercise in a little bit okay but but I just want to make sure where anybody else have any questions about any of this so you know you so in other words what so what we're doing at this what are we doing at this point then so so you know where you want to go right so do we know where we want to go we want to get to a point where we are actually changing the way that we think when you walked in here this morning you didn't think like a pro did you now you have some idea of what it means to think like a pro right come on yes or no come on guys give me some response okay how we gonna get there now we might understand it how we're going to get there well paper trading you yeah sorta but yeah I didn't you know I'm not saying you just have the answers I'd say we got to have a way to get there right we have to but we have to have a series of steps to be able to get to this particular mindset because what we're really talking about here is we're talking about changing the way that we think now that can have some profound implications right no one seems to like to change the way that they think most traders have to go through the process remember this morning the thread that the common thread between all traders who end up you know being you know being really successful is that they end up having to lose one or more fortunes of what they defined as a fortune to get to that point it's because the process of losing caused them to change the way that they think about trading now do you want to do this the hard way or do you want to do it the easy way okay I'm getting some response here good the easy way right if we want to do it the easy way so this is what this is all about now this is what the last part of the workshop is about is about doing it the easy way what's that right there you go how do we change well that's a good question right that's a real good one how do we change a lot of theories a lot of techniques about a lot of theories a lot of theories on techniques as far as I'm concerned change is really a function of well you can break down to a series of steps and really change is really a function of desire when you get right down remember how we took price movement and boiled it down and distilled it down to simply what price movement all price movement is a function of what imbalance and conviction between buyers and sellers all change is a function of desire if the desire is there you'll find a way to facilitate the change and it really doesn't matter what the technique is honest to god it really doesn't I'll give you an example right here probably the one of the most extreme examples I could come up with you could by the way this what I'm gonna read you right now I got off a guy who and you can go google this kid and find out more about him yourself okay but as I read this to you keep in mind how this kid accomplished this because the scientists that that investigate this they don't know they can't figure it out to me it's easy the kids desire was so intense that he managed to find a way this is Lincoln Nebraska Bryce Mellon is a whiz at video games such as Mortal Kombat who is anybody familiar Mortal Kombat I'm not into video games though well not those video games anyway Mortal Kombat okay I've got some people this is a tough game yeah challenging okay in that regard the 17 year old and he's a little older now this was a couple years ago in that regard the 17 year old isn't much different from so many others his age except for one thing he's blind and as Eve and as he easily dispatched foes who took him on recently at a Lincoln gaming center the affable and smiling bright smiling Bryce remained humble I can't say that I'm a superhero we said working the controller like an extension of his body I can be beat those bold enough to challenge him weren't so lucky one by one while playing Soul Calibur - which is another game their video characters were decapitated eviscerated and without mercy bye-bye Bryce's on-screen alter-ego I'm getting bored Bryce said and just as he won game after game blind since birth when his optic nerve didn't connect because of libraries ease Bryce honed his video skills over the years through patient and not so patient playing memorizing key joystick operations and moves in certain games while asking lots of questions paying particular attention to audio cues he worked his way up from games such as space invaders and asteroids into modern combat games I guess I don't know how I do it really Bryce said as it continued playing while facing away from the screen facing away from the screen it's beyond me that's what I'm just quoting him Bryce knows this much he started playing at home and he was about 7 he enjoyed playing he enjoyed trying to play but he wasn't very good at first said his father Larry but he just kept trying he broke a lot of controllers when the questions of broken controllers comes up Bryce flashes a smile in just shrugs I used to have quite a temporary said me and controllers didn't get along very well now they're just now we get along just fine while playing Soul Calibur - Bryce worked his way through the introductory screens with ease knowing exactly what to click to start the game he wanted he rarely asked for help once the game started he didn't need any help how do I move an exasperated ponent Ryan O'Banion asked while doing battle which his character was frozen in place you can't Bryce answered before finishing him off that's what happens it's why I don't play him O'Banion's said after his blood spattered characters corpse vanishes from the screen now Bryce became so how Bryce became so good as a mystery to his father he just sat there and he tried and tried until he got it right Larry melon said he can't ever complain to me or anyone else about how hard it was Bryce hangs out any chance he gets at the dogtags gaming center in Lincoln opened last month every now and then someone will come in and think that he can't that he that he can beat the bot that he that he can beat the blanket that attitude doesn't faze Brian I'm challenge I challenge I'll challenge them maybe if I feel like a challenge you said displaying and Infectious confidence I freaked people out by playing by playing facing backwards there's nothing like there's nothing he likes better than playing video games he will be a senior in high school next year after graduation he plans a year off because he wants a break from school and when he goes to college he wants to study what else a video game design this is just an extreme example but I think a really good one that all change is a function of desire if you want it bad enough you'll find a way to do it if you want to be able to think of probabilities because you want to be consistently successful you will find a way to do it I'm going to give you ways but what I'm saying is that you will find a way if you don't then it's that simple you won't it's like almost every what might the traders when I was doing coaching the traders that I worked with fell into the two basic categories and there almost wasn't anybody in between the first category would be traders who are already consistently successful they already knew how to win and what they wanted was fine tuning so they'd go to a trading coach like myself to find ways to find some really creative ways let's say to fine tune fine-tune themselves where they can actually make more money than what they were already making and then the other category was desperation and I'll do anything they all do anything the everyone in between no way and even they all do anything wasn't always sincere sometimes it was just lip service change is also a function of the degree to which we change is also a function of the clarity of your intent in other words you could have the desire but your intent has to be really clear because when you think about the whole concept of changing which are really saying is that I'm willing to let go of a certain portion of my identity in a way of some part of myself that you know I obviously operate it out up for X number of years or months or whatever put it maybe put a lot of energy into and you got to be willing to let that go is it even possible to change a belief how about it is it possible to change a belief I mean it happens all the time does it not is there anybody in the room who did not grow up by this is this is just a simple example a simple illustration is there anybody in the room who did not grow up with it with a belief in Santa Claus most everybody did just an example if you believed at some point in your life in Santa Claus where's that belief now what happened to it what happened to that portion of your identity because if we are all children if we're all four and five years old and someone knocked on that door and said Santa Claus is out in the lobby we'd probably be jumping over each other to get over there to get there right and it was that belief the energy inside of that belief would compel us to express ourselves in a particular way a way that was consistent with the belief if I believed in Santa Claus and someone said and gave me information said Santa Claus in the lobby I'm gonna be I'm gonna be jumping over these tables to get there as a four-year-old now as an adult someone knocked on the door and said Santa Claus in the lobby I'm sure I just took just ignore me where did the my belief in Santa Claus go what happened to it yeah I don't know the underlie mean really I don't I can't say that I know the underlying dynamics of how that energy got transformed but I can say it doesn't exist inside of my mental environment any longer in a way that would compel me to express myself like I did believe in Santa Claus and numbers there's no more energy there I can remember when I did believe it I could say to myself oh yeah there was you know there was something there's something or maybe there's something there even now but not enough to say not enough for me to go running out into the lobby you can say before you walked in here that you might have had a real strong belief that whatever you use to determine your edge gave you that edge on a trade by trade basis in other words I wouldn't be putting on this trade if I didn't think I was right now you can say to yourself are you willing to let that go the only way you're going to be willing to let it go to even generate the desire to let it go is if you're really clear about your intent hopefully I've given you enough insight to be really clear about your intent as to why you might want to let this go because it's just going to create frustration if you like trading on a random basis then great then stay on a trade by trade basis the trade randomly because it is fun you'll win you'll have winning streaks but I can assure you I can't assure you without a shadow of a doubt that you trade randomly and you are setting yourself up for catastrophic losses because anything you do could result in a win and most of the things people end up doing are just the kind of things that that set themselves up for catastrophic loss because inappropriate you are reinforcing inappropriate behaviors on a train when you trade randomly on a trade by trade basis you are reinforcing inappropriate behaviors those inappropriate behaviors namely are not predefined in your risk as the biggest one you get into a trade you don't predefined your risk and you win you're gonna do it again you're gonna do it again until you get hit with it whether it with a huge loss and sometimes those are really hard to recover from in fact for most people they're almost impossible not you can't it's just that you don't have the resources for nor do they have the the desire the inclination to do it then just walk away are you relatively clear about why you would want to do this why you'd want to go from a trade by trade to a series of trades perspective sincerity say you need to desire you need the clarity and you need the sincerity it can't be lip service it has to be real it has to be authentic as a matter of fact I'm going to say to you that based on my experience if you're clear if the desire is there its genuine the clarity of your purpose is there it son conflicted and so the sincerity is there it will virtually happen automatically that is the technique for change what most people the problem is is that with most people it takes pasta it takes usually a series let's say it takes using various techniques that are available that have been you know that have been created and thought up that over a period of years they finally get to the point where they're come they had the the real desire they have the clarity and the real sincerity is there and once all those are in place the change happens automatically and they would think that it happened over a period of years using techniques but the reality is it just clicked into that just finally the whole thing clicked into that that one point where it's all there like the cut I'd like the straw that broke the camel's back I mean a good example would be about what I'm talking about in terms of how clear you have to be in some cases because some of the energy that you want to move out in terms of a conflicting or dysfunctional belief it could be really strong energy I mean you know there could be pretty substantial when you think about it I mean there are traders that I worked with many years ago especially that we're really I mean hard hard-core technicians I mean he was a really hardcore guys that just you know I'm not even gonna mention the techniques they use but you know it's like well I gave like Elliott Wave casualties I mean there there were very guys that we're just you know there's a time in the in the late 80s and early 90s where a lot of my off the floor traders were what I call Elliott Wave casualties and you know and because these are guys were just you know who love to analyze and you know when you start with it you start when they start understanding the difference between analysis and execution and also the underlying dynamics of the market it's like it's like they had to get to a point where the realization that they'd spent ten years or eight years and thousands or tens of thousands of dollars on analysis and workshops and seminars when I knew what none of it was there very little of it was really necessary I mean they had to get threatened sell all that stuff and that wasn't an easy thing to do that was an easy thing to let go of it wasn't an easy thing to say okay it was alright you know though I know what I need to know now and you know but how do you know what real clarity of intent is imagine yourself being held underwater imagine yourself being held underwater and as your air starts to run out second by second it gets to the point where you believe that if you don't get a breath of air right now you're going to drown that is a point at which every fiber of your mental being is aligned is aligned 100% with your desire for that next breath of air there's no conflict there's no hesitation there isn't anything that argues inside of you for anything else other than that next breath of air if you want to make money bad enough in other words if you want to be want to be able to make the kind of income that you can rely on as a trader then your desire to switch to this series of trades approach has to be greater than any resistance that you might have to stay in a trade by train approach does this make sense degree of conviction I just basically gave you that to the you know the how much energy is behind your desire energy moves prices in the market I mean what moves price is an imbalance in conviction what it's conviction implied conviction implies energy energy I am NOT going to bid a price up to a next highest level unless I think I know what the hell I'm doing and that I couldn't at the market that I can make the market go further or someone else is going to come in and help me out I have to have conviction to do the opposite of what it takes to make money meaning by high instead of by low or sell low instead of sell high my conviction in the future has to be greater than the guy on the other side of the trade conviction moves prices conviction will move energy inside your mental environment focus thought will move energy out of dysfunction believe dysfunctional beliefs that's basically what we're talking about we're talking about clarity of intent desire that is focused thought you know exactly where you want to go you want to get to the point where you believe that there's a random distribution between wins and losses that anything can happen that you don't need to know what's going to happen next to make money and that's the big one I don't need to know what's going to happen next to make money if you understand the benefits of installing those beliefs inside your mental environment as a core component of your trading personality then you will find a way to do it I'm going to give you a way but self-discipline self-discipline I define as as simply making a conscious commitment to pay attention to what you are thinking saying or doing in relationship to what you're trying to accomplish in any given moment in other words if for an example I have a goal or a desire or an objective a desire to transform myself into someone who could think like a professional trader someone who thinks in a series of trades perspective someone who believes in the random distribution between wins and losses in my series and I and I also know that you know I I may have any number of conflicting beliefs that I've acquired over the years that say otherwise to say you know even though I'm aware of the benefits of this there's all these other beliefs that say this isn't true this is not who this is not who I am this is who I am right here this guy came yeah he seems to be making a lot of sense up here but you know something this is who I am you want to transform yourself into someone who thinks this you can use self discipline as a technique which is simply my objective is a think in a series of trades perspective start monitoring your thoughts your words or your actions to see that they're consistent with what it is that you want to accomplish and then simply purposefully refocus when you find out that you're doing saying doing or thinking something that's opposite or not not consistent with what you desire and just constantly refocus eventually get to the point where you are that person a real good example of employing self discipline is back in the late 70s I decided I want to become a runner and I can't tell you why I don't remember the reason why I just got it in my brain that I wanted to do it now back when I was a kid in high school in college I was very active played a lot of sports but in you know from that point on my lifestyle was such that I ended up becoming somewhat of a slug and I say a slug just you know I watched a lot of my primary vocation of them working was watching TV and so when I decided that you know I wanted to become a runner you know flirt hi to I went out and Rand could I found out that I couldn't I'm gonna say I couldn't literally couldn't I was shocked and astounded that's how a lot of shape I was I couldn't run two blocks and so you know I went out the next day nobody could run two blocks again oh my god and then I didn't run again for probably six months and so so when I ran again at least had enough enough desire to compel me to run more than a couple of days and and something in and I found something out is that is that I was amazed how fast I how fast your body adapts and improves and so that gave me a lot of encouragement because you know I ran a couple of times I ran the third and fourth time and it's like I ran so much further like the fourth you know third or fourth time on thinking that gave me a lot of encouragement to think okay I can do this and so I set this goal for myself that this was like in May I remember in May of 1979 or 1778 I really don't remember anyway but I set this goal for myself that I wanted to be able to run five miles by the end of the summer and at the time it seemed insurmountable it really did it didn't seem like it was even remotely possible to me but that's that was my goal and so I went out and be kind of a methodical person I went out and I bought a journal a running journal and a stopwatch and of course the running shoes and all those kind of good stuff and so I set out to set up to just start running and immediately ran into a set of obstacles and those apps turtles had to do with like it wasn't a part of my identity because every time I said okay I'm gonna go go running well can't we go run well what do you think happened all these conflicting and competing thoughts flooded my brain like okay it's too hot it's too cold I ran three or four days ago nobody I know none of my friends are doing this you know my crane and the biggest one of course was I'll go after this program and of course I never went so I would say that out of all the times that I when I said I am going I want to run I would say that I managed to actually get my shoes on and get out the door maybe 30% of the time okay and and but that 30% of the time I was like I was improving okay and and you know and I was actually getting further and further and getting encouraged but at but I realized as as as I could run foot run further and further like I was up to a mile maybe or a mile and a quarter or something because I because I I marked it all off in terms of like every half mile kind of thing of the course that I did so I realized that that I was getting so enthused over the fact that I was even getting that far that I thought I needed a mechanism to get the five miles because I thought I'd quit well I mean I thought I quit is that if I got the two miles that was so far beyond what I thought I could ever do anyway that what would compel me to go to five and so I don't know why I thought that way but that's what I did I really did so I established what I called the five mile rule and the five mile rule was if I managed to get through all my conflicting and competing thoughts and if I managed to get through those and actually get my shoes on and get outside and take one step forward that I had to always run at least one step further than I did the time before and I knew what that was because I kept the journal I knew exactly where I stopped so my rule was I always had to go what I could go more than one step but I had to be at least one step and what I found and this was really interesting because what I found is that there was a threshold there was a certain threshold point at which in which you know all the conflicting and competing thoughts went away and it was like there I just became I became a runner it was like I didn't have to I didn't have to force myself to go out and run anymore I actually felt compelled to run and since what I did was create a new sense of identity like some people might call it a habit or whatever I just call it a new sense of identity I actually established a belief that said I established a belief that said I am a runner that's who I am you see it's like it's like it was people and then my friends and family they all thought that I was really disciplined because see because that's what I said most people think discipline is a personality characteristic I don't define it that way at all I've defined it as simply a technique for change because when we see somebody doing something that we can't do that we'd like to do but we have a problem with it we just naturally think that they have the same kind of problems and that they're being disciplined in doing it and that's not the case at all if you're doing something effortlessly it's because it's who you are there was a threshold point like I said where we're all the conflicting energy just completely dissipated and instead of me having to say consciously say to myself oh I'm gonna go out and run I actually felt compelled to run then I got no I got to the five miles and then I got to the point where I was running so much that I actually had to establish a corollary belief to learn how to listen to my body because there were days where my body was basically saying hey this is not a good day to run and give yourself a rest and that had to be alright but for a while it wasn't because when you start injuring yourself then you know you're overdoing it so I actually had to establish a belief that it was all right not to run so it went from went from conflicting and competing thoughts to this is who I am and now it's effortless completely effortless there's no conflict at all that's what you're going to have to learn well that's what you're going to learn how to do with your training you're going to learn how to put on a sample size of trades where it becomes completely effortless where there's no conflicting or competing thoughts about what it is that you're doing and why you're doing it it would even occur to you not to make it wouldn't even occur to you to make the kind of mistakes that you typically make now that's what you want to do you want to get to the point or it doesn't even occur to you it doesn't even enter your brain does everybody understand that example like I said when you when you when you realize that you're not appropriately focused on your objective meaning you notice that you're either thinking saying or doing something that's inconsistent with what you're trying to accomplish you deliberately refocus your attention on the object of your goal just do the best you can okay so so basically like I said this whole section this last section is is giving you steps and techniques for evolving into a professional traders mindset so what you want to do is you want to resolve and I've seen yourself my desire is to be a certain way so that I can make a consistent income from my training something I can rely on so I resolved to stop analyzing you're trying to figure out if the current opportunity to put on a trade is going to work resolve to stop doing that and when you find yourself doing it consciously we focus your thoughts that analyzing is not beneficial in any way as the passive technical trader you are dependent on other the behavior of the traders to make you make your trade a winner and you are using a mathematical formula or price pattern to predict what they will do math formulas or price patterns don't know the intentions objectives or reasons why the individual traders who are capable of moving prices behave the way they do as a result you will almost never know the real reason why any particular trade worked or not there's nothing to analyze there's just nothing to analyze nothing there was a back in back when I was in you know commercial casually sales there was a sales course that I bought by zigzagging everybody I was exhilarated as' part of this sales course where Zig Ziglar talking about the exact right moment to ask a closing question the closes sale and you know he said he and and you know he's trying to get people to understand when that right moment is and when you know where you're at that right moment Zig Ziglar pause then there was silence and then he screamed shut up he screams out much louder than that shut up the first person who talks to loses in other words when you ask that closing question as a salesman shut up and don't say a word because if he said the first one who talks loses and that was a truth that worked I found when I felt compelled to talk before he did I didn't get the sale and when I was able to keep my mouth shut and let them talk first I did what I'm saying to you is that when you get a signal from your methodology stop thinking there's nothing to think about there's nothing to think about do you understand why I said that just put on the train there's absolutely nothing to think about just put the train on so you resolved to stop analyzing okay I resolved I'm gonna analyze anymore when I get a signal I'm gonna stop thinking resolve to learn the skill of trading without fear in other words manager expectations by discarding the trade by trade approach in a favor of a series of trades approaches what I've been talking about for the last half an hour the pitfalls of a trade by trade perspective anything you do for any reason can result in a winning trade the problem is many of the things that you could do that results in a winning trade could reinforce trading behaviors that could lead to a catastrophic loss losing streaks can usually cause one's attitude to deteriorate into a negative spiral when you trade in a trade by trade perspective from a trade by trade perspective you are making a choice to pick what you think is an edge out of all the other possible trades you could have picked in essence you are saying I am picking this trade because I think it's going to work when you trade in a trade by trade perspective you can't help but think you know it's going to happen next because you are picking trades that you only picking trades that you think are going to work and therefore you your expectations automatically will not be in line with the realities of the market from its perspective is therefore have a threat will have the potential to define and interpret market information in a threatening way therefore causing your perception of that information be all out of whack and you're going to end up crating the very things you want to avoid which is lose and make money or losing and and be wrong you guys with me on this the reality is that a rational level you don't know if any trade is going to work because you never know for sure who's participating and what their intent is you're guessing see you know what you know what traders is an educated guess this is what we do is traders edge got an edge you hated guess that means probabilities you're making an educated guess you've got the probabilities in your favor that's all we're doing here with a specific expectation of the outcome and the market information that doesn't conform to what you expect will be perceived as threatening you will be trading with fear if you win you think you're right and if you lose you think you're wrong in either case you'll be setting yourself up to make a trading err on the next trade just think about what I just said regardless of what happens if you're right or you even or if you're wrong in either case you're setting yourself up to make a training error on the next trade because our minds have the natural tendency to connect the past with the present if the trade was a winner del lunes if you're training in a trade by trade perspective and you think you were right because you won in other words whatever reason you use the market seemed to validate that reason we know now that that just is not the case if the trade was a winner were susceptible to on the next trade not pre defining the risk well the last one was a winner I knew for that reason I knew what was happening therefore the risk doesn't exist not letting ourselves get stopped out of a loser jumping the gun because you're anticipating the signal over trading our position sighs not booking any profits because you think it's gonna go on forever this is making sense to everybody if the trade was a loser you're susceptible to not pre defying the risk because you're gonna gather all the information that's necessary to make sure it's not gonna be a loser this time otherwise I wouldn't be putting it on right you're gonna analyze it to death you're gonna hesitate get in late or not get in at all take profits too soon or revenge trading by not booking any profits in other words whatever the markets giving you ain't enough I gotta have more the last trade was a loser I gotta have more the benefits of a series of trains perspective you know exactly what behavior serve your purpose and what behaviors do not you cannot trade in a series of trades perspective with a trading plan and not know exactly what behaviors will serve your purpose and what behaviors will not because everything is planned out you're either following your plan or you're not but the point is everything is planned you are not picking individual trades therefore no one trade has any more or any less significance than the other the next trade this trade they're all just trades none of them have any more or any less significance you will gain a sense of freedom to flow in and out of your trades without conflict because you are not living or dying on the outcome of any particular trade by reducing the number of variables you will be learning what works and what doesn't by truly accepting that the outcome of this trade can be different than whatever happened the last time you are positively managing your expectations now think about what I just said by truly accepting what does it mean to truly accept it means that there's no other part of your identity or consciousness that isn't conflict with accepting the fact genuinely accepting the fact that this trade could have a different outcome than the last one if this laughs the last trade was a winner it means that this trade could have a different outcome that could be a loser if the last trade was a loser it means that this trade could have a different outcome it could be a winner you see our minds don't feel like there's anything wrong with you by thinking in the previous way because our minds are wired to think that way our minds are literally wired to connect the two that's why it's so difficult for many people to breakthrough into this into this ability to think in probabilities and to break into the this threshold of consistency is because we're working in some cases against natural wiring it is natural for our minds to say if this is what happened the last time if the circumstances are identical or similar this time then the same is gonna happen what I'm saying to you is that you have to you have to you have to step into an exercise where you consciously disconnect the two in other words your whole purpose is to disconnect this now moment from what happened the last time because there is no connection the reality is there's no connection that's the truth you just can't let your mind think that there is a connection there is no connection between what's going between the outcome of this now moment opportunity with what happened the last time even though the variables that are getting you into this trade or identifying this opportunity are identical that creates quite a paradox for our brains okay that's why people can understand the nature of probabilities they can understand them but they can't function from that perspective you have to train your mind to function from that perspective that's what separates everyone from the pros okay you have to train your mind to disconnect don't let yourself think that there's any connection between now and what happened the last time because the reality is there is none there really it's it I don't care how identical it looks you can use the same mathematical formulas and and and and criteria and those formulas that apply to market data and come up with these patterns but I guarantee you the traders that are operating in the market now are not the same traders identically at least not the same traders as the ones that operated the last time therefore there's no possible way that there could be a connection between now and then there's no possible way when you disconnect when you make that disconnection okay you won't perceive market information as threatening you'll eliminate the potential to make a trading error and you will be aspiring to trade without fear in a carefree state of mind now that you understand that your technical methodology does not tell you what will happen next on a trade by trade basis in this section I will take you through a step-by-step process that will integrate the principles of consistency as a functional part of your trading personality up to this point we've talked about how we get into this mindset about resolving to think in certain ways but this is this is learning how to disconnect in other words learning how to circumvent that natural mechanism in our mind that automatically connects things connect similar events this now moment opportunity there's not more an event with something that's in our mind as a memory if there's enough so you know if there's enough similarity there it'll it'll tap us into a state of mind that's identical to our memories as opposed to what might be available in the now moment which may be very different then you know may very different than what we think that it is I mean that's where you know that's where we have relationship problems communication problems you know it's like it's this this this this connect mechanism really does cause us a lot of problems it really does because in many cases a lot of the pain and heartache that we feel in our lives is not connected at all with what's really happening in that moment but you wouldn't be able to convince ourselves or no one would be able to convince us or wouldn't be able to convince ourselves that what we weren't experiencing in that moment wasn't real because what we were experiencing was the energy it was the the fear the confidence the dissatisfaction the betrayal you know the energy of it is is real that you can't change this is not what's happening but the problem is that the interpretation of the information that tapped us into the state of mind and the connection that our mind automatically may from this moment to some memory in the past could be like I said completely erroneous we knew when you look at when you look at the very nature of the universe and the way it exists there is no possible way that any moment could ever duplicate itself no two moments are ever alike ever and could never be because if you just look at it if you look at physical reality is constructed of atoms and molecules and those atoms and molecules are in constant motion they are in constant motion for two moments to ever duplicate themselves it means that all the atoms of all the molecules would have to be in the exact same spot they were in some previous moment right now and ain't going to happen so when you really get right down to it every moment is really unique every moment in the environment is really unique but our minds don't process information that way every moment in the market is genuinely and truly unique but our minds don't process it that way we have to train our minds to process it that way if we want to make ourselves the casino if we want to put ourselves in the situation where we are the casino then we've got to get our minds to process information in a different way Richard have had a comment that I thought was really good we tend to associate with a winning trade or a losing trade that when we do suffer a loss oh we tend to think of ourselves as a loser instead of that is just a trade that turned out a loss right and when we so when we do get a winning trade we think well I'm a winner so you get caught up in the emotion of it instead of looking at it that was a bad trade this was a good trade it has nothing to do with whether or not you're a win or a loser Richard have you ever played the slots no never well yes why couldn't you say yes like go ahead not anymore because no say no did I say have you ever played the slots yes sir okay when when the tumblers didn't come up with any kind of a jackpot did you think of yourself as a loser no why because I know that the slot machine is rigged against me well okay but did you think there's any possibility of ever winning I absolutely because I did get some commercially ended up with an empty pocket but in other words you you you walked into it with a belief that on any particular time that you push the button that there's a random outcome correct you knew that right and so therefore you didn't think of yourself as a loser correct not have you ever thought of yourself as a loser when he had a losing trade yes and what would be the reason because I lost no because you didn't because you didn't believe that there was a random outcome right if you believed if someone told you from the very beginning that that whatever outcomes that you experienced from any methodology that you picked to define an edge were random would you be thinking about this completely differently makes a big difference yeah so nobody wouldn't have the same emotional problems that that you might have with the kind of errors and and and and everything else that goes along with trading with fear if someone would have just said to you you know what there's a random outcome now even though it's a pattern and it doesn't make sense and it creates a paradox for our minds we've got a pattern that produces a random outcome if you believe that there was a random outcome where would the emotions come from they would go they would certainly diminish it well they would be I don't think they'd be anywhere at all with anyway yes no I'm saying if you just right from the very start what would you have to associate with if it's a random outcome that you know that you're not wrong right correct so there wouldn't be anything to associate the outcome with any kind of interpretation that that could end up causing you to feel some sort of emotional pain you're right all we're trying to do is get to that place now even though you've had all this backlog of experience telling you otherwise that's where we want to get to how are we going to get there we're going to create an exercise number the five mile rule okay we're going to do we're going to do the five mile rule in a training exercise why are we going to do the exercise you remember we have to be have to have clarity of intent what is our desire our desire is to become a consistently successful trader one where I can I can generate an income I can rely on okay and so we are going to actually trade for a new reason we're going to stay focused in the process of trading as opposed to the outcome the typical trader is obsessed with the outcome of a trade the professional trader is focused in the process of training and letting the outcomes take care of themselves as a matter of fact the best traders that I've ever encountered love the process of trading the typical trader on the other hand either has no awareness of the actual process of trading or really doesn't like the process of trading but they're addicted to or obsessed with the outcome so you have to make up your mind and everyone in this room at some point in their lives for some reason has decided to make up their mind about something and when you have you've got results everyone has I know everyone has had that experience you've made up your mind with so much desire so much clarity of intent and and with with absolute sincerity that you've got the desired result so I'm saying that if you make up your mind to trade for a new reason the reason is the acquisition of skills as opposed to the outcome or how much money you're making you will acquire those skills and then you'll find that the outcomes just take care of themselves if you've paper traded or tested your methodology to the point where you have confidence that you have something that can generate consistent results then you can do this exercise if you haven't then you're going to have to do that first you're going to have to you're going to have to plan your trades in other words you're gonna have to take your methodology and determine a given set of rigid variables because what we're going to do is set up a training exercise with just a simple twenty five trade or twenty trade sample size in other words what you're gonna say is that I am willing to invest in the development of these skills the skill of learning to trade without fear learning to think in probabilities because when you learn to think of probabilities the fear will go away and so what I essentially have to do is convince myself I have to step in to purposefully step into an experience where I am convinced where I literally convinced myself that these principles are true now they sound true to you they might resonate as the truth but you have to keep in mind that you might have a backlog of of any number of experiences that that would support beliefs that would argue otherwise because I could say to you that if I set up or you set up an exercise where you said okay I've got a particular set of variables that when they appear in the market that is my edge and that my edge will produce let's say even 60 percent winning trades and you don't even have to have 60 percent you're gonna have 50 percent and still make consistent money as long as what you have to risk to find out if it works is you know a third or a half of what you normally get when the problem of the trade does work in terms of but if we set this exercise up so that there aren't that there's no wiggle room there is no wiggle room what I mean by wiggle room is that the variables the criteria that you use are absolutely rigid black and white they either they're either present or they are not that's the only decision you have to make are the in other words if you do it you do it in terms of lights whatever lights you're gonna use whatever timeframe the lights are going to use in whatever timeframe they are either on or they're not and if they're on you are obligated to take the trade and what you're going to say to yourself is that in this whatever whatever criteria or a plan that you set up is I am NOT going to take just the next trade I am going to take the next twenty trades I'm going you are committing yourself to taking the next twenty trades of the occurrence of your edge you will know in advance based on testing and paper trading exactly the optimum amount that you have to risk in other words what your risk is on each trade it is not going to be a very it's not going to be a varying amount it's going to be a specific amount whether it's in terms of dollars or distance there will be a specific amount so that you know exactly how much each trade is going to possibly potentially could cost you and it should really be set up as a rigid profit profit potential - and don't lose I don't want you making subjective decisions it's about how far how far you gonna let the market go in your favor so if you can you can get a set of variables well let's say you even two to one or even one to have to want one and a half to one meaning that that if I have to risk one point of something even if it's let's say in stocks of if I have to risk $1 to make that that my particular set of variables my entry variables will get me into a trade where if I risk a buck I'll get $2 60% of the time or 50% of the time then that's what you do you do two to one there are training methodologies that can be even the opposite you can even go two to one here meaning you could risk two to get one but in these cases the trade has to be the trade has to be 80 or 90 percent correct you could do it any percentage as you want as long as it is fixed there is no regal wiggle room there is no subjective decision-making what so ever am i really clear about this there is no subjective decision-making whatsoever go ahead the big things in expectancy are in trading with risk reward ratio is you don't know which trade is going to be the winning trade correct and typically you you try to let your winning trade get stopped out on your winning trades but what you're saying to us for this exercise is that we take a fixed stop understand the fixed risk but a fixed essential profit stop you know what if you can set it up as a trailing stop if you can set your trailing stops up for you're not making any kind of the subjective decision you can do that too as long as you're sophisticated enough to do that then yes okay most most traders in these situations are not that's why make it real easy okay as long as long as it's as long as you're not making any decisions so in other words what you're saying is that if the market goes X number of points in my favor I move my my trailing stop up to a certain percentage below where the market is right now and you don't move that unless you get stopped out or moves up another gradient or whatever and another one I think standard like deviation beyond yeah okay whatever you're using okay yeah if you can if you can if you could do that that's fine I just want it I just want all the various variables to become legally and absolutely fixed okay and then you fixed all these variables and so you say to yourself I'm going to take the next 20 trains not just the next one but the next 20 no matter what no matter what now that means that you have to be prepared based on the amount that you have to risk you have to be prepared to take 20 losses in a row the likelihood of that happening are is about as remote as getting 20 wins in a row but the point is is that the dollar value of the risk of each trade multiplied by 20 you have to be able to afford so you've got to set it up that way you've got to set it up so that you can afford the dollar value of the risk of taking 20 losing trades in a row because your so what you're saying to yourself if taking the risk of taking the 20 trades in a row losing 20 trades in a row based on the amount of shares that you trade so for example if if if the standard amount of shares that you trade would say that you know but if I had lost 20 trades in a row based on how much I've got a risk is going to be $5,000 you say to yourself you know what I don't want to spend $5,000 on this then don't but say I'm really truly willing to spend let's say $1,000 then set it up where the the amount of contracts or shares that you trade correspond to adding each one up where comes up to $1,000 even if it means is trading 10 shares at a time go down to a level where it's you're completely comfortable with the dollar value you have to be completely comfortable and then when you get an occurrence of your edge put the trade on and see what happens and if it turns out the booty would be a winner you think oh hey yeah Mark Douglas a good tape this this is alright okay yeah so this one turns out to be a winner and maybe this one turns out to be a winner and maybe well this one's a loser you think yeah okay I can handle that and this one's a loser oh and this one's a loser now we've got three losers in a row I have rarely met a traitor who doesn't have a problem with the next trade after three losers in a row you you you've made the commitment to take every single trade when the next one comes up and your mind is screaming no it's a loser remember how our minds are wired to think our minds are wired to think that way but that is not the truth the truth is your methodology the mathematical formula does not know what the outcome of that trade is going to be and neither do you you got to take it anyway and see and when these occurrences when you can when you purposefully put yourself into a situation where you're confronting these conflicting beliefs because that's what's rearing its head this is any different than me saying I want to go run and then and then you know after that program or it's too cold it's too hot it's raining whatever it's the exact same thing you put the trade on anyway and it turns out to be a winner you are you are convincing yourself that you don't know what's going to happen next because you created an experience that directly that wasn't that directly it can counter dix what you thought was true you actually created an experience that directly countered NYX what you thought was true and the more of these you run into and the more times you do it all of a sudden you're not thinking the old way anymore you are truly and genuinely learning how to think in probabilities you are integrating thinking of probabilities as a core part of your training personality you may understand the nature of probabilities but now you're being able to function from a probabilistic perspective because what you're going to do is you're going to do this exercise until you could do it flawlessly you are going to do this exercise and you do the first one and if you don't execute your trades completely flawlessly then do it again now at the end of a sample size if you don't like the outcome if you don't like the results meaning the amount of money that you made or even loss for that matter because that's possible you don't like the bottom line you can tweak your variables you just can't do it in the middle of a sample size if you want to change your variables at the end of a sample size you're free to do it you cannot do it in the middle of one cannot absolutely cannot you will keep doing this exercise until when what what well yes but there's something else I want to get until when Wendy when you how do you know that you're how do you know you've arrived how do you know you've actually arrived that you've changed that's right you can do there's no conflicting energy anymore it doesn't occur to you to not do it it doesn't even end of your brain you don't even get the thought you get a signal you put on the train you get a signal you put on the train it's like then then it's who you are you guys with me on this you you managed to actually work through all that conflicting energy and you've changed you're a different person because the competing and conflicted for conflicting thoughts don't even enter your consciousness they're not there anymore because it's not who you are anymore any questions about this this is making sense to everybody if you're really sincere about wanting to generate a consistent income you'll do this exercise and if you're not you won't and you might not be ready to and that's alright whenever you're ready you'll do it but this will work this will work one second because you are actively stepping into an experience where your desire is to change the way that you think instead of avoiding the confrontation you are actually embracing the confrontation big difference you are embracing the confrontation because the more that you embrace it the faster it dissipates go ahead can you speak a little bit about their going from paper trading to real money I know there's a difference and you would say you were trying a new strategy or something that you you were tweaking you would do paper first and what would you would you consider if I mean if you you would you look at each trades and if you executed it flawlessly and and you say you generated money and then you went to the real money how would you decide I guess if you lost money at a match my own question here in other words what would you expect the transition to be well that's going to depend on the individual one you're always going to want a paper trade if you've got a new set of variables that you're working with you're always going to want to paper trade it to the point where you're confident that that you've got you can get good results that doesn't mean you can execute good results it means that the potential is there you want to know the potential is there correct once you know that the potential is there then you move see the paper trading partners only to find out what variables in the market work and relationship to you know like like market movement in relationship to the formula okay now we're working on our brain okay so that's that's the first step the second step is that is that do I think in a way that's consistent that I can extract the maximum potential out of the methodology that means executed flawlessly so so what you do is you set this exercise up in a way that will dictate it is how much you're comfortable with if you how much you're comfortable with the dollar amount of losing every turn every every single trade that's how you know how to set it up that's really key it really is it means that if you have to train one share then you know if that's all you're comfortable with with losing based on the dollar value of how much you have to risk on each trade that's based on your analysis by the way then do it do and then and then when you're come when you can execute one share flawlessly over a sample size or one or two sample sizes then go to ten shares and see how you do it if you can't do ten shares comfortably and flawlessly go back to five you're just building skills if you stay if you get your mind out of the out of out of the money out of the outcome part and focus on building the skills once those skills are there you're gonna make all the money you want that makes sense doesn't it do this exercise and you won't believe how things will change until you actually change and it's just like it'll be and it'll be amazing do the exercise so is there anybody else have any questions about how to set this exercise up how long how long you going to do the exercise if you set it up and do it how long you're going to do it what's the criteria I understand how many 20 trades sample sizes are 25 trade sample size exercises are you gonna do that's right so there's no conflicting and competing thoughts good until you can do it flawlessly just until you can do it until it's like it's just a part of who you are it wouldn't occur to you not to do anything other than what your rules say it just wouldn't even occur to you it doesn't even doesn't even enter your brain and I guarantee you at that point you will be thinking in probabilities you will be trading without fear you will be trading from a carefree state of mind that's the payoff you'll be thinking like a pro so you want to resolve to focus your efforts on developing specific trading skills and consistent profits will naturally flow as a byproduct of the mastery of these skills the most successful traders love the process of trading whereas a typical trader usually ignores the process because he's obsessively focused on the outcome on these traders that keep saying you know do the process and you you do it perfectly right what are some of the pitfalls I mean when I trade I don't really think that I'm doing too much wrong so one curious what all and go wrong on a trade other than tidying it in wrong all the things that like all the errors that I that I mentioned earlier like it or not predefined in your head if you're not doing stuff wrong that's fine you know that's don't don't don't more it don't that stuff yeah if you're doing a haul right and you're doing fine okay I don't want to give you the impression that there has to be anything more there it's you know ok resolve to commit the five fundamental truths about the nature of training as core beliefs of your trading personality those five fundamental truths are anything can happen is that true or not every moment is unique is that true okay an edge is nothing more than an indication of a higher probability of one thing happening over another okay is there a random distribution between wins and losses on any given set of variables that define an edge yes absolutely do we need to know what's going to happen next to produce a consistent income no you see so if you find yourself as you're doing this exercise you know with conflicting and competing thoughts pay attention to what you're thinking pay attention to what you're about to do as a result of what you're thinking and then refocus on what you want to believe I want to believe that anything can happen that there's a random distribution that I don't need to know and just stay focused on on these particular beliefs and do the best you can and keep on doing it until it just becomes a part of who you are it's the right you're absolutely right it's like a meditation that's right your mantra put them up on your wall or by your computer screen because they're all true continually really resolved to continually reinforce a belief in your ability to be a consistently successful trader by adopting the traders Creed by the way these two things are in the discipline and training in the zone what I just the five fundamental truths and the traders Creed are both in training in the zone the traders Creed I am a consistent winner in other words remember the belief that I put up that I am a runner never that I said we're not when I actually became a runner that that belief compelled me to express myself in a way that was consistent with that belief well what we want to do is install a belief that says I am a consistent winner and the subset beliefs that you have to have to make this true will automatically compel you to act or behave in a way that's consistent with that belief why are you a consistent winner because I objectively identify my edges objectively meaning no rationalizations justifications are building cases I know what criteria defines my edge and it's either present or it's not I predefined the risk of every trade wouldn't even think about getting into a trade without doing that now that doesn't mean because who brought that up earlier no he's not here right now that doesn't mean that I always put a stop in the market by trade subjectively that doesn't mean I actually enter a stop but I guarantee you that whatever price I picked as my wrist point I never violate not getting out at that price the market hits my price I get out that doesn't mean I've entered a stop in the market beforehand but I could do that I don't have a problem with that it wouldn't even occur to me not to do otherwise I'm a consistent winner because I completely accept the risk I'm willing to scale back or let go of the edge meaning I am completely free of conflict about the amount of money I'm willing to spend to find out if this trade is going to work if you're not completely sure or let's say completely without conflict about the amount of money that it could take to find out this trade is going to work and scale back to a level that you're comfortable but the important thing is participate even if you have to scale back against like I said one share at least you're participating at a level where you've got some money at risk I act on my edges without reservation or hesitation I am a consistent winner because I act on my edges without reservation or hesitation I'm a consistent winner because I continually monitor my susceptibility to making trading errors how do I do that I keep journals I pay myself as the market makes money available to me I subscribe to a philosophy of scaling out of positions I like to divide my position up into fractions and scale out and quarters or thirds that way I'm continually making myself a winner as the market makes money available I'm extracting money out of the market because I don't know how far the markets gonna go in my favor and what I have is I usually have at least a quarter or a third on in case it just does something that you know I could have never anticipated and by the time I've got just the last third on or last quarter on anyway and you know I've got I've got a trailing stop or you know at least my place in my mind where I get out if it retraces back to back to my you know not far beyond my entry point anyway that from that point on and the last one I never violate these principles of success what do you think guys any questions get them now go ahead do you ever scale in no I didn't know a lot of lot of traders who do I just I just don't that thing I don't wanna say that because I don't doesn't mean that that I that I don't think it's fine I just don't have a particular methodology right scale in that's all I get in all at once anything else here's your chance to get on the DVD come on don't miss out what's that well we'll know about that why what do you mean that do you think whoa what do you yeah you don't have to you can get to a you can get to a go ahead yeah never violate that's that never is it that they said never say never well you know let's put it this way you can you can at least aspire to never violate to violate the principle that's good but that's a good point yeah yeah you're making you're making a good point you really are I appreciate that you can aspire to never violate these principles of success anything else let's call over they are calling me [Music]

Channel: Momentum * Market * Price *

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Id: s8hg-1Rfs7c

Length: 112min 44sec (6764 seconds)

Published: Sat May 12 2018