Trading in the Zone + The Disciplined Trader
Taking responsibility: You are the sole reason for success or failure as a trader. Allows you to see opportunity and to learn + grow.
Can't blame the market: The market is a neutral immovable force. It has no obligation towards you. You can't project your hopes/desires onto the market. It doesn't care about you. If you do, you will get hurt ... realize that you determine when it starts, stops, and ends.
★ The key to mastering the market is to master yourself.
The best trades are easy and effortless with no struggle. You see exactly what you needed to see and acted on what you saw.
You need to fully accept the risk. If you try to maintain a pain-free state of mind, you will take yourself out of opportunity flow.
To no longer be afraid, you must fully accept the risk. Accepting the risk means to accept the outcome to the trade without emotional discomfort or fear.
Let the market do its thing and take advantage of opportunities.
Learn to create a state of mind not affected by market behavior.
When you fully accept the risk you won't perceive the market as threatening therefore there is nothing to fear.
The best traders are not afraid of being:
- Wrong (neutral perspective, accepted risk)
- Losing (Inevitable, can't win them all)
- Missing out (Always another opportunity)
- Leaving money on the table (Always another trade)
Stop avoiding and start embracing responsibility and risk.
If you fear or hesitate to put on a trade when the last trade was a loser, you are being irrational. The current trade has nothing to do with the last trade, they are completely independent.
Risk is relative, one's perception of risk is different from another’s.
The objective of a trader is to perceive opportunities available, not the threat of pain.
Our minds are inherently designed to link external information with things we have already perceived in our internal mental environment.
Perceive market information and associate it internally as neutral. Not positive (overconfidence) or negative (pain).
★★ Associate market information as NEUTRAL with an objective perspective to be open to opportunities.
Experience of emotional pain or positivity is SELF-GENERATED.
The market doesn’t generate positively or negatively information, it only gives a number.
Develop the state of mind to perceive opportunity flow from a neutral perspective.
Nature of trading:
- Trade without fear or overconfidence
- Perceive what the market is offering
- Stay focused and open to opportunity flow
- Belief in an uncertain outcome with the edge in your favor
★ ANYTHING can happen.
Make yourself available to perceive information without any bias.
Your edge places the odds of success in your favor but you also accept the fact that you don’t know the outcome of any particular trade.
To be in the zone - mind and market in sync.
Predefine your risk by determining your position size before entering the trade.
Cut losses without hesitation when the trade isn't working.
Have a systematic approach to taking profits (progressively lock gains).
Events that have probable outcomes can produce consistent results if you get the odds in your favor over a large sample size.
Each trade is a unique event independent from any other trade.
Micro level - Uncertainty/unpredictability of each individual trade. Macro level - Outcome over a series of trades is predictable based on your edge.
It is useless to try and predict each trade. Accept that you don't know what's going to happen and that you don't need to know by believing in your edge over time.
Don't place special significance on each individual trade.
★ Stay focused on trading your edge and executing flawlessly.
Let the probability of the edge play out over time.
★ Always trade with your edge, if you don't, you will lose.
Technical analysis puts the edge for any trade in the trader's favor.
Don't stress on each individual trade, the outcome is uncertain.
Don't try to predict the outcome of each trade, it isn't necessary to produce consistent results. All you need to do is to keep the odds in your favor for each trade over time.
Each market situation, pattern, or edge, is a unique occurrence with its own outcome. Uniqueness implies that anything can happen.
★★ "Let go" of the need to know what is going to happen next or the need to be right. If you trade with your edge, the odds are in your favor. But each pattern/situation is unique so even though you except/anticipate it to go your way, anything can happen. If it hits your stop loss, just get out. Trust the process.
The degree to which you think you know, assume you know, or the need to know what is going to happen next is equal to the degree you will fail as a trader.
Take every trade with the highest probability setup that conforms to the definition of an edge.
Stop trying to predict outcomes.
Accept that you can't be right on every trade.
Accept the uncertainty and uniqueness of each trade then frustration with trading will end.
Trading doesn’t have anything to do with being right or wrong on any individual trade.
Trading is a probability game. Just like flipping a coin, you say its heads but it turns out to be tails. Oh well. Move on to the next trade.
When you accept the random outcome, it keeps expectations neutral and open-ended.
★ The threat of pain comes from how we define and interpret market information.
Market information requires an interpretation. When we expect to be right, any information that doesn't conform to our version of the truth automatically becomes threatening.
★ We have to be rigid in our rules and flexible in our expectations. Be rigid in our rules so we have a sense of self-trust that will protect us in an environment with no boundaries. Need to be flexible in expectations so we can perceive with the greatest degree of clarity and objectivity what the market is communicating to us.
★ To eliminate the emotional risks of trading we need to neutralize expectations by thinking with a probabilistic mindset.
★★ To think in probabilities, you need to develop a mindset that:
- Anything can happen
- You don't need to know what will happen next in order to make money
- There is a random distribution between wins and losses for any edge
- An edge is nothing more than an indication of a higher probability of one thing happening over another
- Every moment in the market is unique
Emotional pain comes from the way you interpret information you're exposed to.
Adopt a probabilistic mindset → eliminate potential to define market information as threating → neutralize emotional risk
Develop a carefree state of mind that accepts that there are unknown forces.
★ Never hesitate to cut a loss. It tells you that your edge isn't working.
★ You can still use your full reasoning and analytical abilities to anticipate an outcome to guess what's going to happen next but you can't expect to be right.
You can't expect that whatever worked last time will work again the next time even though the situation looks exactly the same.
You don't know what's going to happen next and you don't need to know.
Anything currently in the market will never be the same as some previous experience.
When you put on a trade, the only thing you can expect is that something will happen and based on the market's past behavior, the odds of it moving in the direction of your trade is good.
Before putting on a trade know how much you are willing to lose and place a stop loss. If your stop loss gets hit, exit with no hesitation.
The best traders are not trying to be right, avoid being wrong, or trying to prove anything. When the market tells them that their edge isn't working or it's time to take profit, they do so with no hesitation.
Any pattern defined as an edge is simply an indication that there is a higher probability that the market will move in one direction.
We can't expect what the market is going to do. We only know what an edge looks like, the risk, and our plan to take profit.
★ Consistency is the result of a carefree, objective state of will where we perceive current market opportunity with no fear, hesitation, or compulsion to do anything.
Trade from the perspective that you have nothing to prove. Don't try to win or avoid losing. Trade with a neutral state of mind to recognize and take advantage of the opportunities the market makes available.
Market information is only threatening if you expect the market to do something for you. Otherwise there is no reason to be afraid.
Believe anything can happen and that you don't need to know what will happen next → expectation in harmony → neutralize emotional pain
★★ Trading is a pattern recognition probability game.
★ Don't add "other" information or random variables outside the parameters of your edge to decide whether you will take the trade. It makes it impossible to determine what works and what doesn't.
If the market offers a legitimate edge, determine the risk and take the trade.
The best traders believe that every moment in the market is unique. Even though the pattern may be similar, variables cannot be exactly the same as before. Understand is it necessary to neutralize the automatic association mechanism to link the current moment to a previous moment. The mind will then be open and objective to market information.
If you expect anything from the market, it will cause market information to be threatening.
Beliefs are the source of a trader's difficulties.
Completely accept psychological realities of market → accept risks of trading → eliminate potential to define market information as threatening or painful → nothing to avoid/protect against → open to opportunity with objective mindset → enter the zone
If we are not experiencing satisfaction then we are operating out of a belief that doesn't work very well relative to the environmental conditions.
There is no definite way of trading, the truth is whatever works in relation to what we are trying to accomplish.
There is no right way to trade, the correct way is whatever works for you.
Beliefs are structured energy with awareness.
To install the five fundamental truths you need to understand:
- Beliefs seem to take on a life of their own and resist any force that would alter their present form
- All active beliefs demand expression
- Beliefs keep on working whether or not we are consciously aware of their existence
Once a belief is formed it cannot be destroyed.
To change a belief you must deactivate the belief by drawing the energy out of them.
★ To change a belief we have to understand that we are not really changing our beliefs but transferring energy from one concept to another concept, one that we find more useful to fulfil our goals.
Beliefs exist in our mental environment from the moment they are born to the moment we die, unless we consciously take steps to deactivate them.
If you are still experiencing negative states of mind when trading, there is an active conflict between a number of beliefs in your mental environment.
★★ To think in probabilities you have to believe that every moment in the market is unique and every edge has a unique outcome.
When you believe at a fundamental level that every edge has a unique outcome, you will experience a carefree state of mind. A unique outcome is something we have not already experienced so we can't link it to something we already know.
★★ The key to achieving consistent success as a trader is to believe that you don't need to know what happens next and believe in the uniqueness of each outcome.
We need to actively train our minds to expect a unique outcome otherwise we will continue experiencing only what we know since everything else will be blocked.
★ When you truly believe that you don't need to know, you will be thinking in probabilities and will have no reason to block, deny, or attack anything the market is offering.
You need to take an active role in training your mind to believe in the uniqueness of each moment and deactivate any other beliefs that argues for something different.
You need to operate on a state of not having to know by managing expectations and realigning your mental environment.
Producing consistent results is a function of eliminating errors.
Variables defining an edge have to absolutely precise. It should not require any subjective decisions or judgements whether your edge is present.
If the market aligns in a way that conforms to your edge then you have a trade, if not, then NO TRADE.
Progressively scale out and lock gains.
You create the game in your own mind based on your beliefs, intents, perceptions, and rules.
The market is always right.
To be objective, you can't place greater significance on information that confirms what you believe.
To be a successful trader, you have to let the market tell you what to do next.
Your previous trade has nothing to do with the potential in the current market.
To trade efficiently, you have to make yourself accountable by creating structure, with accountability comes responsibility.
Anticipate the crowd instead of following the crowd.
You need to define your plan to learn how to repeat your wins and prevent your losses.
If you trade with your edge, there is no reason to fear or feel anxiety.
If you accept that it's okay to make mistakes or be wrong then you will gain more insight from the experience. You will be able to learn easier.
You need to make the rules to the game then have the discipline to abide by those rules.
★ Completely release yourself from other people's opinion of the market.
Develop the self-acceptance to acknowledge where you are as a trader so you can concentrate on what you need to learn.
★ Based on past experiences, you make distinctions in your mental environment and associate them with positive or negative energy.
What we are experiencing in any given moment is being shaped by what is already inside of us.
When we are in a learning mode, we open ourselves up to learn new distinctions.
★ The fear of losing prevents you from hanging on to a position just a little longer.
To trade without fear you need to have complete self-trust to confront and accept market information and act appropriately in any market situation.
To be successful, you need to believe you can win with an absence of fear to be able to make better assessments.
What we end up with in any given situation will correspond exactly with our understanding, insight, and ability to act on what we know.
Our feelings always tell us about the state of our relationship with the environment and point the way to what we need to learn.
If there is imbalance between inside and outside, it causes us to experience negative emotions.
Painful conditions will happen again and again until we acknowledge there is something we need to learn.
What we already know will block what we haven't learned yet.
Stress is what we feel when we are actively blocking information from the environment.
The more we acknowledge the possibility that our beliefs are not as effective, the more we make ourselves available to learn from the environment.
Follow trading plan → no impulsive trades → trade with probability/edge, discipline, patience, follow plan → self-trust → no fear of losing
If you trade with an inconsistent style, you will give money back to the market.
When we allow ourselves to adapt, we learn that there are always more choices available than our beliefs will allow us to perceive.
Adapting is to identify and actively change something that is already inside of us so there is a higher degree of correspondence between the inside and outside.
Each first time experience in the external environment creates a distinction in the mental environment.
You will not learn until you are willing to step through your fear, as all other information will be blocked by the energy of what you have already learned.
Our experiences act as an internal force to shape our perception of the environment.
When a memory is discharged of negative charged energy, it will no longer have the potential to generate fear.
What we have learned is always subject to change because of changing environmental conditions.
Every moment becomes a perfect indication of your current state of development and what you need to do to improve yourself.
The results of our efforts will be reflected in the environment as the sum of who we are at any given moment.
Every "should have", "could have", "would have", "if only", is an indication of the degree of illusion of ourselves.
If we could have ... we would have taken the trade.
★ Acknowledging and accepting our current state of development will give us our true starting point to indicate what we need to learn.
★ You need to release yourself from the fear of being wrong so you can observe the market behavior from an objective perspective.
★ Never let a loss accumulate so that the pain takes you out of the trade.
The less illusion we indulge ourselves in, the more our perceptions of the outside environment will reflect the actual conditions since we won't be blocking information.
The less we block → more we learn → easier to anticipate environment
The willingness to question the usefulness of something inside of us will bring forth other alternatives.
Mistakes just point the way to something we haven’t learned yet and obviously need to know. A mistake isn't resolved until we understand the insight available from the experience. When that point is reached, what we experienced is no longer a mistake or painful because of what we have learned.
Trading doesn't have to be painful, we make it that way because of our mental inflexibility and inability to adapt.
When we resist what is being offered by the environment in the form of lessons, learning and change, we experience stress.
When you clear out wishing and hoping that something will happen, you will know when you are getting a true intuitive impulse.
★ The less wishing and hoping that something will happen, the more you will know when you get that certain feeling, a true intuitive impulse, and the more confidence you will have to follow it.
When we wish and hope, it puts us in a passive relationship with the markets and shifts responsibility onto the markets for making something happen. If we find ourselves wishing and hoping, it's an indication that we don't know what's going on and should exit the trade.
Wisdom is having a deep level of understanding, confidence, and trust all coming from having experience the full range of possibilities from extreme negativity to increasingly greater degrees of positivity. Wisdom is the byproduct that results when we retain a distinction about the nature of the environment without the negative energy or fear associated with that distinction.
To identify of change anything in the mental environment requires that you want to.
To remember that we used to believe something means that the belief still exists but no longer has any power in our belief system.
The more expressive our thoughts, the more energy we generate in our willingness to think, the greater potential to cause change.
Trades outside the balance area represent the best opportunities to make money, but they are the scariest trades to take because the trader who can make them is all alone.
The highest probability for price movement is in the direction of the prevailing force.
Trading is completely mental. It isn't you against the markets, it’s just you.
★ It's more important to know that you will always follow your rules than it is to make money.
Each trader creates his own experience of the markets, therefore there is no reason to blame the markets for your unsatisfying results.
Markets don’t own you anything.
You are completely responsible, when you accept this, the sooner you will identify what you need to learn.
★ To be successful you have to trade without fear. If you trade with fear, you will create the very conditions you are trying to avoid.
Evolving beyond your fears is the best way to learn how to predict market behavior. The more fearful traders are, the fewer the choices they perceive as available, the easier it is to predict their behavior.
To trade without fear, you need to have self-trust by establishing a set of rules and guidelines to trade by and always follow these rules without hesitation.
The more you learn, the easier it will be to anticipate what the market will do next.
Stay focused on mastering the steps to achieve your goal, money is a byproduct of what you know and how well you can act on what you know.
Treat each trade as a lesson. A winning trade should reinforce what you're doing right. A losing trading will provide insight on what you need to learn or change.
All experiences are valid and have meaning. Mistakes don't exist, they just point the way.
Don't stress over a missed opportunity, there is always another opportunity.
Be objective, trade without fear, and execute trades properly.
Predefine what a loss is in every potential trade. When your beliefs about losses are restructured, the possibility of a losing trade will not create any threat of pain.
Confront the possibility of being wrong and accept the inevitability of taking a loss. If you don't you will generate fear.
Execute your losing trades immediately upon perception that they exist without hesitation.
Fear prevents us from learning anything new.
★ Become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. Limit your focus of attention to just one combination.
The proper execution of trades is one of the most fundamental components of being a successful trader.
Trading gives you all kinds of ways to beat yourself up for all the things you should have or could have done that would have resulted in a better outcome.
To execute your trading system properly, you need to think in terms of probabilities and incorporate it into your mental system.
Employ mental discipline to make flawless execution a habit. Learn the skill of flawless execution by following the rules you set for yourself by executing a trade immediately upon the perception of an opportunity. Incorporate a belief into your mental system about the nature of probabilistic outcomes so that you believe you can make money in the long run with your system.
Take ALL signals generated by the system.
To perceive opportunity, you need a detached objective perspective when you are watching and listening to what the market is telling you in order to identify the group that is demonstrating the greatest possibility of moving the market.
For a trade to be valid or continue to be valid, determine the price where the market shouldn't trade to. If it trades within that point, the trade still has potential to work. Beyond that point, it is no longer valid.
Let the market define itself and then apply whatever criteria you use to define an opportunity.
Since the market is in perpetual motion, it puts you in a position of having to make never ending assessments of the current risk in relationship to the current possibilities for reward. To do this effectively, you will have to learn to observe the market as if you were not in a position. This perspective will force you to take whatever action is appropriate instead of hesitating, hoping, or wishing.
The market doesn't make you right, you make yourself right.
Always remember that anything can happen.
Price movement is a function of traders acting individually and collectively as a force expressing their beliefs in future value.
Any limitations you place on the markets behavior prescribed by your mental structure will cause you to focus your attention on what the market is doing to you instead of listening to what the market is telling you.
★ To achieve a state of objectivity, you need to operate out of beliefs that anything can happen as opposed to beliefs that the market can only express itself in a limited way.
If you believe that anything can happen then whatever does happen won't be threatening to you in any way. If you don't, you will avoid or distort market information. Any limits on market behavior will cause fear, stress, and anxiety when the market expresses itself beyond your mental limits.
★★ To be objective, you need to release yourself from "demand backed expectations" and make "uncommitted assessments of the probabilities" meaning you have no commitment to any particular outcome. You just observe what is happening in each moment as an indication of what will probably happen next.
★ When you achieve objectivity:
- You feel no pressure to do anything
- Feel no fear, no sense of rejection
- There is no right or wrong
- You recognize that this is what the market is telling me, this is what I do
- You can observe the market from the perspective as if you were not in a position, even when you are
- You are not focused on money but on market structure
To stay objective anticipate as many possibilities as you can and how probable each of these possibilities are.
When you are in a trade constantly ask yourself if anything "has to happen". If you find that your commitment levels are rising, keep on telling yourself that it is all right for anything to happen because you are confident in your ability to respond appropriately to whatever does happen.
Ask yourself if you are prepared to give yourself money today.
★★ When you find yourself focused on the monetary value of a trade instead of the structure of the market (what the trade is worth to you in dollar terms, dreams, or goals instead of what the market is telling you about it's potential to move in any direction) then assume you are distorting or avoiding certain information and don't put the trade on or take off a trade until you are thinking objectively.
★★ You need to identify, change or decharge anything in your mental environment that doesn't contribute to the highest degree of self-valuation. Stay focused on what you need to learn, do the work that is necessary, and your belief in what is possible will naturally expand as a function of your willingness to adapt.
★★ If you're afraid of being wrong, your fear will act upon your perception of market information in a way that will cause you to do something that ends up make you wrong.
The best traders are not afraid.
Every trade has an uncertain outcome.