 Welcome back to the Trade Hacker Mindset. We are going to be continuing with our discussion topics from the book by Mark Douglas called Trading in the Zone and in this episode, we're going to discuss trading in the moment. Trading the markets can be difficult to master and seemingly just out of reach. Professional traders have a secret. Trading requires total mental and emotional control. Trading requires the Trade Hacker Mindset. Alright, so let's jump into our discussion of the topic trading in the moment. In the last episode, we talked about thinking in probabilities. We're going to tie that into actually trading in the moment that you're actually trading. So to start with, traders who have learned to think in probabilities approach the markets in the same way of a perspective of probabilities. Thinking that at the micro level, every trade has an edge and is unique. But what they understand is that the nature of trading is that at any given moment the market can look exactly the same on the chart from a previous moment. But remember, unless every single participant in that market is involved, the outcome of that pattern can be different. So the actual consistency of the market itself from one moment to the next is never the same. The odds of that happening are basically non-existent. Now this is extremely important for you to understand this because from a psychological standpoint this is one of the most important things that you can internalize and understand to keep you thinking in probabilities. So we can all use various tools to analyze the markets behavior and find patterns that represent the best edges. From an analytical perspective, these patterns can appear to be precisely the same in almost every respect both mathematically and visually if you're looking at them on a chart. But the consistency of the group of traders who are creating this pattern currently is completely different than the people or person that was involved in the market the previous time that you saw this pattern. So if all the traders right now are not the exact traders previously then the outcome of the current pattern can and will be different from the past. One of the most fundamental characteristics of the markets behavior is that each moment each now moment that you are trading is always a unique occurrence and always has its own outcome independent of every other trade. And remember in our past episode a couple episodes ago we talked about the markets most fundamental characteristic. If you remember what that is the markets most fundamental characteristic is that anything can happen at any time. And this can be based on what we know or what we expect or what we anticipate or it can be what we don't know because there's always this constant flow of both known and unknown variables and this creates a probabilistic environment where we don't know for certain what's going to happen next. There's no there's no trade that has a guaranteed result of happening in a way that we think it might. So that statement might seem logical might be self evident but but here's the problem being aware of uncertainty and understanding the nature of probabilities does not necessarily equal the ability for you to actually function effectively from a probabilistic perspective. And this is why trading is really hard to master is because thinking in probabilities can be very difficult to master. Our human minds don't naturally process information in this way and in most cases it's actually the opposite our minds cause us to perceive what we know and what we know as part of our past whereas in the market every moment is new and unique. And even though there might be similarities to something that occurred in the past that means this means that unless we train our minds to perceive the uniqueness of each moment that uniqueness will automatically be filtered out of our perception. So we're only going to perceive what we know minus any information that's blocked out of our fears or euphoria or anything else that might be invisible. So the bottom line is that there's some degree of sophistication to this thinking in probabilities which can take some people consider amount of effort to integrate into your mental system as a functional thinking strategy. In fact most traders don't fully understand this and as a result they mistakenly assume that they are thinking in probabilities because they have some degree of understanding of the concepts. So remember thinking in probabilities means that you are completely accepting the risk and now here's where traders get a little bit confused. You might think that if you place a stop on a trade that you're accepting the risk. You've got a stop in place so if price goes down and hits your stop you're going to take a loss so therefore you think that you have completely accepted that risk. But actually that's not the case a lot of times. And think about this. How many times have you had whether it's a hard stop in place or a mental stop in place and price was coming down it was really close to hitting that stop and you removed that stop and then price rebounded started going back in your direction and as soon as it got back to your entry you closed the trade and scratched it. And then invariably that trade just continued to rip in your direction that you initially thought it would but you were out of the market you missed out and you basically scratched the trade. So just because you put the stop in doesn't mean that you totally accepted that risk. And so let's go a little bit deeper with this. What is meant by accepting the risk there are a lot of things at risk besides just losing money. Being wrong is a risk not being perfect is a risk and this goes back to that the mental things that we've experienced as we've grown up in our past that all can play into the fact of what we're doing from a standpoint of actually accepting risk. And so what happens is your internal beliefs are actually always revealed by your actions. And so you might be acting out of a operating out of a belief that I'm a disciplined trader because I define the risk and I put in a stop but you could also put in a stop and at the same time not believe that you're going to get stopped out or that the trade will ever work against you. So we talked about this in a previous episode but remember when you've actually trained your mind to think in probabilities it means that you've fully accepted these possibilities with no internal resistance and no internal conflict. And this doesn't come natural thinking this way is almost impossible unless you've done the mental work necessary to let go of the need to know of what's going to happen next or the need to be right on each trade. In fact the degree by which you think you know or assume you know or in any way need to know what's going to happen next is equal to the degree to which you will fail as a trader. Think about that because that's so important I want to repeat that. The degree by which you think you know or you assume you know or in any way need to know what's going to happen next is equal to the degree to which you will fail as a trader. Traders who have learned to think in probabilities are extremely confident in their overall success because they commit to themselves to taking every trade that confirms their definition of an edge whatever that might be. Maybe it's you know selling options in high implied volatility. Maybe it's using volume to buy or sell at a specific level on a price chart whatever your edge is you have to become so confident in that that you don't that you're thinking in probabilities and you don't have these internal conflicts one way or another when you're getting in and out of trades and listen I'm as guilty as anybody when it comes to this you know when we're day trading you know I'm trading live in in front of our community every morning when we're in our live day trading stream room and there are times when I just I won't take a trade because of the last few trades that have happened I have this recency bias that goes on and so you know I'm talking you know this is one of those things where do as I say not as I do because I'm not perfect there's you know I'm not I don't have this pure ability to be free from from conflict when it comes to this recency bias when it comes to you know not taking every single trade that I think I should I find myself picking and choosing based on my edge as opposed to taking every one and having that confidence and that lack of internal conflict it's very hard to rewire our brains and part of the process of me doing this podcast is not only to help others but I think one of one of the things that I found is the more that I talk about something the more I write about something and the more I present about something the more I teach something the more it helps me internalize it so this is a process for me as well I think I have a pretty good handle on it a lot of the time but there is still a percentage of the time when I'm trading when I do have these issues that I'm trying to overcome and get to the point where I am 100% thinking in probabilities and I don't have that internal conflict because it's not until I completely accept that uncertainty that the that the frustration or that internal conflict will end so why doesn't the typical trader just do it every time or why don't I do it just every single time well we've talked about this in a previous episode but you know typical trader they they won't necessarily always predefined their risk of getting into the trade because they don't believe it's necessary and the only way that you believe it's not necessary is because you believe that you know what's going to happen next and the reason you believe or you think you know what's going to happen next is because you won't get into a trade until you're convinced that you're right so this is your ego talking and when you get to the point where you're convinced that this next trade is going to be a winner it's no longer necessary to define your risk because hey if you're right there is no risk right so the typical trader goes through the exercise of convincing themselves that they're right before they get into a trade because the alternative of being wrong is just simply unacceptable remember we've been told all of our life don't be wrong you know you got to be right being wrong is a bad thing so our minds are wired this way to associate previous trades or previous patterns or previous situations and as a result being wrong on any given trade has the potential you know you could associate it with other experiences that you've had in your life where you've been wrong and that's a negative right we don't like to be wrong our egos don't like us to be wrong so we play these mind games where we desperately want to win and the only way we can win is if we participate but the only way we can participate if we're sure that we'll win and on the other hand if we define our risk then we're willfully saying that we could be wrong it negates something that's already convinced ourselves that we're going to be right and just as I'm saying this I'm you know I'm thinking of a trade that I just took live in the day trading room yesterday where I let a loser go way too long in other words it kept going against me but I didn't want to admit that I was wrong and so therefore I just let it keep going and going and going and it turned it to a much bigger loss than it should have now the thing that saved me is that I position size correctly I position size small but regardless of my position size I shouldn't be letting a trade go once the market has told me that I'm wrong on that trade I've just got to admit that I'm wrong and be okay with that and move on but part of the problem with that is sometimes you get out of a trade when it when it looks like the market has told you that trades not going to work out and then gets what happens it completely reverses almost to the tick and moves back in the direction you wanted right and so that that again then clouds our brain and you kind of got double hit right it you knew you were right and you got forced out and it kind of double whammy's you from a mental standpoint so those are some of the things that you've got to work on and just be okay with being wrong understand you're not always going to be right if the market tells you to get out if the trade tells you it's not going to work get out if it does reverse to start going in your direction who cares there's hundreds of more there's trading opportunities that present themselves every single day you don't have to be right on every single one and another example that I think hurts just as much or even more is is when you miss out on a trade you know how many times have you found yourself in a situation where you saw your edge you saw your pattern you saw whatever it was that wanted to make you get into a trade and maybe you put in an order and then it ran away from you you missed it or you looked at it you knew you should have put on a trade but you just didn't do it and then it rips in your direction that fear of missing out is almost more painful psychologically than when you actually get into a trade and take a loss so think about it from this perspective if you are looking to get into a trade and you going back to the example of you know a trader typical trader always has to think that they are right that basically what you're saying is you know who exactly what traders in there are in the market and you know exactly what they're about to do but when I say it that way that that's ridiculous right we we never know who's in the market we don't know that if it's the same participants that were in the market the same last time we saw this pattern so from that perspective if you think of it that way that might help you start to think in probabilities because it gets back to that the market's most fundamental characteristic anything can happen at any time and if you take that approach then you shouldn't feel bad about being wrong because you know that every trade has a probabilistic outcome and is not guaranteed so the bottom line is we've got to remove these unrealistic expectations being right or wrong on an individual trade is absolutely meaningless right if we know that we have something that over time produces consistent profitable results you know and that's one one reason it's important to track your trades I have this spreadsheet where every day every single day I log my day trades every single day I log my my trades my income trades and part of what that does is it provides that perspective so if I you know if I have a losing streak of of trades I can look at this I can look at the sheet and look back and be like yeah I lost on a couple trades but that's pretty normal if I look back over time I always have losing trades but yet look at the outcome that is that it's been produced so being right or wrong on an individual trade is absolutely meaningless it's the number of occurrences over time and you continuing to do that using your edge that is going to produce the consistent results because remember if if you believe that the outcome is random on on an individual trade then you naturally expect the outcome to be random you know think about a few if you're flipping a coin which is theoretically a 5050 probability so if you call tails and it lands on heads you don't necessarily experience that pain part of it is you don't have any unless you're wagering on that you don't have any money tied to it so you don't have that necessarily that pain but why is that the reason is most people know the outcome of a coin toss is random right so if you believe the outcome is random then you naturally expect a random outcome randomness implies at least some degree of uncertainty so when we believe in a random outcome there's an implied acceptance that we don't know what that outcome will be and if we accept in advance of an event of random outcome that we don't know how it will turn out that acceptance has the effect of keeping our expectations neutral and open-ended and so that's where we're really getting down to the very core of the typical trader any expectation about the market's behavior that's specific well-defined or rigid instead of being neutral and open-ended is really unrealistic and can be potentially damaging to your psychological mindset when it comes to trading an unrealistic expectation does not correspond with the possibilities available from the market's perspective if each moment in the market is unique and anything is possible which we've already discussed that that is the case then any expectation that does not reflect these boundary list characteristics is unrealistic so for some of you listening you might be you might be either a couple different things thinking oh my gosh this trading thing it's harder it's more mentally challenging than i thought it was going to be maybe i'm just going to quit for some of you you are embracing this and looking at this as a challenge and thinking oh my gosh yes this is going to be work yes i've got to work on my mindset yes i've got to i've got to do all these things to help rewire my mind and that's what we're here to help do and again i'm on board with you all i'm doing this process personally to help really ingrain this thinking and probabilities in my mind as we continue to go on our trading journey now listen i've been trading for over 20 years i've been consistently profitable for about 10 of those years so for the first 10 years i was not consistently profitable and so this has been a this has been a real journey this has been a real process but the learning never stops the journey never stops and so this is something that we're going to continue to work on i'm excited to have you on this journey with me hope you enjoyed this episode if you want to join a community of like-minded traders that makes it even more you know the power of a community surrounding you with uh with a bunch of people with the same intention of becoming successful traders don't discount the power of that we have a community if you just go to community.navigationtrading.com it's free to join we have people in there talking about mindset sharing trade ideas with the sole purpose of helping each other become better traders we look forward to seeing you on the inside and we look forward to seeing you in the next episode where we'll be talking about managing expectations see then