 Welcome back to the Trade Hacker Mindset. We're going to be continuing with our discussion points from the book Trading in the Zone by Mark Douglas. And in this episode, we're going to talk about working with your beliefs. 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. It requires the Trade Hacker Mindset. All right, let's jump into our discussion of working with your beliefs. So to start with, what I want to do is I want to identify the problem. So at the most fundamental level, the market is really just a series of up and down ticks that form patterns, right? And so we can define these patterns as edges. Any particular pattern defined as an edge is simply an indication that there's a higher probability that the market will move in one direction over the other. The problem is this creates a major mental paradox because a pattern implies consistency or at least a consistent outcome. But the reality is that each pattern is unique. It's a unique occurrence. They may look the same. They may measure the same. They may feel exactly the same from one occurrence to the next. But the similarities are only on the surface. The underlying force behind each pattern is the actual traders. Remember, no pattern that you see that looks exactly the same on the chart has the exact same players behind the scenes, the exact same traders making the exact same trades. Our minds have an inherent design characteristic. It's a mechanism of association that can make this paradox kind of difficult to deal with. Now, these edges or these patterns that they represent, they come in and out every single day in every single time frame, making the market a never ending stream of opportunities to get in, to get out, to scratch a trade, to take profits, to cut losses, to add to a position, to take away from a position. In other words, from the market's perspective, each moment presents each one of us traders with the opportunity to do something on our own behalf. So what's stopping us? What prevents us from perceiving this now moment as an opportunity to do something for ourselves or to act in the way that we should? Well, the answer is it's our fears. And what's the source of our fears? We know it's not the market because from the market's perspective, these up and down ticks, these up and down bars, the patterns that they create, they're neither positively or negatively charged. As a result, the up and down ticks themselves, they have no capacity to cause us to enter into any particular state of mind, negative or positive. They have no capacity to make us lose our objectivity or make errors or take us out of this opportunity flow. So if it's not the market that causes us to experience a negatively charged state of mind, then what does cause it? It's the way that we define and the way that we interpret this information and the way we perceive it. And so to take it a step further than what determines what we perceive and how we define and interpret that information. The answer is it's what we believe or what we assume to be true. So our beliefs working in conjunction with the association and these pain avoidance mechanisms that we talked about in the last episode, they act as a force on our five senses or smelling, tasting, seeing, feeling, all of our five senses causing us to perceive, define and interpret market information that in a way that's consistent with what we expect and what we expect is the same as what we believe or what we assume to be true. Remember, expectations are just beliefs that we're projecting into the future into some future moment and each moment from the market's perspective is unique. But if the information being generated by the market is similar in quality, has similar properties or characteristics to something that's already in our minds, then the two sets of information automatically become linked. And when this connection is made, it triggers a state of mind. It could be confidence. It could be euphoria, could be fear, it could be disappointment. All these different ends of the spectrum from good to bad and that corresponds to whatever belief or assumption or memory the outside information was linked to. And so this makes it seem as if what's outside is exactly the same as whatever is already inside of us. It's our state of mind that makes the truth of whatever we're perceiving outside of us seem indisputable and beyond question. Our state of mind is always the absolute truth. If I feel confident, then I'm confident. If I feel afraid, then I'm afraid. We can't dispute the quality of the energy flowing through our mind and body at any given moment. And because I know as an indisputable fact, how I feel, you could say that I also know the truth of what I'm perceiving outside of me in the same moment. So herein lies the problem and that is how we feel is always the absolute truth. But the beliefs that triggered our state of mind or feeling may or may not be true relative to the possibilities that exist in the market at any given moment. Remember the story that we talked about a couple of episodes ago about the boy who was afraid of the dog because he was was bit in the boy's mind. He knew as an absolute fact that every dog he encountered after the first one was threatening because of the way he felt when one came into his awareness or into his environment. These other dogs didn't cause this fear. His negatively charged memory working in conjunction with the association and this pain. His avoidance mechanism caused this fear. So he created this own version of his truth, although it didn't correspond with the possibility that actually exist in the outside environment. His belief about the nature of dogs in general was limited relative to the possible characteristic and traits expressed by these dogs or by the one dog. Yet the state of mind he experienced every time he encountered a dog caused him to believe that he knew without a doubt exactly what to expect from them. This same process causes us to believe that we think we know exactly what to expect from the market when the reality is there are always unknown forces operating at any given moment. So the trouble is the incident. We think that we know what to expect. We simultaneously stopped taking all the unknown forces and the various possibilities created by those forces into consideration. So one of the unknown forces are the other traders that are waiting to enter or exit trades based on their own beliefs about the future. In other words, we really don't know exactly what to expect from the market until we can read the minds of all traders who have the, you know, the potential to act as a force on the movement of price in that particular stock or vehicle that we're trading. Now, of course, this is not a very likely possibility to be able to read the minds of every trader, right? That that's impossible. But it's traders we can't afford to indulge ourselves in any form of I know what to expect from the market. Remember, we can know exactly what an edge or a pattern looks like or feels like and we can know exactly how much we want to risk to find out if that edge is going to work and we can know if we have a specific plan on how to act on that potential opportunity. But that's it. That's where the knowing in air quotes ends. If what we think we know starts expanding to what the market is going to do, that's when we're in trouble. So any time you start to be aware of getting that feeling of I know what to expect from the market, once you start having that state of mind, if you can become aware of that and you can flush that out of your system, if you can flush that out of your mind, it's really going to help you step up to become a more consistently profitable trader. All right, so let's talk about six different topics, these six different questions. Number one, what are the objectives? What are your objectives as a trader? Now, ultimately, of course, making money is everyone's objective, but if trading were only a matter of just making money, then listening to this podcast or studying mindset wouldn't even be necessary. I mean, putting on a trade or even a series, a string of winning trades requires absolutely no skill. On the other hand, creating consistent results and being able to keep what you make is what the game is all about. Making money consistently is a byproduct of acquiring and mastering these mental skills that we're talking about. The degree to which you understand this is the same degree to which you will stop focusing on the money and focus instead on how you can use your trading as a tool to master these skills. That is so important. Let me say that again. The degree to which you understand is the same degree to which you will stop focusing on the money and focus instead on how you can use your trading as a tool, as a tool to master these skills. That leads us into question number two. What are the skills? Consistency is the result of a carefree objective state of mind where we are making ourselves available to perceive and act upon whatever the market is offering us from its perspective in any given moment. In other words, you've got to keep your mind clear. You've got to take all the head trash out. You've got to have this carefree yet objective state of mind where you're just making yourself available for what the market's giving you. The market is just neutral information and it's how you perceive that that makes the biggest difference. Third question, what is a carefree state of mind? So carefree just means that you're confident, but not euphoric. Remember, we want to be confident. We want to act not out of fear when we're trading, but we also have to have restraint. So when you're carefree in your state of mind, you won't feel any fear or hesitation or compulsion to do anything because you've effectively eliminated the potential to define and interpret the market information as threatening and to remove this sense of threat, you have to completely accept the risk. Once you've accepted the risk, you'll be at peace with any outcome of the trade. It doesn't matter and to be at peace with any outcome, you have to reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. Remember in the last episode, I asked you to write down the five fundamental truths of the market and keep it by your computer. This is what I do and I see it every day. So it continues to remind me over and over and over what these five fundamental truths are. And if you need me to review those, I'll do so in just a minute. But before that, let's jump to the next question, which is part of this. What is objectivity? So objectivity is a state of mind where you have to have conscious access to everything you've learned about the nature of the market movement. In other words, nothing is being blocked or altered by your pain avoidance mechanisms, which leads to the next question. What does it mean to make yourself available? So making yourself available just means trading from the perspective that you have nothing to prove. You aren't trying to win. You aren't trying to avoid losing. You're not trying to be right. You're not trying to be wrong. You aren't trying to get your money back or to take revenge on the market. In other words, you come to the market with no agenda other than to let it unfold in any way that it chooses and to be the best state of mind or recognize and take advantage of the opportunities that it makes available to you. It's about trading in the now moment. Trading in the now moment means that there's no potential to associate any opportunity to get into or out of or add to or take away from a trade with a past experience that already exists in your mental environment. It's getting away from that recency bias and only trading this unique trade in the now moment that's happening right now in the market. So how do the five fundamental truth relate to these skills? So let's review these five fundamental truths that we talked about in a previous episode. Number one, anything can happen at any time. Now, why is this and we've talked about it several times now is because there are always unknown forces operating in every market at every moment. It only takes one trader somewhere in the world to negate the positive outcome of your edge. It only takes one tweet from Donald Trump. It only takes one tweet from Elon Musk. It only takes, you know, one massive trade from Goldman Sachs to change the direction of a particular market at a particular time. That's it. Only one, regardless of how much time or effort or money you've invested in your analysis or you've drawn your support and resistance line, none of that matters because at any given time one individual or one group of individuals can change the outcome of that. So any expectations that may exist in your mind will be a source of conflict and potentially cause you to perceive the market information as threatening. So again, remember the number one fundamental truth is anything can happen at any time. Number two, you don't need to know what's going to happen in order to make money. Now, why is this? It's because there's a random distribution between wins or losses between any given set of variables that define your specific edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don't know is the sequence of these wins and losses and how much money the market is going to make available on the winning trades versus the losing trades. This is what we mean when we say that trading is based on statistics and probabilities. This is what we mean when we say that trading is a numbers game. When you really believe that trading is simply a probability game, concepts like right and wrong or wins and losses, they really have no significance anymore. As a result, your expectations will be in harmony with the possibilities. Keep in mind that nothing has more potential to cause emotional pain than our unfulfilled expectations. We talked about managing our expectations in the last episode. Emotional pain is kind of the universal response when the outside world provides an outcome that we didn't expect or when we're expecting one thing and the outside world gives us something else that we find unfavorable. The universal response is just emotional pain. Market information is only threatening if you're expecting the market to do something for you. If you don't expect the market to do something for you, then you won't perceive the market information as threatening. In other words, if you don't expect the market to make you right, you have no reason to be afraid of being wrong. If you don't expect the market to make you a winner, then you have no reason to be afraid of losing. If you don't expect the market to keep going in your direction indefinitely, then there's no reason to leave money on the on the table. And finally, if you don't expect to be able to take advantage of every opportunity just because you perceived it and presented itself, then you have no reason to be afraid of missing out. On the other hand, if you believe that all you need to know is that the odds are in your favor that you put on before you put on a trade and how much it's gonna cost you to find out if that trade is going to work and you don't need to know what's going to happen next to make money on the trade and that anything can happen when you internalize these things. Again, let me repeat those. If you put on a trade and you go into a trade and all you need to know is that the odds are in your favor, how much is it gonna cost you to find out if the trade's going to work? You don't need to know what's going to happen next to make money on that trade and that anything can happen. Okay, if you internalize those four things, then how can the market make you wrong? You know, what information could the market generate about itself that could cause these pain avoidance mechanisms to kick in so that you exclude that information from your awareness? You know, there's really none that I can think of. So if you focus on those four things and if you know that your edge puts the odds in your favor, then you know every loss that you get actually puts you that much closer to a win. And when you really believe this, your response to a losing trade will no longer take on a negative emotional quality. It'll almost make you excited because you know you're that much closer to your next winning trade. And that brings us to number three of the five fundamental truths. And that is there is a random distribution between wins and losses for any given set of variables that define an edge. If every loss puts you that much closer to a win, then you'll be looking forward to that next occurrence of your edge. You know, ready, waiting to jump in without any reservation or hesitation. On the other hand, if you still believe that trading is about analysis or about being right or about finding that guru that has inside information that's gonna give you the right picks, then you know, after a loss, you're gonna anticipate that, you know, your next ed, you're gonna be scared, you're gonna be nervous. And what happens then in turn is it's gonna cause you to start trying to gather evidence or do more research for or against the trade. You'll gather this evidence for the trade if your fear of missing out is greater than your fear of losing and you'll gather information against the trade if your fear of losing is greater than your fear of missing out. In either case, you'll not be in the most conducive state of mind to produce consistent results. Fundamental truth number four, an edge is nothing more than an indication of a higher probability of one thing happening over another. Creating consistency requires that you completely accept that trading isn't about hoping, it's not about wondering, it's not about gathering evidence, it's not about analysis or anything like that. When you start to use other information outside the parameters of your specific edge to decide whether you'll take the trade, you're adding random variables to your trading regimen. Think about this. So when we are day trading live in our day trading room, there's only two things that we consider when we're taking a trade. It's price action and it's volume. If we start saying, oh yeah, but there is this news about, you know, let's say we're trading Microsoft. Oh yeah, but there's this news about Microsoft out. So, you know, I don't think I'm gonna take this trade. Well, what does that have to do with our edge? We know that if we have an edge, the way we trade price action and volume, if Microsoft is setting up and giving us that truth of that pattern that we know has an edge over time, what does this outside information, what does this other gathering of information have to do with that particular trade? If we add random variables, it makes it extremely difficult, if not impossible to determine what works and what doesn't. If you're not certain about the viability of your edge, then you won't feel confident about it. To whatever degree you lack confidence, you're going to experience fear. And the irony is you will be afraid of random inconsistent results without realizing that your random inconsistent approach is creating exactly what you're afraid of. On the other hand, if you believe that an edge is simply a higher probability of one thing happening over another, and there's a random distribution between wins and losses for any given set of variables that define that edge, then why would you gather other evidence for or against that trade? It's kind of like if you're flipping a coin and you flip the coin and the last 10 times, the coin came up as tails. And so then you start gathering information of what might affect it so that it might be heads or tails this time. You start doing this analysis, that makes no sense, right? I mean, you know that it's a 50-50 probability, the next chance will come up, heads or tails. So gathering information has nothing to do with it. All it is doing is creating distortion or distraction in your mind that takes away, takes you out of the flow of trading. All right, now the last fundamental truth of the market is number five. Every moment in the market is unique. So take a moment to think about the concept of uniqueness. What does unique mean? Unique means not like anything else that exists or has ever existed. As much as we may understand the concept of uniqueness, our minds doesn't deal with it very well on a practical level. As we've already discussed, our minds are hardwired to automatically associate anything in the external environment that's similar to anything else inside of us in the form of our memories, beliefs or attitudes. This automatically creates kind of an inherent contradiction between the way that we naturally think about the world and the way the world exists. Remember, no two moments in the external environment will ever exactly duplicate themselves. To do so every atom or every molecule or every piece of everything would have to be exactly the same and that just doesn't exist. So if each moment is like no other, then there's nothing at the level of your rational experience that can tell you for sure that you know what will happen next. So why are we always trying to know what's going to happen next? I know we crave this certainty, but when it comes to trading, you have to let that go. Trying to know what's going to happen next has nothing to do with the ability to create consistent results. And here's one of the biggest issues that I see is once somebody thinks they know, I have a good friend of mine who, he has a big ego, he thinks he's right a lot and he has a very distorted way of blocking the reality in a way that what I mean by that is when he is right, he remembers that all the time, right? If he said, I knew Microsoft was gonna go up today, I knew it, he'll say it like that with conviction, he knew it and if it happens, it just feeds his ego. And that's one of the worst things that can happen because then if you think you knew because of some outside research or outside analysis that made you think that and it comes true, oh man, now you've lost because now you think you can do it again and the reality is if you just had an edge, if you just had a pattern that you could look to make your trades instead of banking on knowing what's going to happen, that's where your trading's gonna become successful. If you let your ego get in the way of thinking you know what's going to happen and then playing those mind games in hindsight with yourself, whether you have a position on or don't have a position on, that's where the game is won and lost. It's when you completely accept the psychological realities of the market that you'll correspondingly accept the risks of trading. When you accept the risk of trading, you eliminate the potential to define market information in painful ways. When you stop defining and interpreting market information in painful ways, there's nothing for your mind to avoid. There's nothing to protect it against. When there's nothing to protect against, then you'll have access to all that you need to know about the nature of the market movement and it allows you to perceive things in a neutral way, not positive, not negative, just neutrally and let the market unfold and let you take action on what you see. When you are at peace with not knowing what's going to happen next, you can interact with the market from a perspective where you will be making yourself available to let the market tell you from its perspective what's likely to happen next. It's at that point that you're gonna be able to be in the best state of mind to spontaneously enter this zone that Mark Douglas talks about in his book, Trading in the Zone, where you're tapped into this now moment, this opportunity flow and you are going to become an unstoppable trader. I hope this episode was helpful. If you want to join our community of like-minded traders, just go to community.navigationtrading.com. We've got hundreds of traders interacting on a daily basis, not only about the mindset, but sharing trade ideas with the sole purpose of helping each other become better traders. Just go to community.navigationtrading.com. We look forward to seeing you on the inside and we'll see you in the next episode.