 Welcome back to the Trade Hacker Mindset. In this episode, we are going to be continuing with our discussion series on topics from the book by Mark Douglas called Trading in the Zone. And in this episode, we are going to talk about the market's most fundamental characteristic. 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. OK, so let's jump into our topic of the market's most fundamental characteristic. Can you guess what it is? What's the answer? What is the market's most fundamental characteristic? Here it is. Write this down, ingrain it in your brain, make it a part of your internal mindset, your internal trading structure. Here it is. The market can do anything at any time. Let me say that again. The market can do anything at any time. All right, so let's jump in and talk about this in more detail. The question is, you know, why do people trade? Why do traders bid up a price or offer it lower? To answer this question, we really have to establish the reason why people trade to begin with. Now, there are a lot of reasons. There are a lot of purposes behind why a person is motivated to trade or why they trade a specific given market, but it all boils down to ultimately people trade because they want to make money. Now, we know this because there are really only two things that a trader can do. A trader can buy and a trader can sell. And there are only two possible outcomes for every trade, either a profit or a loss. Therefore, I think we can safely assume that regardless of one's reason for trading, the bottom line is that everyone is looking for the same outcome, profits, right? And ultimately, there are only two ways to create these profits, either buy low and sell high or sell high and buy low. Now, if you trade options, you might be thinking, no, no, that's not how I make money. I actually make money if price stays in a range. If I'm a premium seller, if I'm selling iron condors or I'm selling short strangles, you might be saying I'm a premium seller, so I actually want price to stay in a range. I don't care if it goes up or down, but that's not true. You're actually, if you're a net seller of options, you're selling those options at one price and you're hoping to buy those options back at a lower price. Or if you're a buyer of premium, you're buying those options at a certain price and you're hoping to sell those at a higher price. So whether you're trading stocks or you're trading futures or you're trading cryptocurrency or you're trading options, you're trying to either buy low, sell high or sell high short and buy it back at a lower price. And so if we assume that everyone wants to make money, then there's only one reason why any trader would bid up price up to the next level. And it's because he believes that he can sell whatever he's buying at a higher price at some point in the future. And the same is true if you're a trader who's willing to sell something at a high price and then try to buy it back at a lower price in the future. And there are all different styles at which traders can claim that there is their style. Maybe they say they are a contrarian, which is somebody who kind of goes against the trend. If a trend is going up, they're trying to short it, looking to buy it back cheaper in the future. Or maybe you're a momentum trader where you're trying to buy something at a price as it's going up, but thinking that you're going to sell it for an even higher price. So you're buying high and trying to sell higher. It still all comes down to the fact that as a trader, we're trying to make money and the only way to do that is to buy something low, sell it high or sell it high and buy it back lower at a future price. And if we look at the market's behavior at the at the function of price movement and if price movement is a function of traders who are willing to bid up prices or offer them lower, then we can also say that the price movement or this market's behavior is a function of what traders believe about the future or to be even more specific. All price movement is a function of what an individual traders believe about what is high and what is low. So the underlying dynamics of a market's behaviors, it's really quite simple. There are three primary forces that exist in any market. There are the traders who believe that price is low. There are the traders who believe that price is high and there are the traders who are waiting on the sidelines to make up their minds about whether price is low or high. Now, technically, this third group, those traders who are waiting on the sidelines, this is more of a potential force or a potential dynamic of the market, but it is still part of the market. And the reason is because those traders on the sideline, they could come in at any time, right? So I understand that all price movement in the market or lack of movement is a function of the relative balance or imbalance between these two primary forces, traders who believe the price is going up and traders who believe the price is going down. If there's balance between these two groups, then prices will stagnate. They'll trade sideways because each of the sides will absorb the force of the other's actions. And if there's an imbalance between the two sides, that's when price moves in the direction of the greater force. So I want you to ask yourself this question. What's going to stop virtually anything from happening at any time other than, you know, exchange imposed limits or market shutdowns or markets getting halted? Aside from those things, what is really going to stop anything from happening at any time? The reality is nothing is going to stop the price from going as high or as low as whatever force of the side of the traders who believes the most as possible is going to go. And it's really limited only by the most extreme beliefs about what is high and what is low held by actual traders actually participating in the market. Now keep in mind, there are a lot of algorithms. There are a lot of computers trading now. But remember that doesn't change anything. That doesn't mean anything different from what I just said, because they are individual people who programmed those computers to trade in a specific fashion based on what they think is low and what they think is high. So there can obviously be an extreme diversity of beliefs in any given market in any given environment. And this diversity of beliefs is what creates the fundamental characteristic of the markets that anything is possible at any time. In the book, Trading in the Zone, Mark Douglas gives an example of, he talks about this financial analyst who was working for this grains commodity shop, and he was a huge proponent of support and resistance. And he was a pretty arrogant guy and he really thought that when he figured out what the support and resistance were for the day that he could really like extremely accurately figure out, okay, this is the support, this is the bottom for the day and the resistance, this is the actual top for the day. And he was in the office of the chairman of this grain trading shop. And the guy was listening to him and he was telling him, you know, this is the support for the day, you know, price isn't going to go below this number. And the chairman was basically like, this is total BS. And he basically picked up the phone and called his clerk and said, sell 2 million bushels of beans or whatever it was. And the market dropped 10 cents. And you know, the analyst just kind of looked there with this look on his face like, oh my god, I can't believe you did that. And the guy was like, listen, what you're talking about this support and resistance all these lines that you're drawing on the chart, this is BS because if I can do that, anybody else can that has that has my size of trading capability as well. Now, we personally don't trade a lot of grains and we don't trade with that kind of size at navigation trading. But think about this. Think about times that you've seen things happen like Elon Musk send out a tweet. I remember specifically I was in a trade on Tesla. Luckily, I happen to be short. I have to I happen to have some puts on in Tesla. And Elon Musk tweeted that he thought the stock value of Tesla was overvalued. And in a matter of minutes, Tesla stock dropped like 10%. So if you're this person that had this huge belief that you had these magical support and resistance lines for the day, and then Elon Musk comes out and post that tweet, and the market just blows through your support line. Well, you know, there's a lot of different things. There's there are a lot of different factors out there that can create these situations that creates this imbalance where the sellers are have more force than the buyers and the buyers have more force than the sellers. And having that mindset that anything can happen is the structure that you have to have as your basis for your mentality when you're trading. So most most traders don't want to admit this. They want that they want to think well, if if anything can happen, then I don't have an edge and I can't make money. And that that's not true. The cold hard truth of trading is that anything can happen. But that also does not mean that you can't have an edge and that you cannot make money in the market. The reality is that anything can happen in the market. And that just means that you have to have a very strict criteria for how you manage your trades. And so let me talk about three fundamental structures that you have to have when you enter a trade. Number one, you have to pre define your risk before entering a trade. Now I'm not saying you have to put in a stop loss. In fact, I never use hard stops when I'm entering trades in a platform. But you have to pre define your risks to some degree. If you're trading an undefined risk strategy, you have to have in your mind at least a pre defined level of risk before you enter a trade. Number two, you have to be able to cut your losses when the market tells you the trade isn't working. I mean, how many times have you found yourself in a trade where you got to a point where you knew the trade wasn't working, but you still didn't cut your losses and that trade continued to go against you and built up a loss that was much bigger than you anticipated ever taking. I mean, I know I know I've found myself in that position dozens of times, maybe hundreds of times. OK, so you need to make sure you're cutting your losses when the market tells you the trade isn't working. And number three is you have to have a way of systematically taking profits. Navigation trading, we teach multiple different strategies for different types of situations. But, you know, one example is we've got a strategy that we call our mighty 90 trade. This is a day trading strategy that we only trade during the first 90 minutes after the market opens. And part of the criteria is for systematically taking profits is once we get in, we are going to take half of the position off once we hit a 10% profit. And then if the trade continues to move in our favor, we're going to scale out and be completely out of the trade after we get two favorable bars in our direction in the strategy we're trading five minute bars. So if we get two consecutive favorable bars in our direction, we're going to be out of the trade. That's a way of systematically taking profits. So let me repeat those. There are three fundamental structures that you have when you enter a trade. Number one, predefined your risk before you enter the trade. Number two, cut your losses when the market tells you the trade isn't working. And three, systematically take profits. Because remember, there are only two forces that cause prices to move. There's the traders who believe the market's growing up and the traders who believe the markets are going down. So at any given moment at any given time, we can see who has the stronger conviction by observing where the markets are now relative to where it was some previous moment. And sometimes we will see a recognizable pattern that becomes present. And that pattern can repeat itself over and over and over. But that doesn't mean that it's going to happen every time. And you've got to remember that the market can do anything at any time. And part of the reason is there's there's a lot that we don't know and we'll never know unless of course we learn to read minds. But there's a lot that we don't know. For instance, we don't know how many traders are sitting on the sidelines. Remember, I talked about that third group that are kind of waiting to determine if they think prices are high or low. We don't know, you know, when they are going to come off the sidelines and start wanting to buy or if they come off the sidelines and think the markets high and start wanting to sell. So there's a lot of things that we don't know. There's the unknown. Or like what about the traders whose participation is already reflected in the current price? You know, I believe that the current price is the is the accumulation of all known information at that specific time. I think, especially if you're in a very highly actively traded, a very liquid market, markets are very efficient and the price reflects the current information that buyers and sellers are digesting and using at any given time at any given moment. You also don't know, you know, at any given moment how many of these traders who are in the market who are in a current position are about to change their mind and exit their position. And if they do, how long will they stay out of the market and when do they come back into the market and which direction will they push the market when they do come back in low or high. So these are all constant. They're never ending. They're unknown. They're hidden variables that are always operating in the market, always operating in the market. Let me say that again, always operating in the market. But here's the key. The best traders, they don't try to hide from these unknown variables by pretending they don't exist and they don't try to rationalize them away through market analysis. In fact, it's the exact opposite. The best traders in the world, they take these variables into account. They factor them into every aspect of their trading. And that's one thing that separates the best traders in the world from the average traders. You see, the typical trader is just the opposite. The average trader trades from the perspective that if you can't see or hear or feel, then it must not exist. So if you have this mentality, then you need to think about reframing your mental structure. And let me repeat, going back to the three fundamental structures of entering a trade. Predefine your risk before entering a trade. Cut your losses when the market tells you it's not working. Systematically take profit and systematically take profits. So given the circumstances that I just mentioned, if you do not adhere to these three fundamental principles, it's really the equivalent of committing financial and emotional suicide. And most traders don't adhere to these principles. They don't believe it's necessary. They think they know what's going to happen next based on what they perceive is happening in the given moment. And if you already know what's going to happen, then there's really no reason to adhere to these principles. If you believe, if you assume, if you think that you know, then you can just put on your trade and decide when and where to get out instead of adhering to the three fundamental structures of predefining your risk, cutting your losses when the market tells you the trade isn't working, and systematically taking profits. You see, our beliefs about what is true and real, they're very powerful inner forces. They control every aspect of how we interact with the markets in the decisions that we make while we are trading. It's very difficult for us to trade in a way that contradicts what we believe to be true. What the typical trader doesn't realize is that he needs this inner mechanism in the form of some powerful belief that virtually compels him to perceive the markets from a perspective that's always expanding with greater and greater degrees of clarity and also compels him to always act appropriately given the psychological conditions and the nature of that price movement. And to do this, the most effective and functional trading belief that you can acquire is that anything can happen at any time. And aside from the fact that this is the truth, it will also act as a solid foundation for building every other belief and attitude that you need to become a successful trader. If you don't have this belief in your mind, you will automatically and usually without conscious awareness, either consciously or subconsciously, it'll cause you to avoid or block or rationalize away some information that indicates the market may do something that you haven't accepted as possible. But if you believe that anything is possible, then there's nothing in your mind to avoid. Because if you believe that anything is possible, then that means you believe everything is possible. And this belief will act as an expansive force on your perception of the market that will allow you to perceive information that might otherwise have been invisible to you. In other words, you will be making yourself available. You will be open-minded to the fact and being able to perceive the ability to assume possibilities that exist from the market's perspective. And last but not least, you will be establishing a belief that anything can happen and you'll be training your mind to think in probabilities. Thinking in probabilities is by far the most essential and one of the most difficult principles for traders to grasp to be effectively integrated into your mental systems. In our next episode, we are going to dive deep into training our minds to think in probabilities. I look forward to sharing these concepts with you in the next episode. In the meantime, 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 on the mindset stuff, but sharing trade ideas with the whole purpose of helping each other become better traders. Just go to community.navigationtrading.com. It's free to join and I look forward to seeing you on the inside. We'll see you in the next episode. Take care.