 Welcome back to the Trade Hacker Mindset. We are going to be starting a series, so over the next several episodes, we're gonna be diving into discussion topics from the Mark Douglas book, Trading in the Zone. In today's episode, we're gonna be talking about the shift to mental analysis. 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 the shift to mental analysis. To give a little background, a little history, I've been trading a little over 20 years and there used to be this big debate about fundamental analysis versus technical analysis. So in the very beginning, it was just fundamental analysis is what's a company's cash flow? What's its price to earnings? What's its corporate debt versus revenue? And net profit margins and company sales and all that stuff that they talk about in a company's quarterly earnings announcement. And then in, I think probably about the late 90s, I started trading in about the year 2000, but I think it was really in the 90s as computers and technology started getting more and more proficient. Technical analysis started becoming more popular. And when I say technical analysis, I'm talking about just basic charts to indicators, trend lines, support and resistance, volume, Fibonacci, anything you can think of from a technology-driven data point about a market. And so there's always this debate of what's better? Is it fundamental analysis? Is it technical analysis? And I think the answer is you always want to look at both. There's certain factors that relate to both that could certainly help you with your trading. But the question is if technical analysis and fundamental analysis work so well, then why today is there more and more in the trading community, in the trading industry? Why is there more of a shift of their focus from technical analysis or fundamental analysis to mental analysis of themselves? Meaning your own individual trading psychology. So to answer this question, you probably don't have to do anything more than ask yourself, why are you listening to this podcast? This entire podcast is based around the mindset of traders. The most likely reason is that you're dissatisfied with the difference between what you perceive as unlimited potential to make money and what you actually end up with on the bottom line. The problem with fundamental or technical analysis, if you want to call it a problem, is that once you learn to identify patterns or read the market or understand financial documents, you find that there are literally limitless opportunities to make money. But as I'm sure you already know, there's a huge gap between what you understand about the markets and your ability to actually transform that knowledge into consistent profits or a steadily rising equity curve. So think about this. How many times have you looked at a price chart and thought to yourself, huh, looks like the market is going to go up? Or maybe you said, wow, it looks like the market's gonna go down. And what you thought was going to happen actually happened, but you didn't do anything about it. You just watched the market move while you just kind of squirmed over all the money that you could have made, right? I mean, how many times have you had yourself in that position? So there's a big difference between predicting that something in the market's going to happen and the reality of actually getting in and out of trades. And this is kind of what Mark Douglas says in his book is a psychological gap, right? They can make trading one of those, the most difficult endeavors that there are that you could ever undertake and certainly one of the most mysterious to master. So the question that I asked when I very first started trading is, can this trading really be mastered? I know there are people who are ultimately ultra successful and ultra consistent, but is this something that I can master is a better way to put it? Is it possible to experience trading with the same ease and simplicity when I'm just watching the market, when I can just look at it and say I think this is going to happen, is it just as easy to actually be placing trades? And the answer is yes, but that's also what this podcast is designed to give you is the insight and understanding that you need about yourself, about the nature of trading so that the result is actually doing something and becomes easy and simple and stress-free and when you're just watching the markets and thinking about it. You know, if you've ever paper traded or used a virtual type of account, there's a huge difference between trading with real money and paper trading. The reason is because you have zero emotional attachment when you're paper trading, whereas even if you're trading with a small amount of money, there's something about that inside of us that provides that emotional attachment and causes you to make different decisions. So this may seem like something that's really far out there, but it's really not. I mean, there are people who have mastered the art of trading who've closed that gap between the possibility and their actual bottom line performance, but as you might expect, these winners are relatively few in number. I've heard statistics that over 90% of traders fail and part of that is because they quit too soon. They never get into the mental mind state part of trading. They just try a couple of strategies and that doesn't work and they give up. And then there are others who just keep trying and trying and trying, but they keep failing because they're not focusing on the right thing. They're trying to focus on gaining more knowledge about the markets, they're trying to figure out, oh, it must be that strategy doesn't work, so they're jumping from strategy to strategy and consistently continuing to lose over time because they're not focusing on the right thing. The difference between consistent winners and everyone else is simply mindset. We all have the same technology. We all have access to the same information. The difference is mindset. There used to be a big difference between institutional traders and individual traders. Institutions had the edge. They had better technology. They had more access to information. They had lower fees, but I would argue now that today the individual trader actually has the edge. They can be more nimble. They're not having to go in at such large position size that they can't just send in an order where as a retail, an individual trader can. Commission rates have been reduced next to nothing today. The technology that we use is good or better than the institutional platforms. I've looked at so many different institutional platforms and I think think or swim or tasty works or some of these platforms that we use are light years past what some of these just archaic legacy institutional platforms are. So the individual trader today actually has the edge but it still comes down to your mindset and your training and your preparation of what makes the difference between a successful trader and somebody who is unsuccessful. And when it comes to mindset, I mean the difference between these two groups of traders that consistent winners and everyone else is really kind of like the difference between the earth and the moon. I mean it is that far apart. You know, the earth and moon are both bodies that exist in the same solar system so they have something in common but they are as different in nature as night and day. You know, in the same light, anyone who puts on a trade can claim to be a trader but when you compare the characteristics of a handful of consistent winners versus everyone else, you'll find that they're also as different as night and day. What I've noticed today as trading has become cool and as trading has become kind of part of our culture, some of these different Robin Hood apps and targeting younger generation. Now there are a lot of, and I air quotes, wanna be traders out there. Anyone can place a trade and call themselves a trader. Anyone can put that I'm a portfolio manager or I'm a trader on your Instagram profile but that doesn't mean you're a successful consistent trader, right? Whereas somebody plays in the NBA and on their profile they have NBA player, well, that's kind of proven, right? You know that they're an NBA player, you know their statistics, you see them play at night but anyone can say that they're a trader these days. So anytime the market is open, on any given day, any given week, any given month, the market makes vast amounts of money available to anyone who has the capacity to put on a trade. And since the markets are constantly in motion, this money is also constantly flowing which makes the possibility for success greatly magnified and seems like it's just within your grasp. And I use the word seemingly just inside your grasp because between the two groups of traders that consistently profitable and the others is what Mark Douglas calls a threshold of consistency. So the money is not only within their grasp but they can virtually take it at will. Consistent, profitably traders, they make it look so easy. Think of like Michael Jordan playing basketball. I mean, he just looks so smooth when he takes a shot. He makes everything look so easy. Even when, you know, somebody's in his face and just all over him defending him, he makes it look very easy. Well, consistent traders do the same thing. They make it look so easy that people come into trading and think, oh, this is no problem. I'll just click the mouse a few times, boom, boom, boom and I'm gonna become consistently profitable but what they're not seeing is what's going on in the mind of that consistent trader and I'm not even putting myself in this category. I mean, I've become very consistently profitable trading over the years but there are still times where, you know, if I have a position size on that's too big, you know, that's gonna affect my mindset. That's gonna make me do things that I'm gonna be making trading decisions that are not necessarily the best if I'm not focused on self-awareness and the trading plan that I need to be taking. And there are certain days when I just feel in flow with the market, when I am in sync with the market and there are other days when I'm at odds with the market and part of it is just understanding those days that you are at odds with the market where you're just not in sync and cutting losses quick or just stopping trading at all for that day. So for the inconsistent trader, what happens is they always have this kind of feeling that it's almost within grasp but it just keeps slipping away. It just keeps evaporating before their eyes. If they had just done this a little bit differently they would have made a huge profit. Instead they broke even or lost money. You know, so it's a constant battle of this kind of illusion of thinking that you have a grasp on the markets but yet things just keep slipping away from you just slightly slipping away from you in ways that just frustrates you, make you angry, cause anxiety, disappointment, betrayal, regret, all the emotional factors that you can imagine. So the question is what separates these two groups of traders, right? What separates these consistent winners from the inconsistent winners? Are the consistent winners just that much more intelligent? Are the consistent winners just plain smarter? Do they work harder? Are they better analysts? Are they, do they have better trading systems? Do they have better access to more information? Do they have better technology? Do they possess inherent personality characteristics that just make it easier for them to deal with the intense pressure of trading? All these questions sound reasonable, except when you consider that most of the trading industry's failures are also some of our society's brightest and most accomplished people. The largest group of consistent losers when it comes to trading is primarily your most successful in other professions, your doctors, your lawyers, engineers, scientists, CEOs, entrepreneurs, wealthy retirees. Furthermore, most of the industry's best market analysts are the worst traders. Think about that. The ones who supposedly should know the most about the markets, the best analysts, whether it's a technical analyst or a financial analyst as a presentation that covers certain stocks, those people are typically the worst traders that you can imagine. Now, intelligence and good market analysis, I mean, those can certainly contribute to success, but they are not the defining factor of what separates the consistent winners from everyone else. So if it's not intelligence or better analysis than what could it be? Well, at Navigation Trading over the years, we've been teaching traders to become more successful for the last four and a half years. And I've worked with some wildly successful traders. I've worked with some really terrible traders and have helped terrible traders become successful traders. So I know for a fact that there are specific reasons why the best traders consistently outperform everyone else. And I think Mark Douglas is spot on with this in his book. He says, the best traders just simply think differently from the rest. Now, that sounds pretty simplistic, but, and, you know, obviously to one degree or another, all of us think differently, right? Everyone thinks differently from everyone else. In fact, the way you think is probably, you know, compared to other people is probably more different than your actual physical looks. You know, a lot of times I think people assume that each other kind of share the same perceptions or same interpretations of different events, but think about how many, you know, disagreements that you've had with someone at some point in your life when you both experienced the exact same thing, but you disagreed on the perception of, you know, one aspect or another of that event. I can remember specifically when I was first starting trading and I was extremely naive, okay? I was extremely naive when I first started trading. You know, I'd be studying a system or an indicator or, you know, some type of trading strategy and it was typically through some group that was selling a system or selling a course or selling an indicator and they would make it sound so good, almost magical, like if you just do this, you know, your computer's gonna turn into an ATM machine and just start spitting out $100 bills, right? And I remember specifically wondering, like why doesn't everyone just use this? Like everyone should just use this and everyone would just be successful. This is so simple, just, you know, buy when it turns green and sell when it turns red, right? Now, of course, this just sounds ridiculous to me now, but that's how a lot of new traders think. They think they find this holy grail of trading and it's just gonna start spitting out money and they can't understand why others just don't do the same thing until they actually start trading and start to realize that, A, there's nothing like that from an indicator or technology standpoint. It's all in your mind of how you perceive the information and how you execute that actual operation of your own trades. The defining characteristic that separates the consistent winners from everyone else is this. The winners have attained a mindset, okay? It's a unique set of attitudes that allows them to remain disciplined, focused and confident. You know, the market's always throwing adverse conditions at us, right? I mean, companies come out with crazy earnings announcements but yet their stock falls or they come out with bad earnings announcements and their stock goes up or we seemingly have a great economy but the market is tanking or we seemingly have a terrible economy but the market just continues to climb, right? There's all those different adverse conditions but at the same time, the best traders will consistently have this mindset that allows them to remain disciplined, remain focused, remain confident. You know, I mentioned before, a lot of times people don't get to this threshold of consistency. They never make it to become consistently profitable before they quit and it just, it kills me. I hate to see that because sometimes people, traders are very, very close and if they would have just kind of started focusing on their mindset as opposed to, you know, technical analysis or fundamental analysis or the strategy or whatever, they would, they could have pushed themselves over the edge and this is the defining factor that separates the two groups of consistent winners from everyone else. And the beautiful thing about trading mindset is it's something that you can work on. It's something that you can master. I'm a Kansas City Chiefs fan and at the time of this recording, it's the first part of February in 2021 and the Chiefs are getting ready to go back to the Super Bowl for the second time. So I'm a huge Patrick Mahomes fan, right? And I love football. I played football. I can throw a football pretty well but no matter how much I practice, if I practice eight hours a day, there is no way I'm ever going to compete at the level of Patrick Mahomes, right? You know, I can play basketball. I can shoot a basketball but I'm never gonna be LeBron James. I can practice singing. You know, I'm a terrible singer but you know, if I practice singing eight hours a day, I'm still never gonna be as good as Beyonce, right? So, but the thing with trading is that in the mindset specifically, is it something that you can work on that anyone can work on that anyone can master and you don't have to have some of these, you don't have to be born with some of these, you know, physical abilities to be a professional athlete or some of these other successful professions. So why are emotional and financial disaster common among traders? The simple answer is that most of us just weren't fortunate to start out our trading career with the proper guidance. You know, unless you were born into a trading family and you kind of were brought up with the mindset and everything that goes along with trading, most of us from a human nature standpoint are just not wired correctly. And so the part of rewiring your brain and methodically changing your mindset over time is the difficult part of trading. Mark Douglass in his book, In Trading in the Zone talks a lot about the market as a paradox. According to the dictionary, a paradox is something that seems to have contradictory qualities or that is contrary to common belief or what generally makes sense to people. And that's why I say financial and emotional disaster are common among traders because some of the perspectives or attitudes or principles or goals you said or things you would otherwise use and that would make perfect sense in other areas of life, they just don't work in trading. Think about this, if you've ever been part of a team of a company or you're a business owner or involved in business in any way, you know, setting financial goals is not only viable, but it's almost a necessity, right? If you're gonna grow as a company, if you're gonna grow your profits, if you're gonna grow, you know, no matter what it is, there's always goals and financial goals. Setting goals in sports is the same way, right? When I used to play football, we would set goals. Number one goal every day was to practice hard. Number two was to win that game this week. And then we had the larger goals that extended to, you know, win conference, go to state and win the state championship. So all those things, you know, setting goals is important, but if you set performance goals in trading, it can actually work against you. Think about this, if you have a goal that you wanna make $10,000 a month trading, well, what happens is when you're actually trading, all of a sudden, you're gonna start making trading decisions based on reaching your goal, not because it was the best opportunity or setup in front of you on the charts. Now, I'm not saying it doesn't make sense to set some type of goal in trading, but the goal should be more focused around making good decisions, taking good trades, only focusing on high quality setups, not on a financial goal of a certain amount of money per month. You've gotta trade and take what the market gives you, you can't force anything, otherwise it's gonna work backwards. I think most people would agree that trading is inherently risky, right? I mean, no trade has a guaranteed income. So, you know, the possibility of being wrong and losing money is always present on a trade. So when you put on a trade, do you consider yourself a risk taker? I think that most nearly all traders would say, absolutely yes, I'm a trader, so therefore I am a risk taker. You know, if I engage in an activity that's inherently risky, then I must be a risk taker, right? In fact, most traders kinda take pride in thinking of themselves as risk takers. The problem is with most traders is this is actually very far from the truth. Now, of course a trader's taking risk when you put on a trade, but that doesn't mean you're accepting that risk. In other words, all trades are risky because the outcomes are probable, not guaranteed, but most traders don't believe they're taking a risk half the time. They haven't really accepted the risk. They haven't really accepted the fact that it's non-guaranteed, that it's probable. They haven't fully accepted the consequence of what that trade could actually do. See, most traders, they don't have any concept of what it means to be a risk taker in the same way that a successful trader thinks about risk. The best traders not only take the risk, but they've also learned to accept and in fact, almost embrace that risk. So there's a huge psychological gap between assuming that you're a risk taker because you put on trades and actually fully accepting that risk in each trade. If you learn to fully accept the risk, this is gonna have a huge impact on your bottom line performance. The best traders in the world can put on a trade without the slightest bit of hesitation or internal conflict. And just as freely without hesitation or conflict, they can admit they're wrong and get out of the trade. Even if it's a losing trade and they can do so without the slightest bit of emotional discomfort. I've been trading for over 20 years and I'm definitely still not perfect at either of these, whether it's getting in a trade or getting out. And recent trades that have happened leading up to that maybe in the same day or recently that week, they're still going to have an effect on me of, you know, should I put this trade on? The last one I did kind of like this didn't work out. So I still have those conflicts daily and I've been doing this for 20 years and I'm a consistent trader. So it's definitely a process and it doesn't happen overnight. And I don't, you know, I mean, I'm sure there are traders that this is true about where they just have zero emotional discomfort, but I still think I still have it sometimes. And part of it comes down to position size, right? I start, these emotions are enhanced the bigger my position size. If I'm trading super small and it's at a level that doesn't really affect me from a percentage of my account value or just my overall risk tolerance, then it makes it much easier, but the larger position size I get, the more these emotional discomforts and things when I'm entering or closing losing trades impact my mental state. I mean, if you can get to the point where you're trading without the slightest bit of emotional discomfort, especially fear, then that's when you're gonna get to a point of getting profits flowing in with ease. Because here's the problem. Whatever degree that you have not accepted the risk is the same degree to which you will avoid the risk. And remember, every trade has risk. So you're trying to avoid something that's unavoidable. We always hear about two of the biggest fears that humans have is dying and public speaking, right? Well, I think losing money and being wrong are kind of at the top of that list as well. So, you know, admitting that you're wrong and losing money, those are both really extremely painful to do. And I know this firsthand because it even works even further against me at Navigation Trading because we show all of our members all of our trades, the profit and loss and everything that happens. And so, you know, for me, if I have a losing trade, number one, I lose money, that sucks. Number two, I was wrong. I have to admit that I was wrong, that sucks. Number three, I have to share how much money I lost and that I was wrong on the trade with our entire community. So reducing or eliminating that emotional discomfort is so difficult, but it's so important. The cool part is when you start to learn this trading skill of risk acceptance, the market will not be able to generate information that you define or interpret as painful. You know, if the information the market generates doesn't have the potential to cause you emotional pain, then there's nothing to avoid. It's just information. You know, it's just possibilities. I'm sure everyone listening to this podcast or watching this video has gotten into trades too soon before your stock or the market has actually generated a signal or you've gotten in too late, long after the market kind of gave you the signal to enter, right? We've all entered too late, got out too early, got in too late, got out too early. I mean, every trader has convinced himself not to take a loss and as a result, had it turned into a bigger loss or got out of a winning trade too soon just for it to, you know, fly in the direction and you knew you were right, but you got out too soon. Remember, these are not market-generated errors. Okay, this is between your ears. This is your decision-making, this is you making decisions based on your perception of the markets. Remember, the market is neutral. It just moves and generates information about itself. That's all the market is. It's movement and information and it provides you with the opportunity to do something about it. In the book, Trading in the Zone, Mark Douglas talks about the four primary trading fears. 95% of your trading errors are likely to come from these. Number one, your attitude about being wrong. Number two, losing money. Number three, missing out. FOMO, fear of missing out. Number four, leaving money on the table. Write those down. The four primary trading fears, this is what causes 95% of your trading errors. Number one, your attitude about being wrong. Number two, losing money. Number three, missing out. And number four, leaving money on the table. Obviously, the two emotions, and we always talk about this, is fear and greed. But fear, for most people, is the number one issue that holds them back from being successful. And Mark Douglas in his book says, I don't think I could put the difference between consistent winners and everyone else more simply than this. The best traders aren't afraid. And the reason they're not afraid is because they develop these attitudes over time that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities and the probabilities from its perspective. Okay, so you're not afraid, but at the same time, the best traders also have developed attitudes that prevent them from being reckless, right? We're talking about fear and greed. If you get reckless, sometimes that comes out of greed and euphoria if you're on a good run of winning trades, right? So you've got to balance that. So you've got to have a lack of fear and you also have to have a structure and a discipline to keep you from getting reckless. I think a lot of times for a lot of people, it's human nature to want to place the blame elsewhere outside of you. You don't want to take the blame. You don't want to take ownership. But the reality is when it comes to trading, your attitude is your problem. You know, the way that we think is so deeply ingrained in us, you know, if you're an adult trader, assuming you're not just a kid that has mom and dad's money right now, you know, our thoughts are so deeply ingrained in us, whether that's how we were brought up or just our natural DNA. And so it's very difficult for us to think that the issue is actually internal. You know, it's not the strategy. It's not the indicator we're using. It's not the fundamental analysis that we did. It's not the charts. It's actually us, it's what's between our ears that's actually causing the problem. Now these are kind of abstract concepts and certainly something that most traders, they, you have to concern yourself with this. Because what we now understand is that the relationship between your beliefs, your attitudes, your perception is as fundamental to trading as learning how to swing a golf club is to golf. Understanding and controlling your perception of the market information is important not only to actually trade, but to become consistently profitable. But to think about this a different way, think about this, like you don't have to know anything about yourself. You don't have to be self aware. You don't have to focus on mindset. You don't have to do any of the things that we've been talking about to this point in this episode to put on a winning trade, right? You don't, like you can go in, click the mouse, buy a stock, sell it however long later, book a winner, and you didn't do any of the stuff that we were talking about here today. Anybody can place a winning trade, right? And so that's part of what gives the illusion of ease of trading is that do you have those winners and you think, oh, that was easy. Why can't I just keep doing that? And I relate trading to golf a lot because I think there's a lot of psychological and mental aspects that are similar between trading and golf. But think about that. I mean, if the first time you ever went and played golf, you know, you probably hit some good shots, but you knew nothing about the technique, right? You knew nothing about the strategy of how to hold the club quite right, how to place the angle of the club head, how to, you know, keep your arms the right angles, your left arm straight and your right arm pulling back. You know, do you pull the club up? Do you pull it back behind your back? I mean, there's all these different, tiny techniques. Without even knowing all that, you probably hit some good shots. But if you're gonna become consistently good at golf, if you're gonna go out and shoot par eventually, you're gonna have to really dive deep and practice and work on your techniques, work on your skills. It's the same thing with trading except it's working on your mindset. Most traders when they have a, you know, a string of losing trades, it's like they go back to studying the markets. It's not market analysis that will lead to consistent results, okay? It's not another strategy. It's not another indicator. You've got to take, you've got to internalize it and make it you, working on you, working on your confidence, working on your lack of fear of the markets, working on thinking like a trader and thinking in probabilities that's gonna make the biggest difference. So if you continue to rationalize and justify and hesitate and procrastinate and hope and all these things, if you're not able to trust yourself, then you're not gonna be able to be objective enough to act in your own best interest when it comes to trading. You know, trading looks so simple. It seems like it should be so simple, but yet it's gonna be one of the most difficult things that you do just because we're humans and our brains are not wired in a way that makes it natural to be successful at trading. But the cool part is once you have the appropriate attitude, once you've kind of acquired this trade hacker mindset, which is what this podcast is all about, you're gonna be able to remain confident no matter what happens in the market. No kind of uncertainty is going to phase you and you can always come out with that confidence and continue to be successful trading. So the solution is you have got to learn how to adjust your attitude. You've got to learn how to adjust your beliefs about trading. You've got to create a mental framework so that you can trade without the slightest bit of fear but at the same time have a framework that does not allow you to become reckless. As you continue to grow as a trader, you've got to look at yourself in a kind of a future projection of yourself that you're going to grow into. Growth doesn't happen overnight. Growth implies expansion, learning, creating a new way of expressing yourself. And this is true even if you're already successful. If you're listening to this podcast or watching this video to become more successful, then all of these things still pertain to you, even if you think that you're self-aware, you still need to be open to the idea that there are other possibilities. Some of these possibilities you may be aware of and some of these possibilities you may not be aware of. If you hear in your head, if you feel thoughts creeping in, don't dismiss those. It's cool to have internal arguments with yourself. That is part of the growth of becoming a more and more successful trader. So I hope this was helpful. Thank you for tuning in for this episode of the Trade Hacker Mindset. If you'd like to join a community of like-minded traders, just go to community.navigationtrading.com. It's free to join. We have hundreds of traders interacting on a daily basis, sharing trade ideas, and helping each other become better traders. We hope to see you there. Happy trading.