 Welcome back to the Trade Hacker Mindset. In this episode, we are going to be continuing our series of discussion topics from the book by Mark Douglas called Trading in the Zone. And we're actually gonna break this topic into two separate episodes. So this is episode one of Thinking Like a Trader. 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. Okay, so let's jump into our discussion of Thinking Like a Trader. If you look at trading in its most simple form, it really comes down to a pattern recognition numbers game. We analyze the market. We recognize specific patterns that repeat themselves over and over. We manage our risk. We manage our expectations. Now, all of this sounds pretty easy on paper, but if you've been trading for any period of time, you know that this is no easy feat. In fact, becoming a successful trader is probably one of the most difficult things that you've ever tried to challenge yourself on to become successful at. And it's not that it requires this crazy intelligence. It's actually the opposite. It's almost like the more you know or the more you think you know, sometimes the less successful you'll actually be. It's less about intelligence. It's less about how much you know about the market, but it's more about building this belief and confidence in your trading. So there are really three stages of development as a trader, and so we're gonna talk about all those three. Some of you may be in the beginning stage. Some of you may be near the end, but at some point you're going to find yourself in one of these three stages as you develop as a trader. So the first stage that we're gonna talk about is what Mark Douglas refers to as the mechanical stage. And the first step of the mechanical stage is to learn to trust yourself. It's to be able to build that self trust necessary to operate in this environment that has no boundaries, this unlimited type environment. Step two is you have to learn to execute your trades flawlessly. You've got to create this system or a methodology of trading, and you've got to learn to be able to execute those trades flawlessly. Step three, you've got to learn to think in probabilities. In a previous episode, we talked about the five fundamental truths. You've got to be able to shift your mindset to be thinking in a state of probabilities. Because remember, there are no guaranteed trades. There is a probability that it could be positive and there's a probability that it could be negative. So you've got to make sure that your mental framework is designed to take advantage of those and to think in those probabilities. And last, but certainly not least, and probably the most important step four, is you've got to believe in yourself as a consistently profitable trader. And this belief has to be super strong. It's got to be an unshakable belief in your ability to be a consistently profitable trader. So in this mechanical stage of trading, it's specifically designed to build these trading skills, build this trust, build this confidence, build this ability to think in probabilities. And by creating this mechanical trading mindset, that is what is going to actually get you these consistent results that we're looking for. And when I refer to consistent results, what I'm talking about is we want that steadily rising equity curve with very minor drawdowns. And this steadily rising equity curve, this is gonna be a function of systematically eliminating these fear-based trades or trading in the state of euphoria that we've talked about in previous episodes. And by doing this, it's gonna help us eliminate the errors that will continue to compound on themselves and create this negative psychological situation in our heads while we are trading. So if producing consistent results is your primary goal as a trader, which it should be, then creating this unshakable confidence, unshakable belief by creating this state of mind, that's what's gonna help us manage our perceptions of the information that the market is providing to us on a daily basis. And remember, if these beliefs are conflicting in your mind of what you may have previously believed, that's gonna create a kind of that tug of war in your mind that you're going to have to get over. And the only way you're gonna get over that is you're going to have to have this willingness to change, you're gonna have to have this willingness to draw a line in the sand and say, I'm not going to think like that anymore. I'm not gonna trade like that anymore. I'm willing to change and I will do whatever it takes to get that correct frame of mind. So once you've completed this first stage, which we call the mechanical stage, then you can advance to the next stage of trading, which is called the subjective stage. So in this stage, you're gonna use all the things that you've learned about the market and how it moves to do whatever it is that you wanna do. Now, there's a lot of freedom in this stage. So this is where that self-control will come in, where you have to learn to monitor your susceptibility to making these trading errors that result from fear or euphoria. And then the third stage is called the intuitive stage. And this is where it's really the most advanced stage of your trading development. Mark Douglas describes it as the equivalent of earning a black belt in martial arts. So a couple of points about being intuitive. Remember, intuition is spontaneous. You can't try to be intuitive because intuition is spontaneous. It doesn't come into our mind from what we know at a rational level because our rational mind does not trust the information from sources that it doesn't understand. So if you think about, if you're sensing a certain move in the market, you know, that's gonna contradict what our rational side of our brain is telling us. So while having that mechanical state of mind and that very mechanical way of trading, you can also structure your state of mind that's conducive to acting on intuitive impulses. One of the first steps that you need to take in the process of creating consistency is to start noticing what you're doing. Start observing your own thoughts, your own words, your own actions. Every morning when I'm getting ready to trade before the market opens, I'm actually writing down, like not typing on a computer, physically writing down how I'm feeling. You know, was there, did I have an argument with one of my kids or my spouse before I started trading? Am I feeling tired because I didn't get enough sleep the night before? Have I drank too much caffeine that morning? Do I have some type of project or deadline or something that I'm working on that's gonna be taking away or distracting me from my trading? So I write these things down every morning just to get that self-awareness flowing so that I start to think and observe myself and how I'm acting and how I'm thinking. Because remember, everything that we do or think or say as a trader, it contributes to our belief, our mental system. And what this will do is as you continue to get really good at self-awareness and observing your own thoughts and words and actions, this is going to help you avoid errors because all of a sudden you're gonna start catching yourself thinking a certain way. You're gonna start catching yourself acting a certain way. And when I say acting, I mean pressing that confirm and send button to send trades. You're gonna start saying, wow, should I really do that? I'm thinking in a way that does not correspond with my goals and my desires, should I really do this? And when you start catching yourself, you're gonna be able to start avoiding some of these errors that you were previously taking. And lastly, so you don't create this kind of emotional pain that some of us do to ourselves and our own minds is, the last piece is don't judge yourself. Understand that we are still going to make mistakes. Everyone makes mistakes. We are human and so you can't judge yourself too harshly. So it's a balance of observing yourself, catching yourself in the act, and then correcting yourself without judging yourself too harshly. Because think about this, in our normal everyday lives, typically if we don't confront our mistakes, right, I mean think about this. We make mistakes every day, right? But if we don't confront those mistakes, it usually doesn't have this big disastrous consequence, but in trading it does. If we don't catch ourselves in those mistakes, it can create a massive loss in our account that could have been avoided. In Mark Douglas' book, Trading in the Zone, he talks about using an example or an exercise with traders. And he says, okay, think about this, think about this bridge going over the Grand Canyon. And the width of that bridge is directly correlated with the size of your position. So for example, if you're only trading one contract, then you can picture that bridge as extremely wide. Let's say it's 20 feet wide. So if you're walking across this bridge across the Grand Canyon and you're on a 20 foot wide bridge, that gives you a lot of room for error, right? I mean, you can even stumble and fall down and you're still probably not gonna go off the edge. So you really don't have to be that careful or you don't have to be super focused on each step that you take. However, if you do stumble, if you do trip over the edge, if you do fall, you're still gonna drop to the bottom of the Grand Canyon. And I think you'd probably agree that's still a pretty big disaster, right? On the other hand, if you are a larger position size trader, let's say you're trading 100 contracts, well now that bridge, that theoretical bridge going across the Grand Canyon, it starts to shrink. It starts to get more and more narrow. There's less room for error when you're trading larger position size. Because now the underlying P&L swings that happen, just from a small movement in the market can be extremely significant when you're trading that big a size. And so now, going back to the bridge, the slightest misstep, the slightest little bit of wind can move you off or get you unbalanced and make you stumble off the bridge, right? So when it comes to trading, that one misstep could be one distraction. It could be one just kind of mental brain fart that takes you out of your zone of trading. So remember, if producing consistent results is a function of eliminating errors and you can't eliminate errors if you don't acknowledge your actions, that's gonna be really difficult to achieve your objective of being consistently profitable if you can't acknowledge a mistake. So remember, making mistakes is a natural function of living. So what we have to do is make sure we have the mindset that we understand all of our beliefs, everything that we see in our outside environment, it all gets into sync with our goals and our desires. And all of these beliefs, they've gotta be consistent to work within this environment that we call the markets. So if our beliefs are not consistent with what works from the environment's perspective, then the potential for making a mistake is high, if not just plain inevitable. And these mistakes aren't always just out in the open. Remember, the most difficult mistake to detect is a distracting thought that causes just kind of that momentary lapse in focus or concentration. On the surface, this might not sound significant, but remember what we just talked about about the bridge going over the Grand Canyon. If there's a lot at stake, if you're trading a large position size, then even a slightly diminished capacity to stay focused can result in an error that's disastrous. You know, and this is one of the reasons that when we're day trading, we only day trade for about the first 90 minutes of the day. And part of that is me, because of my lack of focus for longer than that. But if I'm trying to just, I mean, I'm laser focused on these charts, on the trades, on the setups, on the strategy, on the management of these trades. And if I have this lapse in judgment, which a lot of times happen after I've been staring at the screens for an extended period of time, that's why I personally, I've gotta limit my trading to 90 minutes because I know from just trading over the years and my own self-awareness that once I get past that, I start to get fidgety. I start to start making bad decisions. I, if, you know, if I'm down, I might start revenge trading. If I'm up, I might start trading in a state of euphoria and end up giving some profits back. So it's all about this self-awareness. In a previous episode, we talked about having a winning attitude and how that's a positive expectation from our efforts that we put in. And it's having that acceptance that whatever results that we get are a perfect reflection of our level of development and what we need to learn to do better. And this relates to trading. This relates to athletics. This relates to a musician. And what separates the consistently great athletes or the consistently great performers from everyone else is their pure lack of fear of making a mistake. And the reason they don't fear making mistakes is because they have no reason to think less of themselves if they do make a mistake. In other words, they don't have this negative energy filtering through their mind. If you played sports as a kid or even into your as an adult, you know, you probably had at one point or another, you probably had that coach that you knew if you made a mistake, they were just going to rip into you as soon as you got to the sideline. And if you didn't have the proper confidence or the proper mindset, next time you go out on that field, you're going to be playing with the objective of not making a mistake. You're going to be playing out of fear and obviously what that actually does is starts to make you create more mistakes. You know, so again, a lot of these challenges that we face come from things that actually happened in our past that have created these different energies inside of us that allow us to either act without fear or in some cases act in a sense of, you know, not wanting to make a mistake. And I'm sure there's a few of you out there who did grow up in a just a 100% positive environment, but for the rest of us who did have, you know, a lot of negative reactions to our actions. And the reality is it's pounded into us from a very young age that mistakes must be avoided at all costs or things like there must be something wrong with me if I make a mistake. I must be a bad person if I make a mistake. And if you're continually told that over and over, then that creates this negative self criticism of yourself that we acquire and we now have in our minds as we become adults. And so if you have that mindset when you're in trading of, oh, I don't know if I wanna take this trade, I might make a mistake and then I'm gonna need to be a screw up and I'm gonna be a bad person because I made this mistake that all plays into your decision making as a trader. So this whole episode, this whole lesson is about thinking like a trader and it comes down to what we talked about before. You've got to learn to monitor yourself, monitor your thoughts, monitor your actions, observe your actions and your thoughts and your words on a daily basis. And by doing that, you're gonna start being able to catch yourself, you're gonna start being able to correct yourself without judging yourself too harshly because we want to reinforce these positive beliefs over and over and over because that's gonna help you become a better trader. And I made that point about the willingness. So really to get to this mindset, all it really takes is a willingness. It's a willingness to monitor yourself. And this starts with creating a very clear purpose in your mind because when you have this clear purpose in your mind then you can simply start directing your attention to what you think, to what you say, to what you do, to how you trade. And the more you do this the easier it's gonna become. Like I said, one of the things that really helped me was every morning pre-market, I write down my thoughts. I observe how I'm feeling and it started to become a habit to the point where now I still write it down but then throughout the day, especially throughout while I'm trading, I start to remember these things and start to course correct myself so that I'm not making those same errors. And by doing this, you're eventually gonna create this mental framework. So the more willfully you are engaging in this process, the more you practice, the quicker that mental framework will come to fruition. And the quicker you can create that framework, the quicker you are gonna be on your way to becoming a successfully consistent trader. I hope you enjoyed this episode. If you wanna be part of a community of traders, just go to community.navigationtrading.com. You can join our trade hacker community. It's free to join. We have hundreds of traders and they're interacting every day not only on the mindset but also sharing trade ideas and helping each other become successful traders. We look forward to seeing you on the inside and we'll see you in the next episode.