Introduction

About the book

Trading in the Zone by Mark Douglas (author) has been regarded by many market stalwarts as the "Trading Bible". 
The book takes on the myths of the market and exposes them one by one, teaching you to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the "probabilities" of market movement that governs all market speculation.

About the author

Mark Douglas introduced the investment industry to the concept of trading psychology. Mark began coaching traders in 1982 and has continued to develop seminar and training programs on trading psychology for the investment industry, as well as individual traders. 

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The book uncovers the underlying reasons for the lack of consistency among traders in making a profit and helps you overcome the ingrained mental habits to become a successful trader. We highly recommend you to read the entire book. (affiliate link)

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The Starters

Trading is full of paradoxes & contradictions in thinking, hence making it extremely challenging to learn how to be consistently successful.  

Financial and emotional disaster is commonplace amongst traders because many of the perspectives, beliefs, attitudes and principles that we have learned and adopted in our daily lives have an opposite effect in the trading environment. Not realizing this, most traders start their careers with a lack of fundamental understanding of what it means to be a trader, the skills that are required & the extent to which those skills need to be honed. 

Trading is inherently risky; no trade has a guaranteed/certain outcome. 

Most traders would acknowledge this statement. If you engage in an activity that is inherently risky then you must be a risk taker, and as a matter of fact many traders take pride in the fact that they are risk takers.  

Of course, any trader is undertaking a risk by entering into a trade but this does not mean that they are correspondingly accepting the risk. All trades are risky since the outcomes are probable not guaranteed.

But do most traders really perceive that they are taking risk while they are entering into a trade?

Have they really accepted that the trade has a non-guaranteed probable outcome, have they completely accepted its consequences?  

The answer is no. 

Most traders have no cognition of what it means to be a risk-taker in the way successful traders think about risk. The best of traders not only accept the risk but they have learned to embrace it as well. There is an enormous psychological gap between assuming you’re a risk taker because you enter into trades and fully embracing the risks inherent in each trade. When you fully accept the risk, it shall have profound implications on your bottom line performance.  

The best traders can enter into a trade without the slightest hesitation/conflict/disarray, and just as freely and without hesitation/conflict/disarray admit that it is not working. They can get out of the trade even if it is at a loss and this doesn’t create even an iota of emotional discomfort. 

In other words, the risks inherent in trading do not cause seasoned traders to lose their discipline, focus, or sense of confidence. On the other hand, if you are not able to enter into a trade without the least bit of emotional discomfort (specifically, fear), then you have not yet learned to accept the risks inherent in trading. This creates a major paradox because to whatever extent you have not accepted the risk is the same degree to which you will shun risk. Trying to avoid something that is unavoidable shall have potentially disastrous effects on your ability to trade successfully.  

Trading presents a fundamental paradox: How do we as individuals remain focused, disciplined, and confident in  the face of perennial uncertainty? 

When you shall master the skill of risk acceptance, the market will not be able to generate  information that you define or interpret as troublesome. Learning to accept risk is a knack in this field, more precisely put, it is the most important sophistication you can learn. 

What trader hasn’t entered into trades sooner than the market has generated a confirmatory signal? Who hasn’t entered a trade too late, or hasn’t convinced themselves not to book losses only to end up with a bigger loss; or exited trades too soon; or found themselves in winning trades but didn’t  take the profits on the table and let the trade turn to a loss; or moved stop losses closer only to get stopped out and have the trade move back once again in your direction? 

These are a handful of the many blunders that traders perpetuate on themselves over and over. These are not market-generated errors, the markets are neutral in essence. The markets are incessantly in motion providing information and opportunity, that’s all. The markets do not have any power over the distinctive ways in which we perceive and interpret this information. Nor does it control our actions and decisions that we make based on the market information.  

The best traders are not nervous. They have developed attitudes that give them maximal mental  flexibility to participate in the opportunity flow of the markets, based on what the market is indicating, based on its structure.  

Almost all the trading errors you make are likely to stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table a.k.a the four fears.  

Fear narrows awareness. You are unable to sense other possibilities or act on them properly even if you did perceive them because fear is immobilizing. Physically, it freezes you. Mentally, it causes you to narrow your focus of attention to the source of your fear. This means that thoughts about your alternatives, as well as most of the information available from the market shall be blocked. You will no longer think of all of the rational things you have assimilated about the market until you are no longer terrified … the event is over.  Once you are out of the trade, you often reflect on it. This is the part where the “should have, could have, would have” of the world come in, exacerbating your emotional pain.  

It is amply difficult to perceive that the source of these problems is our inappropriate attitudes. A plethora of these thinking patterns that adversely affect our trading are a function of the natural ways in which we have been nurtured to think about the world. These thinking patterns are so deeply ingrained that it seldom occurs to us that the source of our difficulties is internal, derived from our state of mind. It seems much more customary to see the source of our problems as external, in the market, because it feels like the market is causing our pain.  

Conceptualizing the relationship between beliefs, attitudes, and perceptions, are as fundamental to trading as learning to serve in tennis.  

Of course, most traders believe that the most appropriate way to avoid losses and emotional pain is to learn more about the markets. This piece of logic is a trap and presents another paradox. The more you seek about the markets, the more you realize there are too many variables, often conflicting. In  addition, there are virtually no limits to the market’s behavior. 

This essentially means that no matter how much you learn about the market’s behavior, no matter how proficient an analyst you become, you will never anticipate every possible way the market can prove you wrong or cause you to lose money. If you are fearful of being wrong or losing money, you will never learn enough to compensate for the negative effects these fears will have on your ability to trade reasonably and without the slightest hesitation. 

The hard crude fact of trading is that every trade has an uncertain outcome. Unless you learn to vehemently accept the possibility of an uncertain outcome, you will try consciously or subconsciously  to avoid any possibility you define as painful. 

Confidence and fear are contradictory states of mind that stem from our beliefs and attitudes. To be confident functioning in an environment of uncertainty requires absolute trust in oneself. To gain this trust you must discipline your mind to override your natural inclination to think in ways that are counterproductive to being a habitually successful trader. 

You can try to evict risk by learning about as many market variables as possible, or you can learn how to redefine your trading activities in such a manner that you truly accept the risk and are no  longer fearful. When you have truly accepted the risk, you will lack the potential to define and  interpret market information in painful ways. When you have accomplished this, you will no longer  have an inclination to rationalize, jump the gun, hesitate, or hope that the market will give you money, or save you from your ineptitude to cut your losses.  

If you are still skeptical of the kinds of errors resulting from hesitating, rationalizing, justifying,  hoping, you will not be able to trust yourself. If you can’t trust yourself to be objective and always  act in your own best interests, achieving consistent results will be unattainable.

As you move towards your aim of being a consistent successful trader, be mindful that this is a  future projection of yourself that you have to grow into. Growth signifies expansion, learning,  and creating a new way of expressing yourself. Many of the ideas presented here shall be in direct  conflict with ideas & beliefs you presently hold about trading. This is part of the challenge.  

The Lure Of Trading

Trading offers the individual limitless freedom of creative expression, something that has been denied us most of our lives. In the trading environment, we formulate all the rules.  There are hardly any restrictions or boundaries on how we choose to express ourselves. The range of scenarios that exist for how you go about trading are virtually limitless.  

Nonetheless, to operate effectively in the trading environment, we need rules and boundaries to guide our behavior. To avert the possibility of exposing ourselves to damaging trades we need to forge an internal structure in the form of specialized mental discipline & a perspective that regulates our behavior so that we invariably act in our own self-interest. This structure must exist within us, due to the fact that unlike society, the market does not provide it.  

The markets do provide structure in the form of behavior patterns that signals when an opportunity exists to buy or sell, And that is literally where the structure ends. From the individual's perspective, there are no standardized rules to guide behavior. There aren’t even any beginnings, middles or endings as there are in virtually every other activity we take part in.

In trading, nothing begins until you determine it should, it lasts as long as you want, and it doesn’t end until you want it to.

One of the many paradoxes of trading is that it offers the boon and a bane at the same time. The gift is that perhaps for the first time in our life we are in absolute control of everything we do. The curse is that there are no external rules or boundaries to guide or regulate our behavior. This structure to guide our behavior must spring in our mind as a conscious act of free will. This is where many problems begin.  

The Unwillingness To Create Rules

Most traders would subscribe to the view that creating trading rules makes sense on the one hand yet resist doing so on the other. This resistance is not always overt in fact it is often quite subtle, is often intense and has a rational source.  

Most of the structure in our minds was given to us as a result of our social upbringing and is premised  on choices made by other people. It was instilled in our minds but it did not originate here.  

This distinction is extremely important. During the process of instilling this mental structure many of  our natural instincts to move, express and learn about the nature of our existence through our own  direct experience were refused (consider the many times a day a child is told not to do something  even if it is for their own good). Many of these denied instincts were never reconciled and they still exist inside us in the form  frustration, anger, disappointment, or guilt, for instance. These amassed negative feelings act as a force inside our mental environment causing us to resist anything that refutes us the freedom to do and be whatever we want when we want.  

Thus, the very reason we are attracted to trading, the limitless freedom of creative expression, is  the same reason we feel resistance to creating the rules & boundaries that can appropriately  guide our behavior.  

Creating and abiding by your trading rules stipulates a lot of effort and focus to build the mental  structure necessary to compensate for the negative denied instincts. Often, this motivation shall  come at the expense of your trading account and after a great deal of pain & suffering to break  down any resistance to designing and following a set of trading rules.  

Failure To Take Responsibility

Trading could be characterized as pure, unrestrained personal choice with immediate outcome.  In trading, nothing begins until we determine it should, it lasts as long as we want, and it doesn’t end until we want it to. 

We may relish the freedom to make all of these choices but that does not mean we are ready to accept responsibility for its consequences. This presents a dilemma: how does one participate in an activity that allows complete freedom of choice, and at the same time shun taking responsibility for the outcome of those choices peculiarly if the outcomes are unexpected and not to one's liking?  

To participate in trading but not take complete responsibility requires that you adopt a trading style that to all intents and purposes is random & discretionary. This signifies poorly planned trades. It is an unorganized approach that takes into consideration an unlimited set of variables, that does not allow you to decipher what works and what doesn’t on a consistent basis.

Randomness could be quantified as unstructured freedom without responsibility. When trading without a well-defined plan and with a limitless set of variables, it is easy to take credit for winning trades as we do have “some” methodology, yet it is easy to avoid taking responsibility for losses considering there is always some variable we did not know about or didn’t take into account beforehand.  

It would be backbreaking if not impossible to create consistency trading the markets if its demeanor was truly random. If it is unobtainable to be consistent, then we don’t have to take responsibility. We know however through our skills and wisdom that the markets are not random. The same behavior patterns present themselves recurrently. Even though the outcome of each individual pattern is random, the outcome of a series of patterns is statistically dependable. This is a paradox, yet it can be easily settled with a disciplined, organized, and consistent approach.  

Taking Responsibility

The phrase “taking responsibility” sounds simplistic enough yet the concept is neither easy to grasp nor to put into practice. We have heard this expression literally so many times that it is easy to take for granted that we know exactly what the phrase means.  

Taking responsibility whilst trading and learning the appropriate principles of success are inextricably linked. You must understand with every fiber of your being, the ways in which you are and are not responsible for your trading success.  

To express yourself as a consistently successful trader, you must deactivate limiting thoughts, catalyze new empowering beliefs and work on your mental & emotional attitude. To realize your potential, your yearning must be to learn how to think like a consistently successful trader.  

The best traders think in exemplary ways. They have created a mental configuration that allows them to trade without fear and concurrently keeps them from becoming reckless or overconfident.  

If we work with the premise that to become a consistent trader, you must focus your efforts on developing a traders mindset, it is easy to see why most of us are not successful. Instead of learning to think like traders, they dissipate most of their efforts in thinking about how they can make more money by learning about the markets. It is nearly impossible not to fall for this, it is rudimental to assume that it is what you don’t know about the markets that causes your losses and lack of consistent results.  

However, this is a false narrative. The consistency you seek is in thou mind, not the markets. It is your attitudes & beliefs about losing money, being incorrect, along with the tendency to become reckless when feeling good that causes losses, not technique or market knowledge.  

It takes time to evolve this winning attitude & mental structure. The broad definition of an optimistic winning attitude is expecting a positive result from your efforts, with an acceptance that whatever results you get are a candid reflection of your level of development and what you need to improvise on. This winning attitude helps you move beyond your blunders and keep learning, instead of getting bogged down in negative self-criticism.  

Most traders have had the common experience of losing one or more fortunes before they ascertained how they needed to think in order to be consistently successful. It is a fundamental shift in attitude that accounts for their success, not some momentous realization about the market, as most folks erroneously assume.  

Taking responsibility warrants believing that all of your outcomes are self-generated; that your results are based on your own inferences of the market information & the decisions you make and actions you take as a result. 

Not taking complete responsibility sets up two major psychological barriers that shall block your success. The first is that you will establish an adversarial relationship with the markets, thus taking you out of the perpetual flow of opportunity. Second, you will mislead yourself into believing that your lack of success and trading problems can be amended through market analysis.  

From the markets’ viewpoint, each moment is neutral; to the observer or trader, every moment & price change can have inferences. These meanings are centered on what you have learned and exist solely in your mind, not the market. 

The market does not accredit meanings or interprets the information it generates about itself. Additionally, the market doesn’t know how to define an opportunity or a loss. The market does not seem to care if you perceive it as an endless stream of opportunities to enter and exit trades for both profits & losses at each and every moment, or as an insatiate monster ready and willing to devour your money at any given moment.  

Finally, learning endlessly about the markets only to avoid pain compounds your problems, because the more you know, naturally the more you shall expect from the markets, making it all the more aching when the markets do not do their part. This can create a vicious cycle where the more you learn the more feeble you become; the more feeble you become the more compelled you are to learn. This cycle shall go on and on until either you get fed up and quit trading in distate or you recognize that the root cause of your trading problems is your viewpoint, not your lack of knowledge.

Taking responsibility is the bedrock of a winning attitude. 

Consistency Is A State Of Mind

Winning and consistency are a mental state in the same way that having fun, happiness and satisfaction are. Your state of mind is a direct by-product of your perspective, beliefs and attitudes.  

Traders who are consistently successful are consistent as a natural articulation of who they are, as within so without. They do not have to feign consistency; they are consistent.  

Ponder back to the best of your trades, they were easy and effortless. You did not seek to make them easy & effortless; they were naturally easy and effortless. At that moment, you were available and receptive to the opportunity flow of the market. When you are with the flow, you don’t have to try given that everything you know about the market is available to you.  

To be consistent you have to learn to reflect about trading in such a way that you are no longer susceptible to conscious/subconscious mental processes that obscure or block information on the basis of what will make you jubilant, or to avoid pain.  

Understanding Risk

Other than the many issues surrounding responsibility, there is nothing about trading that is more pivotal to your success and more misunderstood than the concept of accepting risk. Most traders erroneously presume that because they are engaged in the inherently risky activity of trading that they are accepting the risk. This assumption cannot be further from the truth.  

Accepting risk signifies accepting the consequences of your trades without emotional discomfort or fear. This requires that you must grasp how to think about your trading and your relationship with the markets in such a way that the possibility of being wrong, missing out, losing, or leaving money on the table does not cause your mental defense mechanisms to kick in thus taking you out of the opportunity flow.  

By wholeheartedly accepting the inherent risk, you make yourself available to take advantage of an opportunity, you do not impose any limitations/ expectations on the market’s behavior. You are perfectly content to let the market do whatever it is going to do. As the market moves, it will create certain conditions you define and perceive as opportunities. You act on these opportunities to the best of your expertise, yet your state of mind is not dependent upon or overwhelmed by the market’s behavior.  

Once you learn to create a state of mind that is not overwhelmed by the market’s behavior, the struggle shall cease to exist. When the internal struggle ends, trading becomes effortless. At that point you can take full advantage of all of your skills, analytical or otherwise to eventually realize your abundant potential as a trader.  

How do you then accept the risks of trading without emotional discomfort and fear, when at the moment you perceive risk, you simultaneously feel discomfort and fear? How do you remain confident and pain-free when you are absolutely convinced you can be proved wrong, lose money,  miss out, or leave money on the table? Thus, these feelings of fear and discomfort are completely justified and rational. Each of these possibilities become indubitable the moment you interact with the market. 

Many traders presume that the creme la de creme traders somehow neutralize their fears with an inordinate amount of courage, nerves of steel, and self-control. As with many attributes of trading this too does seem to make sense, however most of the time this is not the case. 

Any of these characteristics might be present in the best of traders. But what is not true is that these characteristics play a primary role in their superior abilities. Requiring courage, self-control, nerves of steel would imply an internal conflict where one force is being used to counteract the effects of another. Any extent of internal struggle, trying, or fear associated with trading takes you out of the moment and flow, thus waning your results.  

The ability to accept risk the way the pros do i.e. not perceiving anything the markets do as threatening, is where professionals separate themselves from the masses. 

No threat, no fear, no fear, no need for courage.

If you are not anxious why else would you need nerves of steel? A handful of people start their trading careers with the appropriate beliefs and attitudes about responsibility and risk. Most traders go through the cycle of the novice trader: We start carefree, then become nervous, and our fears continually diminish our potential.  

Traders who finally break through the unending cycle and ultimately make it are the ones who learn to stop avoiding and start embracing the responsibility & risk. However, most of the traders who successfully break this cycle make the shift in thinking after experiencing relentless pain from large losses that it has the positive effect of stripping away their illusions about the nature of trading.  

Aligning Your Mental Environment

The key to trading in a calm and composed manner with the flow of the market is to have a firm belief in probabilities and edges. Once you have acquired this belief, you can forge a new relationship with the market, one that dissociates your trading from what it ordinarily means to be wrong or lose, and that prohibits you from perceiving anything in the market as threatening.  

In countless ways, a state of mind, or perspective is like a software code. You may have umpteen lines of perfectly written code with only one flawed line or character. This minuscule flaw in relation to the rest of the code could ruin or alter the performance of an otherwise perfectly written system. The solution appears rather simple: fix the misplaced character and everything runs smoothly. However, finding the error or even acknowledging its existence can take considerable time and expertise.  

When it comes to the ideal trading mentality, the world at large is a certain psychological distance away.  Practically everybody starts out with a flawed software. As your perspective shifts and/or you integrate new beliefs with respect to responsibility and risk, this shift would be the equivalent of finding the flawed line or character in your mental software and swap it with something that works.  

This internal shift is often described as the “ah ha” experience, a.k.a the moment the bulb switches on; a sudden epiphany.

Often, once the new information is integrated into our code, we feel this new part of our identity has eternally been a part of who we are. It then becomes challenging to believe that we were ever the way we were before we had the experience.  

You may already be aware of what you need to know to be a consistently successful trader. However, awareness is not necessarily the same as belief. You must not presume that learning something new, agreeing with it, is the same as believing it at the level where you can act on the same. For instance, many phobias are fears where we may rationally know that there is nothing to be frightened about. However, our awareness that fear is not rational does not necessarily eradicate fear or phobia. These types of contradictory beliefs are ubiquitous in trading and represent flawed mental software. Discovering & debugging these contradictions is the key to move towards your eventual success.  

Dynamics Of Perception

If your goal is consistent profitability you must be able to construe the market from an objective perspective without distortion. The best of traders do not perceive anything about the markets as dreadful; therefore no threats exist for them. Non-existence of threats suggests nothing to defend against. Nothing to defend against suggests that there are no grounds for your conscious and subconscious defense mechanism to be activated. Thus, you can participate in the opportunity flow perceiving the endless stream of opportunities.  

To obtain this mind set, you have to redefine your relationship to market information so that there are slim or no chances to perceive anything as threatening. This new mindset shall allow you to remain absorbed in the opportunities available instead of tapping into emotional pain.  

In an effort to debug our mental software we must have a comprehension of the nature of mental energy, and how you can use the same to change your perspective.  

The trading process starts with perceiving an opportunity in the market. Hence, it is important to examine mental energy by breaking down the process of perception.  

One way to understand the dynamics of perception is to think of everything that exists in, on and around the planet as a cluster of forces. These forces generate information about the properties, characteristics, and traits that make them exclusively what they are.  

Everything that exists externally- all plants, animals, all categories of life, all planetary phenomena in the form of weather conditions, hurricanes, earthquakes, scorching heat, all active and inert physical matter; and all non-corporeal phenomena such as light, sound waves, radiation- yields information about the nature of existence. This information has the potential to act as a force on our five senses.  

Consider a rock for example. It expresses itself in our senses hence causing us to experience and make distinctions about the nature of its existence. It has a unique texture, size, shape, odor etc. 

Whenever we come across something in our environment that expresses its properties, an exchange of energy takes place. Energy from outside, in the form of the expressing object, gets molded by our nervous system into electrical impulses, and gets stored in our inner mental environment.  

This culminates in a cause and effect relationship between ourselves and everything that exists in the external environment. As a result, our encounters with external forces devise “energy structures”  inside our minds. The memories, distinctions, and ultimately our beliefs we foster throughout our lives exist in our mental environment in the configuration of structured energy.  

If memories, beliefs, and distinctions don’t prevail as physical matter then they must endure as some form of energy. If this is the case, can this energy take on a specific shape? Can it be structured in such a manner that it reflects the external forces that caused it to come into existence? Are there instances of anything in the environment that is analogous to energy having shape or structure? Yes.  

For example; thoughts are energy. Since you think in a language, your thoughts are structured by the limitations and rules that govern the language in which you think. When you express these thoughts aloud, you create sound waves, that are a form of energy. These sound waves created by your vocal cords coupled with the tongue are structured by the content of your message. 

Anything that is energy has the potential to act as a force articulating its form, and that is exactly what our memories, distinctions and beliefs do. They act as a force on our internal senses,  expressing their form and content, and in doing so they have a profound limiting effect on the information we sense at any given moment. Hence, making much of the information that is available from the environment’s perspective, and the possibilities inherent within that information, literally concealed.

At any given moment the environment is generating gargantuan amounts of information about its properties, characteristics and traits. Do we hear, taste, see, smell, or feel every possible distinction, characteristic or trait being expressed by everything that is within the physiological bandwidth of our senses? Absolutely not! 

The energy that is inside us will categorically filter and block our awareness of much of this information. For instance, there are many ways in which the external environment can express itself that we don’t perceive merely because we have not learned about them yet. 

Consider the first time you observed a price chart. What did you see, and perceive? With no previous exposure, the information presented in the chart was insignificant to you. Now, after much learning and exposure you see characteristics, traits, and behavior patterns that represent the collective behavior of all traders who participated in those particular trades. Initially, the chart represented undifferentiated information. However, over time you have learned to make distinctions about this information, such as trends, areas of congestion, support and resistance to point out a few. These distinctions now have meaning and significance.  

Now, consider the first time you looked at a chart and contrast that to your current experience.  Everything you can comprehend now existed then, and was available to be perceived. The difference is the structured energy that is inside you now, the enlightenment you have gained, acts as a force on your eyes and nervous system causing you to recall the various distinctions that you have learned about. Since that energy was not present the first time you saw the chart, all the opportunities that you now view were present but they were invisible to you. 

“People see what they have learned to see, and everything else is invisible until they learn to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered”. (Douglas)  

Consider the perspective of a successful trader witnessing a nervous beginner. Say the newbie trader experiences a series of losing trades, thus he is hesitant to take the next signal. The professional trader would consider the novice traders' fear as irrational as the existing opportunity has nothing to do with the last few trades. Simply put, each trade is just an edge with a probable outcome that is independent of every other trade.  

The Power Of Association

Although risk is relative, the perception of risk by hot-blooded traders appears absolute. Despite the fact that this emotional response seems irrational from the seasoned traders point of view, it is nearly implausible to change the perception of the emotional trader without proper training and understanding. It is the power of association that drives this emotional response. Our minds have an intrinsic design characteristic that causes us to link and associate anything that exists in the external environment that is identical in quality, characteristics, properties or traits to something that exists beforehand in our mental environment as a distinction or memory. Many traders associate trading with pain as they have experienced many maddening & emotional monetary losses.  

The tendency for our minds to associate is an unconscious cognitive function that occurs by itself. It is not something we have to think about, unless we are making a conscious association. This unconscious mental function is akin to an involuntary physical function like a heartbeat. Thus we don’t have to think about linking experiences and our feelings about them, it is simply a way in which our minds work. Of course this has a discerning effect on the way we experience our lives.  

For traders that are struggling this has crucial implications. The internal negative energy of the association of trading being painful, is tough to override. When we observe an external form of positive structured energy in the form of “the perfect setup” there is a conflict. Both forms of energy have the capability to express themselves. The strongest force ends up winning. 

The external energy has the potential to act as a positive force on the trader, however, his experience and association of trading being painful gives rise to an internal conflict before and during the trade. This internal conflict is loaded with energy. The amount of discomfort experienced is unique to each individual and is in relation to the degree of emotional duress that the trader has suffered.  

The experience of pain during a new trading experience is what psychologists refer to as ‘projection’.  You are instantly projecting your past experience onto the current situation. The trader is projecting their pain onto the market and it is reflected back to him and is recognized as painful even though we know the market is neutral.  

The emotional pain makes us lose focus and it becomes difficult to perceive new possibilities, which in turn inhibits our ability to learn something new.  

Though the market is presenting a new opportunity, yet the trader’s automatic involuntary mental process inhibits his potential to act consistently. This association is recognized as a self-generated experience. One basic objective of traders is to perceive opportunities and not the threat of pain. This makes it essential that one understands the source of the threat. It is not the market. Again the market produces information about its potential from a neutral perspective. At the same time it presents an unlimited stream of opportunities to the observer. Thus, the question you must ask is whether the information is inherently threatening or is the potential to feel pain simply the trader’s own state of mind being reflected back to himself?  

For untrained traders their minds will instinctually and unconsciously associate the “now moment” opportunity based upon their most recent trading experience. Thus if you have experienced a chain of losses you feel threatened, if you are coming from a series of winners you may be overly optimistic.  

Understanding and becoming consciously aware of this process of association permits you to circumvent, and direct this process. Taking conscious control of the association process is a powerful tool and will increase your consistency and ease your anxiety.  

The best traders have advanced to the point where they believe without a shred of doubt or conflict that anything can happen. Their belief in uncertainty is so robust that it thwarts their minds from associating the “now moment” opportunity with the outcomes of their most recent trades.  

By preventing this association they are able to take advantage of whatever opportunities the market may offer at any given moment. This outlook allows you to consider both the known and unknown. Your meaning of an opportunity or edge is known, however you do not know the pattern or outcome of this edge. This edge places the odds in your favor yet you totally accept the fact that you do not know the outcome of any particular trade. Your mind is open to any possibility, it is open to grasp something new, and it is helpful in creating the mental conditions necessary to “enter the zone”.  

When you are in “the zone”, both your mind and the market are in sync. To be in sync with the market you must completely accept the psychological realities of trading.  

Most traders are of the view that being a good market analyst is the key to trading. Although market analysis is vital, it is not the most important tool in a successful traders repertoire.  

Your knowledge about the psychological characteristics of a successful trader does not necessarily translate into acceptance and belief. When something is truly accepted there is no conflict with any other component within our mental environment. When we believe something, we operate out of  that belief as an inherent function of who we are without struggle or effort. Knowing this, it is easy to understand why such few people are successful traders. They simply are not aware of or don’t do the mental work that is required to reconcile the many conflicts that exist between what they have already learned and believe, and how that learning clashes and acts as a source of defiance to implementing the principles of successful trading. To get into a free-flowing carefree state of mind that is ideal for trading, it is imperative that these conflicts are thoroughly resolved.  

The market's underlying characteristic is that it can express itself in nearly an infinite combination of ways. 

As the amount of people participating in the market at any particular time and their opinions about the market at that time present a nearly infinite number of combinations. Especially if many of the participants are experiencing emotional duress thus altering their opinions based on the markets every movement. Moreover, there are traders on the sidelines waiting for their definition of opportunity and they can tip the balance for buyers and sellers at any time. This is the harsh & cold reality of trading that only the best traders have embraced. Anything can happen, and it only takes one trader to invalidate your position or belief about the future direction of the market.  

By invariably accounting for the unknown the best traders predefine their risk, cut their losses,  and systematically make profits. The fundamental belief that anything can happen acts as the foundation for building every other belief and attitude that is necessary to be consistently successful. By establishing this belief you can start training your mind to think in probabilities.  

How does one produce uniform results from an uncertain probabilistic outcome? This is another anomaly of trading, random outcome, consistent results.  

The best traders treat trading like a numbers game, quite similar to the way in which casinos approach gambling. Casino events have consistent probable outcomes with the odds on their side.

What makes thinking about probabilities so tough? It demands two layers of beliefs that on the surface seem to contradict each other. First you have to believe in the uncertainty and unpredictability of the aftermath of each individual trade. Second you have to believe that the outcome of a series of trades is fairly certain and predictable. 

You must learn and completely accept the fact that you don’t know what is going to happen next, and in fact don’t need to know, in order to be consistently profitable. Since you don’t have to know the result of each trade you do not place any significance, emotional or otherwise, on each individual trade. You will not be hindered by unrealistic expectations, and as a result it is easier to stay concentrated on keeping the odds in your favor and to execute your plan.  

Your personal edge and “rules of engagement” are the known variables that put the statistical edge in your favor. The unknown variable also includes all of the other traders in the market. The collective behavior of participating traders form noticeable patterns in the market and will produce opportunities on the basis of your definition of an edge. Although the current pattern appears to be the same as past opportunities, the participants, their behaviors, and the nature & timing of their decisions are different for every edge. Thus the outcome remains uncertain.  

Being mindful of the uncertainty and the nature of probabilities does not equate with the ability to function effectively from a probabilistic perspective. Our minds cause us to perceive what we know, and what we know is a function of our past, yet every moment in the market is different even though there may be similarities to something that has occurred in the past.  

Therefore, you must adapt your mind to perceive the uniqueness of each moment in the market.  

Most of the traders believe that they are accepting the risk by placing the trade and establishing a stop loss.  However, this is not necessarily the case. They might act in a responsible manner but not actually believe that they will be stopped out or that their trade will move against them. Therefore, they have not exactly accepted the risk and are unable to face the possibility that their analysis is wrong. 

When you train your mind to think in probabilities, it means you have fully accepted all possibilities with no cognitive dissonance, and you always take action, and always take the unknown forces into account. Thinking in this manner is nearly impossible unless you have done the mental work that is needed to let go of the need to know what is going to happen next.  

Successful traders who have learned to think in terms of probabilities have no doubt in their overall success since they commit themselves to take every trade that conforms to their definition of an edge.  They do not try to select the edges they think, assume or believe are going to work, nor do they avoid edges that they believe won’t. If they did, they would be contradicting their own belief that the “now moment" is always unique, hence producing a random distribution between wins and losses on any given string of edges. By taking every edge, you amplify your sample size of trades,  which in turn gives whatever edge you have a lavish opportunity to play itself out in your favor.  Successful traders have realized that trading has nothing to do with being right or wrong on any  given trade.  

The successful traders may have just as much negative emotional baggage as unsuccessful traders. But as long as they befittingly define trading as a probabilities game, their emotional response to any outcome of an individual trade is equivalent to how a trader feels about flipping a coin after calling heads, and seeing the outcome as tails. A wrong call for most people would not tap into their stockpiled pain of every other time when they were wrong in their lives. The majority of people realize that the outcome of a coin toss is random thus they expect a random outcome. Randomness implies some degree of uncertainty. If you believe in a random outcome, there is an implied acceptance that you are unaware of its outcome. When you accept in advance of an event that you don’t know its outcome, that acceptance has the positive effect of keeping our expectations neutral.  

A probabilistic mindset pertinent to trading consists of five fundamental truths.  

1. Anything can happen.  
2. You do not need to know what is going to happen next in order to make money in the market. 
3. There is a random distribution between wins & losses for any given set of variables  that define an edge.  
4. An edge is nothing more than a citation of a higher probability of one thing  happening over another.  
5. Every moment in the market is unique.  

This makes the paradox relevant: In what way does a trader have to learn to be both flexible and rigid at the same time? Traders ought to have rigid rules and flexible expectations.  

Once a trader has accepted the five truths, your expectations shall always be in line with the psychological realities of the market environment. With the appropriate expectations, you will abolish your potential to define &  perceive market information as painful or threatening ergo neutralizing the emotional risk of trading.

Working With Beliefs

The next logical step is to systematically integrate the five fundamental truths into your mental environment at a functional level.  

At the most fundamental level the market is simply a series of upticks and downticks that form patterns. Using technical analysis, you can define these patterns as edges. Any pattern designated as an edge is simply an indication that there is a high probability that the market shall move in one direction or another. As conveyed earlier, this can create a mental paradox. The repeating patterns imply consistency but the reality is that each pattern is one of a kind. The underlying force behind each pattern are traders, and traders that contribute to the current pattern are dissimilar from the traders that formed any previous pattern. Consequently, the outcome for each pattern is random relative to one another. Our mental association mechanism makes this paradox exhausting to deal with.  

As discussed earlier, it is not the market that causes us to experience a negatively charged state of mind, it is our personal perceptions and interpretations of market information that cultivate emotional duress. If this is the case, then what specifies our perception and how we define and interpret information?  

Our ideologies working in conjunction with the association and pain-avoidance mechanisms act as a sizable force on our five senses, causing us to define, perceive, and interpret market information in a congruous manner with our expectations. Expectations, in turn, are based on our beliefs of what we presume to be true. Expectations are beliefs anticipated into some future moment. 

Every moment in the market is unique, yet the information being generated is similar in quality to something that already exists in our minds, the two sets of information (inside and outside) automatically become interlinked. This connection triggers a state of mind (confidence, euphoria, fear, frustration, etc.) that corresponds to whatever belief, assumption or memory the external information was linked to. This makes it seem like what is outside is precisely the same as whatever is already inside us.  

Our state of mind makes whatever we perceive externally seem indisputable. Nonetheless, our state of mind is always the outright truth. If you feel confident you are confident. If you feel afraid, then you are afraid. You can’t dispute the virtue of energy that is flowing through your mind and body at  any given moment.

This association process can cause us to believe we “know” what to expect from the market, when in reality there are always unfamiliar forces operating at every moment. The moment we think we know what to expect, we stop taking into account all of the unknown forces and possibilities created by those forces into consideration. As traders, we cannot afford to indulge ourselves in any form of expectations from the market. 

We can “know” what our edge looks like, and we can “know” specifically how much we will risk to find out if that edge is going to work. We can “know” that we possess “rules of engagement” to manage the trade & take profits. That is all we can certainly know. 

Making money routinely is a by-product of acquiring and mastering certain mental skills. The extent to which you understand this is the same extent to which you will stop focusing on the moolah and start focusing on how you can use your trading to master these skills.  

Consistency verdicts from a carefree, objective state of mind, where we make ourselves available to discern and act upon whatever the market is offering us (from its perspective) in any given “now moment”.  

To be carefree means being confident but not euphoric. You must harmonize anything in your mental environment that conflicts with the five fundamental truths & integrate these truths into your mental system as core beliefs.  

How The Fundamental Truths Relate To The Skills?

1. Anything can happen- As pointed out before, there are always unknown forces working in the market. Any anomalies that exist in your mind shall be a source of conflict and may cause you to perceive market information as threatening.  

2. You don’t need to know what is going to happen next in order to make money-  You are aware about the percentage of winning and losing trades you will have in any given sample size, based on historical backtesting. Nonetheless, there is a random distribution between wins and losses. This theorem makes trading a probability and numbers game. When you vehemently believe that trading is a numbers game, your expectations will be in symphony with the possibilities. Market information is intimidating only if you are expecting the market to do something for you. 

3. There is a random distribution between wins and losses for any given set of variables that define an edge. If every losing trade puts you that much closer to a win, you will be anticipating, ready and willing to take the next trade as per your “setup”. However, if you lack this conviction you may thwart the next edge with trepidation. You might start gathering evidence for or against the trade. In case, the fear of missing out prevails, you will gather information in favor of the trade; if you preempt another loss you will gather information against it. In either case you will not be in harmony. 

4. An edge is nothing more than an inkling of a higher probability of one thing happening over another. Creating consistency requires one to wholeheartedly accept that trading is not about hoping,  wondering, or gathering evidence one way or the other to resolve if the next trade will work.  The sole evidence you need to gather is whether the variables you deploy to define your edge are present at any given moment. If you believe that the market is offering you a legitimate edge, determine the inherent risk and take the trade.  

5. Every moment in the market is unique. If each moment is distinctive, then there is nothing at the rational level of your experience that can vouch that you “know” what will happen next. Training your mind to trust in the uniqueness of each moment shall act as a counteracting force neutralizing the automatic association process. The firmer your belief in the uniqueness of each moment the lower you potential to associate. The less you are able to associate, the more receptive your mind is to perceive what the market is offering from its perspective.  

The Nature Of Beliefs

The task now is to imbibe the five fundamental truths into your mental system as core beliefs that are not in conflict with any other beliefs you hold.  

Understanding a concept is just the first step in the process of integrating that concept at a functional level. This is notably true of concepts that deal with thinking in probabilities. Our minds are not inherently wired to be “objective” or in the moment. This means that you need to conscientiously train your mind to think from such a perspective.

In addition to training there may be a number of conflicting beliefs to work upon.

As you may recall memories, beliefs and distinctions exist in the form of structured energy. These three mental components have been bunched together to illustrate: They do not exist as physical matter; the cause and effect relationship that exists between ourselves and the external environment brings these components into existence.

To illustrate the difference between memories and beliefs we will have to unbundle these components to get at the origins of our beliefs. Imagine yourself as an infant. At the beginning of your life the memories of your experiences exist there in the most abstract form. The memories of what you have seen, heard, smell, touched or tasted reside in your mind as pure sensory information, detached to any specific words, or concepts. This is pure memory as sensory information in its raw form.  

A belief on the other hand, is a concept about the disposition of the external environment. A concept blends pure sensory information with a symbol system we call language. When positive or negative energy from our memories/experiences become synonymous to a set of words we call a concept, the concept becomes energized and is molded into a belief about the nature of reality (life is wonderful, life isn’t fair). If you consider that concepts are structured by the framework of language and energized by our experiences, it becomes evident why belief can be referred to as “structured energy”.    

What does a belief do, once it is merged with reality? One of the prominent characteristics of beliefs is that they make what we experience seem self-evident and beyond doubt. Even though beliefs are an exquisite part of our identity, you do not have to take the drill of self-analysis too personally.   

None of us were born with any of our beliefs. They were assimilated in a number of ways. Many of our beliefs that persist to have profound impacts on our life were acquired without an act of free will. They were instilled into our DNA by other people or by society at large. Many beliefs that may be causing us extreme adversities may have been acquired without our conscious consent. It might have happened that we were too young and uninformed to realize the negative implications of what we were being taught.  

Irrespective of the source of our beliefs, once adopted they all basically function in the same way. Beliefs have certain characteristic ways in which they manifest themselves likewise our body parts. If you contrast the eyes or hands or blood of two people they are not exactly the same but have identical characteristics that cause them to function in similar ways. By the same token, the belief that “life is awful” shall perform its function in the same ways as “life is wonderful''. The beliefs are different and the effect that each has on the quality of the holder’s life shall be vastly different, but both of them will function in exactly the same manner.

In the broadest sense, our beliefs mold the way we experience our lives. As beliefs are acquired and accumulated, we live our lives in a way that reflects what we have learned to believe. Take for example, how different your life would be if you were born into a different culture, religion or political system that has particularly little in common with the one you were born into. What you eventually learn to believe about the nature of life and how the world works may not be remotely similar to your current ideologies. However, you would stand by these beliefs with the same degree of certainty as your current ones.

How Beliefs Shape Our Lives?

1. They manage our perception and interpretation of environmental information in a manner that is consistent with what we believe.  

2. They create our expectations. An expectation can be regarded as a belief projected into some future moment. Since we cannot expect something we are unaware about, we could say that an expectation is something we know projected into a future moment.  

3. All the decisions & expressions will be consistent with what we believe.  

4. Our beliefs mould how we feel about the results of our actions. 

Keep in mind that feelings (the relative degree of positively or negatively charged energy flowing through our bodies and minds) are always the absolute truth (you feel confident you are confident).  However, the beliefs that prompt any specific state of mind may not be the truth with respect to the possibilities from the environment's perspective.  

If beliefs restrict our awareness of the information being generated by the physical environment, so that what we perceive subsequently becomes consistent with whatever we believe, then how do we know what the truth is?  

Consider these ideas:

1. The environment can express itself in an infinite number of permutations and combinations. When you combine all the forces of nature interacting with everything created by humans and then top it with the forces generated by all the possible ways people can express themselves, the result is a number of possible versions of reality that would indisputably overwhelm even the most open-minded person.  

2. Until we have fostered the ability to perceive every possible way in which the environment can express itself, our beliefs shall always represent a finite version of what is possible from the environment’s perspective, making our beliefs a statement about, but not consequently a definitive statement of reality.  

3. If you find yourself to differ from the second statement, consider if your beliefs were true. If our beliefs were a 100% factual reflection of physical reality then our expectations would always be fulfilled. If our expectations were always fulfilled, we would be in a perennial state of satisfaction. How could it be otherwise if physical reality was consistently showing up exactly how we expected it to?  

4. If this is true, then its corollary must also be true. If we are not experiencing satisfaction, then we must be functioning out of a belief or beliefs that don’t work very well corresponding to the environmental conditions.  

Taking this into consideration, we can reasonably answer the question “what is the truth?”

The answer is whatever works. If beliefs impose boundaries on what we perceive as possible, and the environment can express itself in an infinite number of permutations and combinations, then beliefs can only be true relative to what we are attempting to attain at any given moment. In other words, the commensurate degree of truth inherent in our beliefs can be measured by how useful they are.  

We all have internally generated forces (curiosity, needs, desires, and goals) that inspire us to interact with the physical environment. The specific steps we take to fulfill the object of our curiosity, needs, desires, goals are a function of what we believe to be true in any given circumstance or situation. The truth, whatever it is, shall determine: the possibilities we perceive in corresponding to what is available from the environment’s perspective, how we interpret what we perceive, the decisions we make, our expectations of the outcome, the actions we undertake, how we feel about the results of our efforts, among others.

Simply put, the truth is a function of whatever works contingent to what we are trying to accomplish at any given moment.  

The Impact Of Belief On Trading

If the external environment can express itself in an infinite combination of ways, then there is unequivocally no limit to the number and types of beliefs available to be acquired about the nature of our existence. Put it in another way, there is a lot out there to be learned about. Hitherto, the nature of humanity suggests that we don’t live our lives in a manner consistent with this statement. If it is true that it is possible to believe almost anything, why is it we are always arguing and fighting with each other? Why isn’t it all right for us to express our lives in a way that outlines what we have learned to believe?   

There must be something behind our relentless attempt to convince others of the validity of our beliefs and repudiate the validity of theirs. Contemplate that every conflict from the least to the most significant, whether between individuals or nations is always the result of conflicting beliefs. What is it about our beliefs that makes us so intolerant of divergent beliefs?   

It might be that beliefs are not only structured energy but also energy that seems to be conscious, to  the extent of having some degree of apprehensiveness. Lest, how could we account for our ability to recognize on the outside what is on the inside? 

That energy has a degree of mindfulness, is a difficult concept to accept. There are abundant observations that support this possibility. To give an example, everyone wants to be believed. It matters not what the belief might be, just the experience of being believed feels good. These positive feelings might be universal. Notwithstanding, no one likes to be disbelieved. It does not feel good. If someone says they don’t believe you, a negative feeling would reverberate through your body and mind. This phenomenon is also universal. By the same token, no one likes to have their beliefs opposed or challenged. Everybody seems to respond in the same way- arguing for, defending your beliefs and attacking back.  

When expressing ourselves, we seem to embrace being listened to. Contrastingly, it is difficult to be an open listener, sans thinking about how we are going to express ourselves the moment we can politely/rudely interrupt the person speaking. What is the irresistible force behind our inability to listen without waiting to interrupt?  

Being around people with similar beliefs feels comfortable and secure. We go on avoiding people and conversations that are conflicting with our beliefs. Essentially, the moment we acquire a belief, it seems to take on a life of its own, causing us to recognize and be attracted to its likeness and repulsed by contradictory beliefs. Taking into account the vast number of divergent beliefs that exist, if these feelings of attraction or comfort, and being repulsed or threatened are omnipresent, then each belief must somehow be conscious of its existence, and this conscious, structured energy must behave in characteristic ways that are mutual to us all.  

There are three characteristics you need to envision in order to effectively install the five fundamental truths at a functional level in your mental environment: Beliefs seem to take on a life of their own, and hence confront any force that would alter their present form, all active beliefs demand expression, beliefs keep working anyhow of whether we are consciously cognizant of their existence in our mental environment.  

Beliefs repel any force that would alter their present form. We may not understand this dynamic as to how beliefs maintain their structural integrity but we can observe that they do so even under extreme adversity. Throughout human history, there are many examples of people whose belief in some cause or issue was so formidable that they chose to endure indignities, torture, and even death rather than express themselves in a fashion that violated their beliefs. This is an apt demonstration of how powerful beliefs can be and the extent to which they can resist any attempt to be violated or altered in any manner.  

Beliefs seem to be manifested as a type of energy or force that naturally resists any other force that would cause them to exist in any form other than their present form. This does not mean they cannot be altered, it simply means that we have to understand how to work with them. Beliefs can be altered, just not in the style you may think. Once a belief has been forged, it cannot be destroyed. There is nothing we can do that would cause a belief to cease to exist or to evaporate as if it never existed. This assertion is modeled on the basic law of physics. Energy can neither be created nor destroyed; it can only be transformed. If beliefs are energy-structure, conscious energy that is aware of its existence- then it can’t be eradicated.

The easiest way to work with our beliefs is to gently render them inactive by extracting the energy out of them. This is called deactivation. After deactivation, the original structure of the belief remains unblemished, so technically it has not changed. The contrast is that the belief no longer has any energy. It has simply become lifeless. Without energy, the belief does not have the zeal to act as a force on our perception of information or on our behavior.  

An example could be that as a young child many of us were raised to believe in Santa Claus, or the tooth fairy. In plenty of cases these are examples of now inactive nonfunctional beliefs, even though they are dormant they still exist in our mental system, they just exist without any energy.  

As you sit, reading this, if someone were to come up to you and say Santa Claus was at the door you would treat it as a joke or as irrelevant. However, if you were five years old and were taught to believe in  Santa Claus and it had a positive connotation, you would instantaneously be charged with positive energy that would compel you to jump up and rush to the door.  

Once you realize Santa Claus did not exist, it did not demolish your belief in Santa Claus nor cause it to exist; it just took all of the energy out of the belief. It was transformed into a nonfunctional, dormant concept about how the world works. Now, you have two contrasting distinctions about the nature of the world that exist in your mental system. One is that Santa Claus exists, the other that he doesn’t. The difference between the two is the amount of energy they contain. The first is virtually lifeless; the second has energy. Ergo, from a functional perspective, there is no contradiction or conflict.  

The key to effectively changing our beliefs is in understanding & consequently believing that we really aren’t changing our beliefs, we are plainly transferring energy from one concept to another, one that shall help us to fulfill our desires or achieve our goals.  

All active beliefs desire expression. Beliefs fall into two salient categories: inactive and active. Active beliefs are energized. They have adequate energy to act as a force on our perception of information and our behavior. Inactive beliefs are just the inverse, for whatever reason they no longer are energized hence they no longer act as a force on our concepts of information or how we express ourselves.   

As soon as something taps into our beliefs it seems as if we can’t halt the flood of energy that is released. This is explicitly true about beliefs we are passionate about. You may feel obligated to express your belief or not depending on your circumstances. As an instance, if you were speaking to a superior at work you might not express your belief at that point of time but perhaps you will when you get home to your spouse. Plausibly, you will just run your belief or argument using your internal dialogue. Some way or other, your belief gets expressed, notably if someone states a conflicting view. 

What ensues when one or more of your beliefs are in conflict with our intents, goals, desires, or dreams? This conflict can have a profound effect on your trading. As discussed, beliefs forge distinctions in how the external environment can express itself. Distinctions by definition are borderlines. Human consciousness, on the other hand, depicts to be larger than the sum total of everything we have learned to believe. This expansive quality of human consciousness gives us the ability to think in any direction we choose, either internally or externally of the boundaries imposed by our beliefs. Thinking outside the boundaries is often cited as creative thinking. When we resolutely choose to question a personal belief we make our minds available to obtain a brilliant idea, inspiration, or solution to the issue at hand.  

Creativity by definition brings forth something that didn’t exist beforehand. Frequently, these creative ideas can cause us to be attracted to, or desire something, that might be in direct conflict with one or more of our ideologies. 

To overcome this frustration you must take the energy out of (deactivate) the old habits and  beliefs and supersede them with new energized beliefs and habits. To deactivate the old habits and beliefs, you need to optimistically charge the new beliefs. This may require quite a bit of effort and time. Eventually, with each successive positive experience, you take energy out of the old beliefs and spawn positive energy for the new belief. If there are conflicting beliefs and we are unwilling to expend the effort to deactivate the negatively charged belief, then acting on our new belief shall be a struggle at the very least, perhaps impossible as well. 

Even though the new system has a proven edge and you accept the idea of the nature of probabilities and you “know” the next trade is just another in a sequence of trades that has a probable outcome, you are still nervous. You are still vulnerable to several of your fear-based trading errors. 

What is the origin of your potential to interpret the market information as threatening? 

Your expectations! 

When the market doesn’t conform to what we expect, the up & down movements seem to take on a threatening quality. Inevitably, we experience anxiety, stress, or fear. 

What is the source of our expectations? 

Our beliefs!  

If you are still experiencing negative states of mind when you trade you must surmise that there is a conflict between what you “know” about the nature of probabilities and any number of other beliefs in your mental environment that are arguing (demanding expression) in favour of something else. Be mindful that all active beliefs demand expression even if you do not want them. 

When you believe at a practical level that every edge has an exclusive outcome (it is a dominant belief without other beliefs arguing in favor of something different), you will experience a state of mind that is blissful (free of fear, stress, and anxiety) when you trade. 

Up until we actively train our minds to expect unprecedented outcomes we will continue experiencing only what we know. When you earnestly believe that you don’t need to know, you will be thinking in terms of probabilities. Then you will have no reason to block, discount, distort, or deny anything the market is imparting about its potential to move in any particular direction.  

Thinking Like A Trader

Trading distilled down to its simplest form is a pattern recognition game based on probabilities. We use analysis to identify patterns, define risk and determine profit targets. The trade works or it doesn’t. In either case we move on to the next trade. This is simple to conceive but difficult to implement. Trading is challenging because you must operate in a state of not knowing anything, even though your analysis may at times prove you to be correct. To operate in a state of not having to know you must properly manage your expectations. To govern your expectations you must align your mental environment so that you believe without a shadow of doubt in the five fundamental truths.  

Now we shall go through the three stages of the development of a trader. The first stage is the mechanical stage. 

In this stage, you: 

1. Build the self-trust necessary to function in an unlimited environment.  
2. Learn to impeccably execute a trading system  
3. Drill your mind to think in terms of probabilities (the five fundamental truths). 
4. Create strong, unshakable belief in your consistency as a trader.  

Once you have mastered this stage, you can make inroads to the subjective stage. At this stage, you can use anything you have learned about the nature of market movement to do whatever you want.  There is a lot of freedom at this stage but you must check beforehand that what you choose to  trade has statistical relevance.  

The third stage is the intuitive stage. This is the highest level of mastery you can attain. You cannot try to be intuitive since intuition is spontaneous. It is a complex stage to master because the rational mind often overrides intuitive signals. 

Mechanical Stage

The mechanical stage is conceived to build trading skills (trust, confidence, and thinking) in probabilities that shall virtually compel you to create consistent results.  

Eliminating errors and expanding your sense of self-valuation will necessitate the acquisition of skills that are psychological in nature. These skills are psychological because each of them in their finest forms is simply beliefs. How genuine a belief is can be determined by how well it serves us; the intensity to which it helps us to satisfy our objectives. If producing consistent results is your primary objective as a trader, then creating a belief (a conscious energized concept that resists change and demands expression) that “I am a consistently successful trader” will act as a significant source of energy that will manage your perceptions, expectations, and actions in methods that satisfy the belief and consequently, the objective.  

Culminating a dominating belief requires adherence to several principles of consistent success. A handful of these principles will likely be in direct conflict with some of the beliefs you have already acquired about trading. This is a textbook example of beliefs that are in direct conflict with desire.  

To conquer this conflict and transform yourself into a consistent winner you must first & foremost be willing to change, have clarity of intent, as well as a strong desire. You must, at every turn, choose consistency over and above every other reason or justification you have for trading.  

The initial step in creating consistent results is to begin observing what you are thinking, saying, and doing. These actions reinforce and instigate some belief in your mental system. You must start paying attention to your diverse psychological processes.  

The concept is to become a keen observer of your thoughts, words and deeds. The first line of defense in avoiding a trading error is to catch yourself anxiously thinking about it. The last line of defense is to catch yourself in the act of making an error. If you do not commit yourself to becoming an observer then your realizations shall always be subsequent to the experience, usually when you are in a state of frustration and regret.  

Observing yourself objectively implies doing so without the slightest judgment or criticism. Majority of us, to avoid emotional pain, typically avoid acknowledging our mistakes. However, not acknowledging our mistakes in everyday life usually does not have the same devastating consequences it can have as not confronting our mistakes as traders. If producing consistent results is a function of eliminating errors then it is an understatement to exclaim that you will encounter extreme difficulty in achieving your desires if you can’t acknowledge a mistake. 

If our beliefs are not consistent with what works from the environment’s perspective, the scope for making mistakes is very high. We shall face difficulty perceiving the appropriate steps to reaching our objective. Even worse, we might not be able to perceive that what we want may not be available, or available in the quantity or time we desire.  

On the contrary, mistakes that are the result of beliefs that are in conflict with our objectives are not always apparent or purported. We do know that they will act as opposing forces, expressing their readings of the truth on our consciousness. The most daunting to detect is a distracting thought that causes a lapse in focus. Depending on your money management skills and the risk in your open positions, this lapse can be disastrous.

Mistakes soberly point the way to where you need to focus your efforts to grow and improve your trading. Mistakes should not exist in any kind of negatively heeded context as they are held by most people.  

When you notice that you are not engrossed in your objective, choose to redirect your thoughts, words and actions in a way that is consistent with what you want to accomplish. The more obstinately you engage in this process, and do so with conviction, the swifter you will create a mental framework that is free to function in a way that is consistent with your objectives.  

This process of frequently redirecting your thoughts, words, and actions as often as needed is the process of self-discipline. Self-discipline is a mental approach to redirect your focus of attention to the object of your goal or desire. This is an acquired skill and not a personality trait. One is not born with self-discipline. If there is anything in your mental environment that is in contrast with the principles of creating the belief that “I am a consistently successful trader” then you shall need to employ self-discipline to inculcate these principles as a dominant functioning part of your identity. Once the principles become internalized and become “who you are” you will no longer need self-discipline because the mechanism of becoming consistent will become effortless.  

Creating A Belief In Consistency

The following sub-beliefs are the building blocks that nurture the foundation for what it means to be a consistent winner.  

Now, the author speaks about why he is a consistent winner:  

1. I objectively identify my edges.  
2. I predefine the risk of every trade.  
3. I completely accept the risk or I am willing to let go of the trade.  
4. I act on my edges without reservation or hesitation  
5. I pay myself as the market makes money available to me.  
6. I continually monitor my susceptibility for making errors.  
7. I understand the absolute necessity of these principles of consistent success and therefore, I  never violate them.  

To blend these principles into your mental system at a functional level requires that you deliberately create a series of experiences that are consistent with them.  

The first principle above has the entire crux of the lesson: Objectively.

Being objective infers you to operate out of beliefs that keep your expectations neutral and to invariably take the unknown forces into consideration. This requires that you specifically train your mind to be objective and stay focused on the “now moment opportunity flow”. You must pursue to be an objective observer and think from the market's perspective (every moment is truly unique).  

Establishing the dominant belief “I objectively identify my edges” requires a transformation. This process of transformation starts with your desire and willingness to refocus on the object of your desire (self-discipline). Desire is force. A lucid desire aimed squarely at a specific objective is a powerful tool for change. You can use the force of your desire to construct an entirely new version or dimension to your identity; shift energy between two or more conflicting concepts; or modify the context/polarity of your memories from negative to positive.  

If there is enough force behind your resolve, it is plausible to experience a major shift in our mental structure almost instantaneously. Deactivating internal conflicts is not a function of time, rather it is a  function of focused desire (although it can take a considerable amount of time to get to the point where we really make up our minds).

You must “make up your mind” with as much conviction & clarity as possible, that more than anything else you desire consistency (the state of mind in which trust, confidence, and objectivity reside) from your trading.  

Exercise

The objective of this exercise is to convince yourself that trading is just a game of probabilities.  At the micro level, the outcomes to individual trades are independent events and random in  relationship to one another. Nonetheless, at the macro level, the outcomes over a series of trades shall produce consistent results.  

From a probabilities perspective you can attain consistent results if:  

1. You have an edge that certifiably puts the odds of success in your favor;    
2. You can think about trading in the appropriate manner (the five fundamental truths);
3. You can do everything you need to do over a series of trades.  

Setting up the Exercise  

Choose a market that is liquid, one where you can afford the margin requirements and you can afford three hundred shares or three futures contracts per trade.  

Define your edge explicitly. This edge can be any trading system you want. Be confident that your system stacks the probabilities in your favor over time. If you are unsure about the soundness of your system, then backtest it thoroughly. Track the results and verify that you do in fact have an  edge.  

Define your entry levels, stop loss, profit targets as well as the time frame. As indispensable as it is in predefining your risk before opening a trade and placing a stop loss, it is equally crucial to take profits. To instill the belief that you are a consistent winner, you need to create experiences that coincide with that belief. The aim of the belief is winning consistently, and how you take profits in a winning trade is of prime importance.  

Trading in sample sizes.  

Most traders virtually live or die (emotionally) on the results of the most recent trade. If it was a winner he would gladly put on the next trade; if it was a loss he would start questioning the viability of his edge. To verify that your variables work, you need to adopt a systematic approach, one that does not take any random variables into account. This means that you need to expand your definition of success or failure from the limited trade-by-trade perspective to a sample size of twenty  trades or more. You need a feasible sample size to compensate for the variables that are always  present in the markets.  

Accepting the risk.  

Be certain about your risk before starting your sample trading exercise. This means being able to fathom and accept the result of a worst-case scenario. This worst case scenario of course would be twenty losses in a row. Apprehend what this means in dollar terms and make sure you are at harmony with it. If you are not comfortable, reduce your position size and/or find a market that allows you to reduce this risk.  

Doing the exercise.  

The rules are simple. Plan your trade and trade your plan. This means committing yourself to trade at least the next twenty twenty instances of your “edge”. Not just the next couple of trades but all twenty no matter what! 

In order to realize the benefit of having the odds in your favor you must participate in every trade. You cannot discretionarily choose which edges you will participate in, as this will skew the results.  

If you believe in the five fundamental truths and you believe trading is just a game of probability then you will find the exercise to be effortless. Your desire to follow through with your  commitment to take every trade in your sample size and your belief in probabilities will be in  harmony.  

Conversely, it is more foreseeable that this exercise is going to create a serious collision between your desire to think objectively in probabilities and all the forces inside you that are in discord with this desire. The degree of difficulty you face in completing this exercise shall be in direct  proportion to the degree to which these conflicts exist.  

The key to handling these conflicts is to monitor yourself and use the technique of self-discipline to refocus on your objective. Write down the five fundamental truths and the seven principles of consistency, read them and keep them in front of your trading screen at all times. Chant the mantra with firm conviction several times a day. Every time you catch yourself thinking, saying, or doing something that is in conflict with these truths/principles, acknowledge it. Don’t make frivolous attempts to deny the existence of the conflicting forces within you.  

When this happens, contemplate on what it is you are trying to do. If your purpose is to think objectively, then refocusing shall disrupt the negative association process so that you can dwell in the “now moment” opportunity flow.  

Each time you actually do something that confirms one of the five fundamental truths, you will drag energy out of the conflicting beliefs, and add energy to a belief in probabilities, thereby increasing your ability to produce consistent results. Gradually, your new beliefs will become so powerful that it will take no conscious effort at all to think & act in a way that is consistent with your objectives. Thinking in probabilities shall become a part of your identity! 

Conclusion:

Mark Douglas’s classic- Trading in the Zone strikes the right chord with the readers by emphasizing on the much finer psychological aspects of trading. In Douglas’s view, a mature trader is one who owes up & takes responsibility for his/her mistakes.

It might happen that you are familiar with a consistently winning trading strategy, but somehow you cannot manage to be profitable with it, then the folly lies in your investor behavior. 

Learning endlessly about the markets only to avoid pain compounds your problems,  because the more you know, naturally the more you shall expect from the markets, making it all the more aching when the markets do not do their part. This can create a vicious cycle where the more you learn the more feeble you become; the more feeble you become the more compelled you are to learn. This cycle shall go on and on until either you get fed up and quit trading in distaste or you recognize that the root cause of your trading problems is your viewpoint, not your lack of knowledge.

Traders must train themselves to approach the markets as a game of probabilities. At the micro-level, an individual trade is independent of every other. However, at the macro level, they integrate to verify the existence of the “edge”.  It is extremely critical for you to understand this phenomenon as its psychological repercussions can be wholesome.

Majority of the traders mistakenly assume that they are thinking in terms of probabilities just because they have a modest understanding of the underlying concepts. As a result, most traders live on the edge with their moods being governed by the outcome of their latest trade.

A trader must imbibe in him the trait of being rigid and flexible at the same time- rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we can augment a sense of self-trust that can defend ourselves in an environment without any perimeters or boundaries. We need flexibility in our expectations so that we can discern market communication with the highest degree of certainty and clarity.

Be mindful that your potential to endure emotional pain arises from the way you define and interpret the information you are exposed to. It is only when you embrace the fundamental truths that your expectations will be persistently in line with the psychological realities of the market environment.

Creating consistency requires one to be completely approving that trading is not about hoping, wondering or gathering evidence in myriad ways that your next bet is going to fructify.

The only confirmation that you need to gather is whether the variables you use to define an “edge” are present at any stage or not. If you are uncertain about the validity of your edge, you will lack confidence. And to whatever degree you lack confidence, you shall experience fear. 

When you are in harmony with not knowing what follows next, you surrender yourself to the “now moment” opportunity flow in the markets and are able to freely comprehend whatever the market is trying to communicate.

The mechanical stage of trading has been precisely designed to build the kind of trading skills (trust, confidence & thinking in probabilities) that shall virtually compel you to create consistent results. 

When it boils down to personal transformation, the most crucial ingredients are your willingness to change, clarity of intent & the strength of your desire. In a nutshell, for this process to work you must choose consistency over every other justification you have for trading.