Mark Douglas states: ‘The trading environment presents us with some very difficult and unique psychological obstacles, or challenges. Until these challenges are transcended in some way, getting into the flow of the market and trading without fear or error will be virtually impossible.’
Trading Psychology Journal is divided into four main sections
1. Learning how to think in the markets’ perspective (thinking in probabilities).
2. Understanding the nature of beliefs.
3. Identifying and neutralizing beliefs that are no longer useful in helping one fulfill their objectives.
4. Creating and growing beliefs about trading, that promote objective observation and flawless execution of one’s chosen trading methodology.
Learning how to think in the markets’ perspective (thinking in probabilities)
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It means to believe at the very core of our identity that:
anything can happen
every moment is unique
there is a random distribution between wins and losses on any given set of variables that define an edge
Each one of these beliefs will keep your expectations in line with what is possible from the markets perspective. To the extent your expectations correspond with what is possible from the markets perspective, you eliminate the potential to define and interpret market information as painful.
Ultimately ~ you can get to the point where you can trade from a "carefree" and "objective" state of mind where you are making yourself available to perceive and act upon whatever the market is offering you in any given "now" moment from its perspective.
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To think in probabilities means to have an edge and believe the Five Fundamental Truths
THE 5 FUNDAMENTAL TRUTHS OF TRADING:
1. Anything can happen.
=> It Ok ,that you have an edge and u have probability ,but there is something outside these which you cannot quantify. An edge is just a higher probability of one thing over another and nothing else.
2. You don’t need to know what is going to happen next to make money.
=>Just be slave of your trading plan and nothing else matter really.‘The ONLY way to KNOW exactly what will happen next would be to tap into EVERY market participants’ mind and know what they are going to do.’
3. There is a random distribution between wins and losses for any given set of
variables that define an edge.
=> In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like ‘right’ and ‘wrong’ or ‘win’ and ‘lose’ no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
=>Probability will never be guaranty.
5. Every moment in the market is unique.
=>Market movement is net between Buyer and Seller.Intentions and Volume of each participant (Buyer /seller) will never be known.
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THE 7 PRINCIPLES OF CONSISTENCY:
1. I objectively identify my edges.
=> There is no reason to workout the market and beat the market through analysis.What are you looking for , what is your stop loss ,where is profit taking level and predefined Ur risk.
2. I predefine the risk of every trade.
=>I am dependent on some body else to make me a winner.so stop loss is essential.
3. I completely accept the risk or I am willing to let go of the trade.
=>To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.
4. I act on my edges without reservation or hesitation.
=>When edge present itself,there is no points analyzing the edge.Since we have done the done back testing , appearance of edge shown higher probability of market moving in your favor.
5. I pay myself as the market makes money available to me.
=>There is no point in letting winner turning up in loser. We should have profit taking regime and follow it.
6. I continually monitor my susceptibility for making errors.
=> Regular exercise
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.
=> Regular exercise and practice
Trading in its simplest form, is a pattern recognition numbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. The trade either works or it doesn't. In any case, we go on to die next trade. It's that simple.
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Trading Reality are
1.Each trading result generated from pattern is random and unique.
2.There is no relationship from pattern and outcome.
3.There is no correlation ship between pattern and risk.
4.Technical method will give winning percentage over series of trade.
5.I am dependent on some body else to make me a winner.so stoploss is essential.
6.Pattern - whem this set of criteria there is higher proabilities one thing over another.
7.When pattern present itself => there is no points analyzing the pattern.
8.It required no skills to be winner.‘you don’t need to know ANYTHING about trading or the markets to put on a winning trade.’
9.Trading in the markets is an odds game, and the object is always keep the odds in your favor .
10.Proper execution of signal require mental skills.
11.Technical method are designed to put odd in our favor over a series of trade. we will never know sequence of win and losses .
12.Trading in its simplest form, is a pattern recognitionnumbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. The trade either works or it doesn't. In any case, we go on to die next trade. It's that simple.
13.There is a random distribution between wins and losses for any given set of variables that define an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like ‘right’ and ‘wrong’ or ‘win’ and ‘lose’ no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.
14.I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”
15.To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.
16.The less I cared about whether or not I was wrong, the clearerthings became, making it much easier to move in and out of positions,cutting my losses short to make myself mentally available to take the next opportunity.
17. If you really believe in an uncertain outcome, then you also have to expect that virtually anything can happen. Otherwise, the moment you let your mind hold onto the notion that you know, you stop taking all of the unknown variables into consideration. Your mind won’t let you have it both ways. If you believe you know something, the moment is no longer unique.
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TO ACHIEVE CONSISTENCY IN TRADING
•Trade with a plan and stand by the rules (Trading methodology)
•Know your entry, stop and target before entering any trades (Trading methodology)
•Always make sure to have a stop in place. THIS IS A MUST (Trading methodology)
•Risk Parameters
•Money Management(Position Size)
•Profit Objectives
•Ability to execute trade flawlessly so that you can utilizes trading plan to its maximum potential.
•Develop the ability to recognize if you have crossed the threshold from normal self confidence in the state of euphoria.
•Maintain Discipline
•Keep it simple silly
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