Mark will tell us about, what is important to avoid in trading, what to strive for psychologically, and also describes the human component of the price movement. I wish you pleasant reading and a successful trading week.!
- Good morning, traders! Thanks, who joined us today in a special issue of WTV "Mind over the Market". I am Jared Leavey, senior options strategist at Wizetrade TV. It is not so easy to master the psychology of trading perfectly in the modern market.. To achieve sustainable trading success, requires advanced skills and a lot of discipline. Today Mark Douglas will tell us about, What do we have to do, to achieve the victory of reason over the market. Mark has been trading successfully since the eighties! He penned two Books in trading psychology - "Zone Trading" and "Disciplined Trader", which have been mentioned here more than once, on WTV. Say hello to Mark, who came to us today, to help our viewers succeed! Mark! Good morning! How are you?
- Good morning, Jared, glad to be here! Hope, I really can do something to help those traders, who are watching us now.
- Mark, the last time we met at Wize Fest, it was great! Very glad, what could you come today.
- Thanks!
- Let's start! You know, I am constantly faced with such a common phenomenon - people do not use their method one hundred percent, cannot reach its full potential. In other words, there is a negative correlation between the trader's results and that, what could he achieve, do not deviate from his methodology. In your video course, you call this problem a “gap in profits”. Think, few traders understand this concept, could you tell us more about this?
This theme is great for, to start our conversation! 'Cause it seems to me, that a stable profit is exactly, what our viewers want to achieve the most. Everyone wants that kind of income from trading, you could rely on. AND, I suppose, many of our viewers have already realized from their own experience, that achieving stable earnings in trading is not an easy task.
- Yes, I think, many fall into this trap! People believe, that trading is easy, because there is nothing difficult about, to get a profitable deal. And having received it, you start thinking right away, that it is just as easy to achieve stable results.
- Right, right!
- Personally, it took me a long time, to understand, that profitable trades and stable income are two completely different things. And sometimes one thing is not connected at all with the other!
- Yes, you want to say, that there is no connection between these two concepts, right? Yes, this is a barrier, which is not so easy to overcome. Mainly because profitable trades are commonplace.. Furthermore, for that, to get a profitable deal, no skills required at all! If, certainly, you don't think, that being able to click or tap on a touchpad is a skill. Everything, what you need is to place the cursor on the BUY or SELL button, to push, and then discover, that the deal went into a plus. No good reasons are required for such a development., no reason at all! And this deal can bring monstrous profits! And what skill was involved here? Absolutely none.
- Yes, and then the conclusion immediately suggests itself. If it's so easy to get a profitable deal, should be, and there is nothing difficult in a stable income! Like you said, all, what is required - click the mouse. And then a person can get a profit of five to ten thousand dollars, and the thought immediately occurs to him, what can you do for a living. And that's exactly what I thought for a very long period of time., but how far from the truth!
- Yes, Yes, I started with this too. Many have left high-paying jobs, because they thought, that they can easily provide themselves with trading!
- Why is it so difficult to achieve stability? What is the main problem?
- Well, we, certainly, let's get to the details, but generally speaking, then this requires developing such skills, which are just too unusual for most people.
- Mental skills.
- Yes, mental skills, right. Usually, people assume, what all, What do you need for a stable income? trading system, statistically advantageous, giving profitable signals. At the same time, few people take into account, what for, to strictly follow these signals, need to have a certain psychology.
- Can an example?
- Well, take a high school basketball player. He goes to the gym and works out throws for two to three hours every day.. He may very well achieve this level of skill., that he will be able to throw fifty balls in a row into the ring, it's quite real, is not it?
- Yes, I've seen this more than once!
- The problem is, that under certain conditions he will not be able to score even two! For instance, he plays in the final match of the NCAA Championship, his team is one point behind, there are a few seconds left until the end of the game, and he just foul.
- Yes, it changes everything.
- Right, in such circumstances the chances, that he will score at least one goal, will be negligible, unless he has certain mental skills. In a situation like this, most will screw up, and it doesn't matter, how tough the training was.
- You lead to that, Mark, that the main skill here is the ability to maintain a positive attitude and focus on the process, in this example - on throwing the ball, right? And in our case, obviously - in trading, following the trading system.
- Right.
- And don't worry about failure, about that, that trades may turn out to be unprofitable.
- Exactly, that's exactly what I'm doing now (both laugh)! Trying to stay focused on the presentation and not be afraid, I'll ruin everything!
- You are doing well!
— So here, Jared, maybe, we have a trading strategy, which tells us, What do we have to do. Provides us with the potential to generate stable profits. But, as in the example with the basketball player, if we do not develop certain mental skills, it is unlikely, that we can strictly adhere to the rules of the system, without making mistakes in trading. In other words, focus on the trading process, do exactly that, what should be done, and exactly then, when needed, with no doubt, without a doubt, without fear. Do you understand, it doesn't matter, how good the signals are your method generates. To turn individual profitable trades into stable income, the ability to perform or not to perform certain actions is required, and the method by itself will not be able to help us with this. For instance, trading strategy won't force us to follow mani management. Or even if we opened a trade according to mani management, strategy can't stop us, if we decide to push back a little stop loss, which will lead to even greater losses. This has happened to everyone! The trading system will not stop us from moving the stop loss closer to the entry point. Which often leads to, that the market takes us out of position, and then goes in the right direction. Strategy won't keep us from doubts, from late entrances. And from that, to enter too early, without waiting for a signal from her. It will not help us even when we close a profitable trade too early, without allowing profit to grow. Or vice versa, when we decide not to close the deal, and the price reverses and goes into negative territory.
- Sure, many of those, who is watching us now, experienced something from this list! Undoubtedly! We, в Wize Trade, have their own indicators. And many of the viewers had the opportunity to try them out in practice and make sure, that they generate profitable signals. But indicators will not be able to generate stable income., if traders will commit the listed by you, Mark, psychological errors.
- Yes, that's exactly what I want to say. All of the above are the consequences of faith, assumptions, opinions, that the method we use technical analysis can predict the future. And misunderstanding, that trading systems were not created for this! Methods, patterns allow us to gain a statistical advantage in the sequence of trades. This leads to unobvious, but very strong psychological consequences. Signal results, which give methods of technical analysis, random and individual. In other words, impossible to predict, will the signal be profitable or unprofitable, like that, how long will the profit or loss sequence be.
- Not the easiest wording (both laugh)! But I got it! I am sure, many of our viewers are experiencing the same problems, this concept is very difficult to grasp! But for that, to achieve stability, just need to accept the fact, that the outcome of transactions is random. A very strange concept!
- Yes, that's what i mean. Understand, something, that a sequence of events with an unpredictable outcome can bring stable results - it sounds, as a paradox. But just think, after all, this principle has been used by casinos for hundreds of years! Patterns, technical analysis methods give the trader an edge over the market of the same kind, how casinos have over the player. If a trader, certainly, able to see things from the right point of view. On the other hand, if the trader, using some method of technical analysis, will not be able to integrate this concept of randomness of the outcome of transactions into its trading, is he, undoubtedly, will discover, that trading is one of the most frustrating, or even infuriating activities from all, what he only had to face.
- Sure, disappointment befell many of our viewers! AND, I guess, few of them understood, what the reason could be, what they didn't realize, that the guarantee of stable results is the acceptance of the randomness of the outcome of each individual transaction. It is simply necessary to realize this.! But, it seems to me, this is not an easy task.
- Yes, that's why we are now discussing this concept! You know, disappointment is directly related to our expectations. In our case, traders expect from their trading system that, what she just can't give them. Technical methods define patterns, based on human behavior. These patterns repeat over and over again.. The problem is, that they don't make a profit one hundred percent of the time! I'm trying to say, such a sequence of thoughts arises in my head: there are patterns, they repeat, hence, their stability is a guarantee of income stability. But there is no connection between patterns and profits.!
- That is, if the deal turned out to be profitable, then there are no guarantees, that the next one will bring the same profit, even pattern repeats exactly.
- Exactly! If one trade turns out to be profitable, Does it mean that, that the next one will also be profitable? Absolutely not! If one trade turns out to be unprofitable, the next one will also be unprofitable? Absolutely not!
- Yes, it is very interesting. Let's take a closer look at these concepts., at a basic level? Many traders use Wize Trade indicators every day. They get the same signals. You want to say, that even if these signals are absolutely identical - the same formulas, the same criteria ...
- Yes, all, even the situations charts may be exactly the same!
- Yes, but the results of transactions, opened on these signals, will have no connection.
- Right! This is what I claim. It doesn't matter, how long will you take, profitable and unprofitable trades will have a random distribution. Yet again, not easy to learn this concept! But exactly those traders, who succeeded, That, as i say, think in probabilities, it is these traders who are spared the likelihood of emotional trauma, if I may say so. What typical traders are not insured against, waiting for, what may not happen. For instance, a person sees the same conditions in the market, who brought him profit last time, and waiting, what will he be able to earn this time. Or the same example, only with losing trades, or even with a string of losing trades.
- Lingering losses can be a great psychological pressure.
— Undoubtedly! This is how it goes. When i expect, that the deal will be profitable, but loss comes out, I am very disappointed. Maybe, even feel betrayed, deceived! After all, I put so much effort into this business, the deal must be profitable!
- How to deal with it? Suppose, the trader did everything, what was required of him in terms of technology, set up charts, indicators, all that. From which end should he take up psychology, how to learn the necessary concepts? Or at least start to assimilate them.
- Well, you need to start with the basics, from the basic principles of the financial markets. That, that these days people trade exclusively via the Internet is, in fact, a big problem. This creates alienation., the gap meanwhile, what do you want to do and so, what are you really involved in. After all, markets are based on trade! Any price is due to human opinion about it. This aspect must be taken into account! It is human beliefs that underlie price movement. Looking at the very nature of trading, sink to basic concepts, it will become clear, that everyone acts the same. Everyone strives for that, to buy low and sell high. Or sell high and buy low. We, traders, we can only earn this way and no other way. Is it possible to make a profit in another way, Jared?
- Not, whichever market we take!
- Whatever market we take! Means, in fact, everyone is doing the same, right?
- Right.
- Everyone does the same thing. So why does the price move? The reason is, that everyone has their own idea, what is expensive and what is cheap. What exactly is the basis of technical analysis methods? You need to understand the answer to this question.! If people understand him, they will understand the idea., why a set of identical criteria leads to random results. Many years ago people understood, that there are certain tipping points. They reflect human behavior, belief in, what if i buy ...
- These are visual points?
- not necessarily visual, but for the first time they were noticed exactly on the charts. As a matter of fact, That's what it is candlestick patterns. So here, suppose, I want to buy some financial instrument. The price for it now is 10. Why am I buying? Because I believe, that the price will rise to 11. Or until 12. If i thought, that the price will drop to 9, I would buy? Certainly, No, I would wait. Right?
- Right!
- Means, reason, why do I buy exactly by 10, lies in my convictions. I speak otherwise, all price movements are based on people's belief in, what will happen in the future.
- When we talked with you yesterday, You said, what we, as individual traders, do not have sufficient funds, to move the market ...
- Yes, This is true, but now it is important for us to understand, that all price movements are driven by traders' beliefs about, what will happen in the future. How exactly does the price move?? When I post order, I don't have enough volumes, to move the price. But, usually, typical traders have been trading over the Internet all their lives and have no idea, how many participants actually exist on the market, who can really move the price. Furthermore, it is for this purpose that they enter! Or, for example, a large group of traders can enter the market, the total volume of which will be enough, to trigger a price movement. But what exactly happens to the price? The following happens: so that the price moves from 10 to 11, there should not be a single offer on the market 10. Similarly, for the price to rise to 12, market participants must buy up all offers for 11. In other words, all orders need to be filled, who is trying to sell by 11. And they, who counts, what the price will go to 11 or to 12 - at this moment they are doing the opposite, what is needed, to succeed. This is a critical moment! They don't buy cheap, they buy expensive. Expensive relative to past price.
- How exactly is the understanding of, why is the price moving, will help traders to reach the next level? Knowing how the market works is the first step towards, to get control?
- Yes! Need to understand, why is the price moving! because, figuring it out, traders will understand, how their method of technical analysis fits into this movement. What are these methods based on?? It doesn't matter, what is it - a visual pattern, moving average, indicators Wizetrade - based on a mathematical formula, in which variables are used - price and time coordinates. Or, if you look differently, beliefs of traders about the future. People discovered, Attention! What, using specific equations with price-time variables, you can define patterns of collective behavior. It means, that when a certain set of criteria appears on the market, then the likelihood increases, that many people will enter the market, offering a higher or lower price. These patterns are recurring events. But the problem is, what, although they are repeated, they work out not in a hundred percent of cases, because, although the mathematical criteria are completely equal ...
- Mathematical models cannot predict human behavior!
- Right! Models can't say for sure, will those people enter the market, which usually come under similar conditions! They cannot force them! I speak otherwise, for the pattern to work, need to, for someone to enter the market. If you buy by 10 and satisfy all sell orders at this price, then she will jump to 11, and then to 12, 13. And it will turn out, that all your trades will be in the black. You can say, you make yourself a winner. But we do not trade on such level, we will not be able to satisfy all requests! We need to wait for the guys with volumes, which will buy and move the price up. That is, those, who will enter at the worst price, than we, but in large volumes.
- That is, most of us depend on those, who moves the market. To identify entry points, we are trying to identify patterns of their behavior. But, yet again, this is an event with a random outcome.
- Yes, we explained the work of financial markets in simple terms - in order to earn, we need big players. Jared, do you think about, who will enter the market, to provide you with a profit, when you open a trade?
- Not, certainly, No.
- AND, if the trade is closed with a profit, do you think, who was that participant, which moved the market in your direction?
- Not.
- Is it possible somehow to find out for sure?
— (laughs) Not!
- Maybe, somehow you can, but it is very difficult! so, when any pattern appears on the chart, we know, that the odds are on our side. But at the same time, we have no idea, who exactly will enter the market, who will move it our way. Means, there is no point in analyzing, reason, guess, will the pattern work or not. For instance, Jared, i will give you an asymmetrical coin, which in 70% cases will fall heads up. We have a mathematical and statistical basis for believing, what the pattern works in 70% cases. Is it possible for us to predict the sequence of heads and tails?
- Certainly, No!
- Yes, flipping a coin a hundred times, I'll get an eagle in 70% cases. But it's impossible to predict, what exactly will fall out next time. Maybe, Eagle, Eagle, tail, tail, tails ... There may be long sequences of tails or heads alone. These sequences are impossible to predict, but we don't need it, because we have an advantage in 70%. And if we want to trade efficiently, we must extract the maximum possible profit from this pattern, what is only available with such an advantage. You need to create a trading system and strictly adhere to it. And to open and support transactions, without making mistakes, we need to have a clear mind. Belief is at the heart of mistakes, what if the pattern is profitable, then he is simply obliged to bring profit in each transaction.
- You can't think so!
- Yes, it is forbidden! But this is how typical traders think. They think: "What's the point of opening a deal, if it does not bring profit?». This approach leads to unjustified expectations..
- Mark, let's slow down a little. That, what do you tell, very important, and I want to make sure, that our viewers understood everything. You speak, that we have any tool, giving us an edge. It doesn't matter, what size, even two or three percent ...
- Not, a lot more! More 50%!
- Yes, yes, I mean, two or three percent more than fifty!
- BUT, OK, understood!
— 55, 56%!
- Although, actually, important to understand, that for a stable income it is not necessary to win more than half of the time! It all depends on, how much money are you risking, to enter the deal and find out, will it bring you a certain amount of profit. You know, from one of the most famous traders of the eighties, Richard Dennis, It was 95% unprofitable transactions! 95%! But they 5%, that turned out to be profitable, were real monsters. And with 95% unprofitable trades, he managed to earn either in 1987, is it c 1988 year 400 million dollars.
- How did he achieve it, thanks to the preponderance? Mani management? Or combinations of them?
- Combinations of all of these. He also used one interesting method., which I also mastered. He used orders to "probe" the markets. I want to deviate from our topic, just for a second. Certainly, an edge is needed in trade, some pattern of collective behavior, which turns the odds in your favor. But it's very important to understand, what for, to become a successful trader, the most important thing is the ability to think in probabilities. Your expectations should not go beyond that, what the market can provide you. Master this mental skill - and you will be able to make deals without fear., doubts and even without unnecessary thoughts ... By the way, no need to think too much! When a professional trader sees, which has the advantage, does he think, will the pattern work? Certainly, No! Because he has already learned, that it doesn't make sense. He does not analyze, does not reason, not looking for evidence, that the deal will be profitable. Because he understands the human component! What a professional trader thinks about, so it's about the risk. What is he willing to risk? How far will he let the price go against his position?? When will it be clear, what are those people, who should have moved the market, not included? Besides, he has a plan, how will he take profit. What a typical trader does?
- The typical trader does not have a plan! He thinks mostly about, whether the deal will work or not.
- Exactly! His behavior is exactly the opposite of that of a professional.. Furthermore, deciding, that the deal will be profitable, an amateur trader does not think about the risks. I o take profits too, because what's the difference, will still be a plus!
- Unfortunately, we need to take a short break! Summing up your words, when a professional sees a pattern, giving him an edge, he doesn't think, will it turn out to be profitable or unprofitable. He has established money management, he knows, what profit can he expect and how much he is ready to lose. Professionals limit profits?..
- Well, it's not about restrictions, and in that, how much its asset is at risk. In a winning trade, you have to endlessly determine the ratio of risk to reward. If the market goes my way, what will have to risk, to find out, will he go even further? That is why many professional traders and mentor traders recommend using a phased exit from a position..
- Right, right. Mark, it's all very interesting, but we need to take a short break! People, we still have a lot of interesting things to discuss with Mark, so I'm waiting for you right there, on WTV, in three minutes!
- Welcome back, in a special issue of WTV about, how to achieve the victory of reason over the market. I am Jared Leavey. Mark Douglas told us about the psychology of trading in today's markets. Mark, let's continue our conversation! We were just discussing the asymmetrical coin example., which gives 70% chances of, that the heads will fall, and compared it with indicators and systems, giving us an advantage in trade, increased chance of doing, that the deal will work, will bring profit, the direction of movement will be correct.
- The word "correct" is critical here!
- Right (laughs)!
- important to understand, exactly how belief in randomness affects our expectations. Nobody wants to do this kind of trading., in which there is a high probability of experiencing disappointment, dissatisfaction or even feeling, as if you were betrayed. After all, these are the feelings that many traders feel.! This possibility has a negative impact on our perception of market information.. Every person has a mechanism for avoiding pain.. It affects our thinking too.. For instance, i convinced myself, that the deal will be profitable. I open a position and the price goes against me. In such a situation, I will seek information, which would confirm my point of view, and ignore that, which shows, that the trend is developing in the opposite direction. Even though I can spot the trend, my perception will not allow me to do this, because I instinctively only listen to that information, which confirms my point of view. And not to him, which shows, that i'm wrong.
To achieve stable results, it is necessary to cut losses and allow profits to grow. We should earn more in winning deals, what do we lose in minus. The problem is, what if i'm subject to the emotions of frustration, dissatisfaction, if i wait, that the deal will go exactly there, where am I counting on, it means, that I am prone to a tendency to distort market information. So,, I will cling to my losing trades. And if the deal goes into a plus, instead of, to allow profits to grow ... you know, markets don't go in a straight line. I would only be glad, but it doesn't work that way, they constantly roll back, plan levels…
- I.e, for example, I found some shares, who just fell in love with. Maybe, from the point of view of technical analysis, they are not very different from others, but these are the good news. Or am I for some other reason sure, that they will go up. I open a position, the price goes against me, but i'm not getting out of the deal, because I'm sure, that they will grow. Maybe, because of the news, maybe, because of some special feeling, intuition. And in the end I find myself in a huge minus. And it keeps on growing, and the only reason is, what i decided, as if these promotions are special. This is the point?
- Well, Yes, but it could be anything. Any information, to cling to. You must understand - it doesn't matter, why are you opening a trade! Other traders must follow you, buy at a worse price, than yours. For instance, if you buy by 10, someone should want to buy software 11, 12, 13. And don't just want to buy, there should be a lot of other traders, so that they satisfy with their purchases all the sales of those traders, who believe, what is this maximum. Whatever reason you have for opening a position, if other players do not enter the market, this is not a good reason. That is why it is necessary to think over the risks before opening a deal., and that is why professionals do this and nothing else! Because they know, that they cannot cope without other players. Maybe, I have an amazing signal, but what is the use of him, if there is no one to move the market? The deal will turn out to be a loss! If we cannot trade, without experiencing negative emotions, we will not be able to cut losses.
- But how to become less sensitive to emotions?
— By changing the way you look at the market! Through awareness ... For example, Jared, you are sitting at a slot machine ...
- Okay. I don't like this, but okay (laughs)!
"It doesn't matter.", like it or not. Although, I guess, Okay, that you are not happy, this will make the example even more revealing (laughs)! So here, you are sitting at a slot machine. Throw a quarter into it, but you lose. What a sensation? Feel cheated?
- Not, No (laughs)!
- Why not?
- Because the result is accidental!
"Ah.", random! That is, you realize, that you are taking part in the case, the outcome of which is due to a factor of chance.
- Right.
- AND, as a result, your expectations did not go beyond the possible scenarios.
- Well, believe it or not, but I was just expecting to lose. Feeding the machine a quarter, I already said goodbye to him!
- Yes, that's how it should be, because the odds are not in your favor! In trading, the situation is the opposite., trading strategies, just the same, give you the chance to win, as if it were you - a slot machine. Believe it or not, but if you can get the perception right, then the roles are swapped! At all, if you compare trading with a slot machine, there is such a difference - we cannot play a slot machine, not taking risks. The game won't start, if we don't get the money out of the wallet and give it to the slot machine. This action implies, that we took risks, because if we do not accept them, then we will not give the money.
- Quarter is our planned loss.
- Not, no loss, this risk. This is the sum, which we are ready to invest, to find out, will the deal be profitable or not. Next, we are waiting for the pattern to appear on the machine's screen.. The jackpot is great, no - no, maybe, we'll risk another quarter. This is where there is a big discrepancy with trading., which confuses our minds a lot. In financial markets, the pattern first appears! We give the money later, when we decide, how much are we willing to risk, to check, will it work or not. But most traders analyze in order to identify exactly a profitable pattern., collect all the arguments for. And because of this, they convince themselves that, that there is no risk. Even though they say, what to put stop losses, these are empty words. Or they can put them, and then push back. Even though they know, what to use feet is necessary, but they can't accept risk.
- Yes, I see examples of this behavior every day!
- Yes, they are unable to take the risk, because they don't want to be wrong. They need to realize, that the purpose of this game is not, to prove your case! Patterns, methodology, trading systems, none of this predicts the future! It only increases your chances of winning., your advantage in the distance. And you need to take absolutely every deal on the system, because it is impossible to predict accurately, in what order will the profits and losses go. It is necessary to learn how to identify risks. Simply put - count, how much are you willing to spend, to find out, will other traders enter the market and move the price. This is exactly the risk, and nothing else! But, certainly, for the stability of results, a money management plan is also needed.
Change your mindset, your view of the market, accept the idea, that the outcome of the deal can be any. The point is not, are you right or not. So,, no reason to be disappointed! Similar, no reason to be disappointed, when the slot machine eats up your quarter and does not show the jackpot. This is a critical moment, Jared, you need to be able to change your thinking! What was the title of the issue, "mind over market" (both laugh)? You need to change your thinking!
- How to achieve this, what are the main steps? Understandably, what to read your books, instill your thinking style. But where to start, are there any specific actions, which will help you adopt the mindset of professional traders, get rid of negative emotions, start to gradually change your attitude towards markets and risk. Are there any exercises?
- Yes, certainly, I described them in my book "Zone Trading" and in the video course "How To Think Like a Professional Trader". But if in a nutshell, all, what do you need, Jared is a sincere intention. Honestly! As in everything in our life. If we strive for some goal, we have a strong desire to achieve it, then we will take all the necessary steps, to do this. It doesn't matter, what are these steps, they are described in the book, video course or some other source, if we tune our minds to that, to achieve something, we will achieve it. Truth, our goal is unusual - we must adjust our minds to, to change your mind! This is the difficulty. Many come close, but they still cannot overcome this barrier ...
- What is the problem?
- In, that people don't want to change their way of thinking! It's that simple. People don't like to change!
- But how to achieve a carefree state of mind?
- Changing your mind (Jared laughs)! You need to insulate yourself from any potential trading frustrations. This can be achieved, realizing, what is not important in trading, have you lost or won the deal. If you are using technical analysis, then this is a game of probabilities. Hope, I did not accidentally mislead the audience. There are stages in the development of a trader. We start by mastering basic skills, with the ability to think in probabilities, to reduce the impact of feelings of frustration on our mood.
- “We did everything, what could, achieved an advantage, but the deal turned out to be unprofitable. We work further!»
- Exactly! So it should be! When you get a losing trade, all, what does it mean - no other traders entered the market, sharing your opinion. That's all! Nothing more!
- You need to put up with it and move on.
- Yes, move on! Let's look at this from a different perspective.. How do you think, if you take an ordinary person from the street, how good will he be at predicting the behavior of others? Should be, not particularly! Usually, people are not very good at this, yes what is there, even not everyone can predict their own behavior!
— (laughs) Undoubtedly!
- A common occurrence - a person notices, what does something, and wonders, and, actually, why?.. So here, predicting collective behavior is not an easy task. But our methodology, our math formulas do it for us! But it's important to understand, that they are not designed for, to predict the results of each specific trade. Only the overall result of a series of trades! They just give us the edge, increased chances of winning. When I get a signal on my strategy, what does it mean at the most basic level? That there is a high probability that, that someone will enter the market and move the price up! well, or down, if a sell signal. Market participants can enter, or may not enter. And here the question is not right or wrong. The question here is how far should the price go against my position., to know for sure, that participants did not enter the market. And at what point it will become unprofitable for me to wait for them.
- In your video course, you describe the nuances of money management, placing stop losses?
- Certainly, but i'm avoiding specifics. There are no tips like “if you are trading the M30, then you have to do it like this…”
- Yes, certainly, traders must make their own decisions, based on your trading style, of the deposit amount, risk tolerance and so on. But you, should be, show, where exactly should you place your feet?
- Certainly. I try to teach traders to identify risks, and they already calculate the exact values independently, based on your trading style.
- How about this approach, for example, a trader defines a certain level of risk for his trade, and then analyzes his feelings, when it gets a loss. Let's say, a trader loses a hundred dollars and listens to himself. And if a loss of this size does not lead to any problems, stress, then, means, you can switch to more volatile stocks, put stops on 200, 300 Dollars. Is it worth doing this?
- Certainly, certainly! This is what I recommend.. When I was actively involved in coaching, I had very serious managers in my students. Happened, they got into a situation, when losses came one after another, and they felt the need to return to those levels of risk, which they had before. For example, they could trade ten thousand positions, one hundred thousand shares with half a million risk, million dollars. But felt, that for comfortable trading they need to reduce risks, to feel in sync with the market again. AND, happened, they had to go back to trading 1000 stock positions! It's not easy, when you work in a corporation, work together with other traders. But they just needed to do it.
Or here, for example, trading on paper (demo accounts). Many say, that it doesn't make sense, because the difference in feel and results between such trading and trading with real money is huge. I am sure, among our viewers there are many such, who showed good, stable results "on paper", but as soon as they switch to real money, how everything changed! That's why many say, that there is no point in such trading, that its results cannot be relied upon, because when real money is not at stake, you think completely differently. It's not quite right, trading on paper has certain advantages. Firstly, such trading can very clearly demonstrate to the trader, how many skills he lacks. It will allow you to get comfortable in the terminal, in your trading strategy, but, the most important thing, he will show, what psychological skills do you lack.
- Interesting idea!
- Yes. How to convince a person, that he needs to tighten up his psychology? Let him trade and demo, and in real life, and compare the results! Even if a trader learns to think in probabilities, what we talked about all this time, he may still have trouble accepting losses. Negative trades can be a source emotional pain, and this pain will accumulate over time. Not only because of trading, but also because of any loss in life, financial and other. The fact, that our minds find it hard to accept a loss. People often start trading, because they want to impress their friends, relatives. But, switching to real money trading, they can find, that their degree of risk tolerance prevents them from trading more than a dozen stocks, risking only one dollar on each trade. And they think, what's the point then? The meaning is, that you need to strive to trade these ten stocks with exceptionally high quality! Impeccably follow the rules of the system, trade without the slightest fear. And sooner or later you can try to go twenty stocks, and then thirty. Progress a little bit! But, usually, novice traders not particularly thrilled with this approach.
- Mark, never heard, for someone to consider this problem from this point of view! That a demo account can serve as a visual demonstration of, what can a person achieve, if you can maintain a perfect mental attitude.
- Certainly, he is perfect for this! “This is what I can achieve, if I develop all the necessary psychological skills to, to do exactly that, what should be done, without a doubt, with no doubt, without fear ». Demo account lets you know, what can be achieved, if you unleash the potential of the trading system to the maximum. But if you want such results on a real account, you need to develop your psychology.
- Earlier at Wize Fest you talked about losses, that many traders have to deal with. Think, the last couple of weeks have brought a lot of problems to topics, who traded. Mark, how do you think, does a trader need to endure huge losses in the process of becoming, maybe, even a complete drain of the deposit, so that something clicked in my head, so that the person can get it, that something needs to be changed? I.e, certainly, I understand, that it is not necessary ... But you have been teaching for many years, how often have you encountered the situation, that the trader simply could not understand the importance of some aspects and change the trade for the better, without losing a significant percentage of the deposit? Or you can cope without it, it is enough to have a lot of dedication? I know, the question sounds rhetorical, but I really would like to hear a serious answer (laughs)! After all, sure, right at this moment someone is wondering, was it really impossible to do without draining the deposit.
— Jared, what are you, also now in drawdown?..
— (both laugh) Not, I haven't traded lately!
- You ask about the principle of "bottom"?
- Yes! But tell us, what is this principle.
- Well, here everything is simple, this is when a person sinks to the bottom so deep, that he is ready for anything, anything, just to surface. I remember the time here, when I was actively involved in coaching. All my clientele could be divided into two categories. The first is traders, who have already achieved sustained success. They signed up for my classes, to hone your skills, increase your income. Another category is just those, who have reached the bottom. They experienced incredible dissatisfaction., sometimes even anger. Because they understood, what potential does trading have. But they seemed to run into invisible barriers over and over again., could not succeed in any way! So they just came to me with the words "I'm ready for anything". Certainly, each has its own degree of pain tolerance, your level, in which a person understands, that I'm ready for anything, and seriously means it. That's the whole point, need to be sincere!
- Mark, in a few minutes we will need to roll up! People, the next issue will begin with answers to your questions, so call us, write to mail! Mark, we have a couple of minutes left. Is there anything, what would you like to share, some parting words, closing remarks? Maybe, any mantra (both laugh)?
- Well no, but one could sum up the whole thing, what we discussed today! If your goal is consistent results, you need to learn to think, as professional traders. After all, this is what they are doing - they show stable results.! That's why they are pros. This is why investors give them funds to manage, that's why their job is to trade. Indeed, without stable results in this work, they would not have held out for a long time.. To achieve this, need to change your way of thinking this way, to eliminate the possibility of a feeling of annoyance in trading, disappointments, emotional pain, the senses, as if you were deceived. Need to achieve a carefree state of mind! Change your point of view - and everything will change. It doesn't matter, whether a single trade made a profit or not. Take it, accept the risk of loss, and your trading will change dramatically.
- A pattern appears - trade it! No fear, without a doubt…
- Yes, no need to think, just trade! well, certainly, you need to think about risks and take profits (Jared laughs), but I'm talking about patterns. A pattern appears - nothing to think about! You still can't predict, profit or loss it will turn out.
- Mark, there is another hourly release ahead of us, so we will have time to discuss a lot! But at the end of this issue, I would like to ask one more short question.. We used term "Preponderance". Some of the viewers are not aware, what does this concept mean. I met him, when I worked in the exchange hall - there we called the situation an advantage, in which they had an advantage in the price difference, for example, We had option, which cost a dollar a piece, and we had the opportunity to buy it for ninety cents or sell it for a dollar ten. But how do you define this concept?
Overweight is simply when in any situation the probability of one event exceeds the probability of another, that's all! In the context of our conversation, this is a high probability of winning, not to lose, but not in one deal, and in their series. I am trying to instill in my students the ability to think not in separate transactions, but in large groups. Not "I'll take a deal", and "I will open twenty deals".
- “I will follow that, to stay in the game "!
- Yes, I will be in the game for the next twenty deals! And if I like the results, I'll take twenty more. And if not, I will correct my methodology like this, to get better results!
- Mark, it was great! See you later!
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