In The Zone - Probability - The Traders edge Flashcards
Each trade has a totally random outcome..:but..what’s not random
Many trades that have the right probabilities
(The law of large numbers)
Not knowing what will happen next is liberating….no significant is placed on any individual trade (or bet at casino), what’s the benefit of this, begins with E
No Ego in each trade (casino owner feels the same, he knows his performance isn’t tied to a single bet)
Allows for more focus on the odds and execution, and less susceptible to mistakes
Best traders think the same as professional gamblers / casino owners
what are the pattern similarities between casino owner and a trader?
casino’s know the odds, and set accordingly, traders know the patterns also (MA, retracements and a hundred others) and set trades accordingly
In casino’s random variable effect each play (how hard roulette wheel is spun, card shuffling, how dice are thrown), in trading the random variable is the other trader
each trade / bet is totally independent from the previous onw
what phenomenon is it essential to understand about traders creating patterns?
It’s literally impossible for two market setups to be identical because for it to be identical, all the traders creating it would need to be the same people as before, betting exactly the same amount.
Each now moment is unique, and statically independent and requires our full flow focus
Accepting risk means what 3 things…..
Putting a stop in doesn’t mean risk is fully accepted, need to accept possibilities of
being wrong,
losing money
not being perfect and so on, it’s not just about financial loss.
A person can set a stop, and at the same time think “i probably won’t be stopped out”, this is not fully accepting risks, it means prediction and so ego tagged to the market (expectation = ego)
Once mind has trained to think in probabilities this means all possibilities are fully accepted with not internal resistance
the only way to get here is to “XXX go ?”
Let go - of need to know what likely will happen on each trade
The degree to which you think you know / assume you know is going to be the degree to which you fail as a trader
This is a really good point, but needs reading more than once.
- Traders who truly think in probabilities are confident of overall success because they take EVERY trade that confirms to their idea of an edge (Like a casino, they take each bet because in long terms it pays off, the don’t refuse to play certain hands at the table)
- They don’t cherry pick edges they think are much more likely to work, and cherry pick avoiding edges they don’t think will work
- This cherry picking would indicate they think they know something special about the market aside from the edge they have seen -
- If a trader acted on points 2 and 3 they would contradict the fact that NOW is always unique and there’s some random unknown variable meaning anything can happen (we cannot KNOW) meaning the distribution of wins and losses will be random
- By taking each EDGE that conforms to their idea of edge increases sample size of trades giving edge ample opportunity to play out due to law of large numbers (just like a casino)
Unsuccessful traders are obsessed with market analysis and fundamental analysis, craving certainty that is not there, and diminishing returns appears very quickly when it comes to market analysis
Accepting complete uncertainty and uniqueness of each trade and edge ends the frustration
what ends frustration (accpting Unixxx and Unxxxxx)
Accepting complete uncertainty and uniqueness of each trade and edge ends the frustration
Think of coin flips, 50/50, the only way you can experience pain from losing this is if you have expectation you will win, and many do, this is the fallacy of the thinking of trading, traders don’t accept the randomness of each trade
Unrealistic expectations (i.e. if we havent accepted randomness of each trade) negatively impacts a losing traders way they perceive information
unfulfilled or fulfilled expectations are both what……?
mentally debilitating for traders as they both have?
EXPECTATIONS!
Where to expectations come from?
What we know? BUT We don;t know anything about the market behaviour in each moment, it’s unique
To whatever degree we “know” about the market is the degree to which we are no longer neutral or in an open state of mind — and this is the degree which makes a trader lose
Typically traders go through exercise of convincing themselves they’re right before entering a trade
They’re desperate to win, to win they need to participate, and they’re only participate if it’s a dead certainty. See the qandry?
his doubts always trip him up, he holds back, market does what he wants, he feels pain from FOMO
The test is this, you need to feel about a trade as you feel about a 50/50 coin flip, it’s just chance expectations are emotionally and financials damaging as they cause bad decisions, they’re also practically irrelevant for the outcome of that trade
Well defined or rigid vs neutral & open-ended?
neutral and open-ended always wins
expectations in traders do what?
destroy neutrality and so a traders ability to objectively see the opportunities the market is offering up
expectations = confirmation bias
expectations in traders do what?
