Mind Over Market

Awesome video interview with Mark Douglas. It is about 60 minutes long and it is not suited for those with short attention spans. Then again this video covers the essence of what it takes to be a great trader and what you need to do in order to acquire the set of mental skills to take your trading to the next level.

As Mark Douglas says: You need to ‘change your thinking’.

The goal is to reach a ‘care-free state of mind’. When a pattern presents itself, don’t think. There’s nothing to think about. Take the trade because you have an edge. Then odds, probability and your risk control mechanisms will take care of everything.

In the end, the key is to learn more about yourself. The most important lesson though is the importance of viewing every single trade as being part of a series of trades. No magic there, just plain and simple math and a bit of psychology to fight irrational fears.

You only have to realize it is a game of probability. Something that he talks about extensively in his book ‘Trading in the Zone’:

-Anything can happen.
-You can make money without knowing what is going to happen.
-There's random distribution of wins and losses that define an edge.
-An edge is just the probability of one thing happening over another.
-Every moment is unique.

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 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.

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 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 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!