Uncertainty

When you look at the chart about to take a trade, you are still hesitating, still unsure whether this is the right one. You are still uncertain about pulling the trigger.

Remember – it will always be like this!

No matter how much you trade, this feeling of uncertainty for the outcome of any one trade is not only to be expected, but to be desired. This is the feeling that tells you – you perceive the Market correctly.

Recognize the uncertainty, accept it with a smile. The nature of trading lies in this everlasting uncertainty, never being sure about the outcome of any given trade. Having accepted the uncertainty – pull the trigger, take the trade.

If you already have a solid system, then over the next 20 trades you will turn a profit, of which you can be certain. If you are still in the process of fine-tuning your system, it is only possible to fine-tune through placing these trades amidst all the uncertainty the Market throws at you.

Be comfortable with ambiguity. Take the fear out of equation by accepting that losses are needed to turn a profit, by accepting the uncertainty as the core part of the game. You are only afraid of something you try to avoid. Fear dissipates as soon as you embrace that which you are afraid of.

Inappropriate Expectations

Trading is only difficult when you have inappropriate expectations. You ensure it will be difficult by expecting it to be easy. You ensure frustration when you expect the Market to be certain and predictable. By expecting the Market to do what you think it should do, you ensure disgust and subsequent lack of confidence – guaranteeing that you will not be available for the trade which the Market does agree with.

Expecting not to lose, you are sure not to win.

Expecting to be right, you are already wrong.

Give up all your expectations, let the Market go where it will, do what it must and behave as it should. Stay fascinated, stay uncertain and confused but with a smile. Place a trade and be fascinated when the Market occasionally agrees with you!

Frustration Is Inside

How often do you feel frustrated because of the Market? How often the Market behaves in ways causing stress and anxiety? But truly, how can anything be “because of” the Market?

The Market can only reflect back what’s already inside of you. If frustration is boiling inside, if you are anxious and unsure, all these emotions will find the way out. It is irrelevant whether the Market will be the final straw or something else in your life.

The Market is a great teacher. The Market is fascinating. It is not “bad” nor is it the cause of anything.

Gather courage, look inside and face your own issues. Use the Market as your looking glass – what does it reflect back unto you? Seek such a mindset where the Market will reflect curiosity, fascination and acceptance.

“I cannot accept uncertainty”

I cannot accept uncertainty

Imagine how difficult it must be trading with such belief. In our daily lives we constantly strive for certainty, we want the outcome to always be expected, and yet there is just too much we can’t account for.

How do you behave and feel when you try trading with this belief?

  1. AfraidThe Market can take my money at any given moment!
  2. HelplessAnything can happen and I have no control!
  3. RestlessHow can I be at peace when I have no control over my trading even a minute from now?
  4. FrustratedAll my work is for nothing, because no matter what I do, I am not certain of any single trade!
  5. Miserable I try so hard, but all I get is more frustration each day!
  6. LostThere are no trading opportunities I can see! Any trade I consider might lose!
  7. PanickingI just placed a trade and the Market already behaves not the way I expected!
  8. EmbarrassedAll I do is making a fool of myself, I always buy at tops and sell at bottoms!
  9. Withdrawn/ApatheticI don’t even want to look at the Market, there is no doubt it will just go against me yet again…
  10. TiredThe more I analyze, the worse results I get, my efforts – all for nothing…

Well, I don’t want to go to “Suicidal”, but it is true that our beliefs can push us into dark corners of our minds indeed.

Why are we doing this to ourselves? Why do we need to be certain of the future, when we know for a fact that it’s impossible? If you need to be certain, be certain of this:

I have no idea how the Market will look a second, a minute, an hour, a day or a year from now!

So how do you trade, when nothing is certain? Just like Bruce Kovner said in “Market Wizards”:

…making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.

Let’s see if your thinking changes when you consider just the opposite of the belief we started with:

I completely accept uncertainty on the market. I have no idea where the price will go.

How do you feel now?

  1. LiberatedHow great it is not having to know!
  2. ConcentratedNow that I know what I don’t know, I can concentrate on my analysis better, without having to be right.
  3. ConfidentActually, now I know exactly what the outcome of my trade will be – uncertain!
  4. RelaxedMy job is to explore the opportunities, Market’s job is to show me if they work or not. I simply concentrate on my business and let the Market do its own.
  5. AmusedEach single step the Market makes is always a pleasant surprise for me – it simply teaches me and shows me where it goes.
  6. Fascinated It is amazing how balanced, harmonious the Market is, if I but let it go!

You can have the best trading system in the world, only to be ruined by your own thinking.

True, you might not become profitable even when your beliefs are in harmony with the nature of the Market, but you will become the greatest learner, watching and following the greatest teacher there is in trading.

 

Relax

The Market can do nothing to hurt you, nothing can cause any damage to your reality, so why is it that we find it hard to just relax? How much easier our job would be if we would follow the Market, instead of following our thoughts about the Market?

The reality of the Market can never do anything that would cause you stress. Only your interpretation of the Market – your thoughts about it – cause emotions and prevent you from being detached.

Yes, it is important to have a trading system – a framework inside of which you view the Market. A trading system will cause you to interpret Market’s actions, so it must be constructed in a way that avoids all inner conflict. However, if you are unaware of your thinking, even the best trading system will fail because you will not be able to follow it precisely. You will never notice when faulty thinking enters your mind and causes you to choose incorrect interpretation of the information Market puts in front of you.

Until we learn to just relax and listen to what’s going on inside, there is no point to try building a trading system. The conflict our unconscious mind tries to hide will be projected into our trading and ensure our failure.

Subjective vs Objective

Despite of all the common advice in trading psychology books I’ve been reading I was never quite able to develop an extremely rigid trading rules in my system. Mark Douglas suggests to “have rigid rules and flexible expectations”. However, due to my belief of how the Market works, I find it difficult to explain my analysis or trading patterns in simple “if… then” terms. If I would ever teach anyone to trade, the best instructions I could offer would be something like:

  1. Make absolutely sure your Money Management will never allow you to lose
  2. Learn trading psychology (accept the risks and responsibility)
  3. Watch the Market daily
  4. Build an opinion
  5. Embrace uncertainty and test your opinion with your money
  6. Learn from the feedback Market is providing to you

In my mind, most of the trading setups have always been relatively subjective. The Market would just “look like” going down. At some point I just “feel like” getting out. However, the more I trade the more I recognize that there is certainly a place for fair amount of objectivity in trading as well. I just do not believe that objective concepts can be applied just about anywhere in my trading.

Cutting right to the chase, here is where I would try to define my trading objectively:

  1. Money Management rules
  2. Business organization (trading diary, trade analysis routines, preparation for trading routines, etc.)
  3. When NOT to trade
  4. When I pay myself – take my first profit and put the remainder of the trade in BE (e.g. close 30% at clear Reward:Risk target like 3:1)
  5. Checking minimum conditions any trading setup must have

And here is where I would trust my feelings and intuition (apply subjectivity) in my trading:

  1. Most of my market analysis, i.e. building an opinion or a bias for certain trading instrument
  2. Final decision whether to take an entry

Basically, what I am doing, is building a strict, rigid framework that protects me from making big mistakes and provides some structure for my trading. Next, I allow myself certain amount of freedom inside of that framework where I can trust my intuition (experience) about the Market.

For example, I am making sure that no matter what happens, any trading day, week or even month CANNOT result in a significant loss (1).  I also know what kind of work I must do every single day in order to manage my trading properly (2). I am making sure that under certain conditions (Market environment, life situation, etc) I am not going to trade because I do not believe that my intuition/emotions will provide appropriate judgement under such conditions (3). Next, I am making sure that I pay myself automatically, without even evaluating the current situation on the Market, as soon as certain amount of profit is reached (4). Additionally, before executing any trade I will make sure that it has some necessary parameters that I have defined – this gives me confidence to pull the trigger without hesitation (5).

However, I have to leave most of the Market analysis up to my intuition. Even though I have certain rules and checklists for Market analysis, in the end they only help me to clarify how I am feeling about the current Market situation (1). Additionally, even when I have a bullish bias on a certain currency and all minimum conditions are met to establish a position in that direction, I will still choose to miss that opportunity if I do not feel good about it (2).

The implementation of subjectivity in our trading is extremely difficult unless we are self-aware of what is going inside. It is still important to analyze our emotions and opinions, making sure that they are not caused by anxiety or some psychological issue that we were not able to resolve completely. Obviously, I am nowhere near perfection reading myself or the Market. However, I find it impossible to trade unless I listen to my intuition. I cannot build strict logical boundaries around my life and so I do not expect to put any part of my life (e.g. my trading) in a box either.


 

Recommended reading: Intuitive Investor by Jason Apollo Voss

Conversation with the Market

Whenever I look at a price chart I want to make sure that there is no rigid preference in my mind for it to go in whichever direction. If I happen to “know” where the Market will be going, I am setting myself up to a failure in the long term.

And still, I do know something about the market. I am certain that the Market will move, and it is about the only thing I can trust it to do. It may take its time, but eventually it will move sufficiently enough up or down to create an outcome for my trade.

Before I even think about placing any trade, I want to build an acceptable scenario how the Market will be moving up as well as how the Market will be moving down. I am building these scenarios fully acknowledging that the Market does not know about them, could care less about them, and ultimately will move only in such a way that it needs to move in.

I then accept the possibility of either scenario to work, and in case my (limited) understanding of the current market situation suggests that one scenario is more probable than the other, I establish the trade.

What’s so great about the market, is that it is a great teacher, and it never hesitates to provide clear, unbiased, very useful feedback about my trading decision. Soon enough it will show the reality of the current market situation and I will be able to compare it with the possibility that I outlined in my trading scenario before establishing the trade. The actual outcome of my trade is completely irrelevant. What’s important is the feedback I get each time I choose to participate in a trade.

Trading in this way, I am making the Market my most valuable ally, instead of trying to make an enemy out of it. It teaches me, guiding me to greater understanding of its actions. Really, all the Market is trying to do is tell us where it is going. Unfortunately it does not speak English, and so it is our only job to learn the language that it does speak – the language of Price Action.

However, like with any other language, we cannot perfect it by concentrating on just the theory – we have to engage in a conversation with the Market by establishing a trade and learning from its response.