I had read this book some years back, and thought the gist of it is:
We don’t know what is going to happen next; anything can happen; every moment is unique; for every set up outcome is truly unique.
The trade either works or not. In any case wait for the next edge to appear and go through the process again and again.
Think in probabilities. The edge means that there is higher probability of one outcome over another.
Focus on what the market is doing now, not on what market should be doing based on what others say.
Attain attitudes that allow discipline, focus, and confidence under all conditions. As a result not be susceptible to the fears induced trading errors.
Correctly managing the risks has profound implication on performance.
Follow the method properly and with discipline. Have no fear or greed, and flow in and out of trades based on proper information, and never be reckless.
Most of trading errors are caused by Fears of: 1. being wrong, 2. Loss, 3. missing opportunity, 4. leaving money on the table.
Interpret the conditions and take the appropriate actions in completely responsible way. And eliminate bias based errors from trading. The mind has to be free of fear, anger, regret, betrayal, despair, and disappointment.
A basic objective is to perceive the opportunities available. Approach the opportunity same way whether last three trades were losers or winners; should feel neither fear nor euphoria.
Fact: random outcome, consistent results
The outcome of each trade is uncertain and unpredictable. And the outcome over a series of trades is certain and predictable. I will not know in advance the sequence of wins to losses, but by acting properly, I will end up with more and bigger wins than losses.
Since all trades have an uncertain outcome, each trade is statistically independent of the next trade, the last trade, or any trade in the future, even if use same set of parameters of edge for each trade.
Each market situation, each set up, is always a unique occurrence with its outcome independent of all others. A constant flow of both known and unknown variables creates environment where we don’t know what will happen next.
Let go the urge to know what is going to happen. Let go the need to be right on each trade. Don’t predict the outcome.
Any expectation about the market’s behavior that is specific, well defined, or rigid is unrealistic and potentially damaging.
Managing Expectations
Unrealistic expectations distort the way we perceive information. Be rigid in following rules and flexible in expectations. Rules protect us. Flexible expectations permit us to perceive with clarity and objectivity what market is communicating to us.
To eliminate the emotional risk of trading, have neutral expectations about what the market will or will not do at any given time or any given situation. Think from market’s perspective. Edge may look good. But, any of factors has the potential to negate the positive outcome.
The five fundamental truths:
anything can happen don’t need to know what is going to happen next in order to make money there is random distribution between wins and losses for any given set of variables that define an edge an edge is nothing more than indication of a higher probability of one thing over another every moment in the market is unique
Therefore:
Never jump the gun. Do not anticipate a signal that hasn’t yet manifested.
Not get the idea that market was going my way, indefinitely.
Understand random distribution between wins and losses and not feel betrayed by the market.
Approach the trading from correct perspective that we don’t know what will happen next, this will circumvent mind’s natural inclination to make the now moment identical to some earlier experience. Don’t let some previous experience dictate state of mind.
Regardless of how good the edge is, expect nothing more than the market to move in some way.
Be in the now moment; accept what the market is offering, and wait for the next edge.
Objective state of mind: access to everything learned about the method and trading according to the rules. Nothing is being blocked or altered by pain avoidance mechanisms.
Making self available: following the strategy and let market unfold in any way and be in the best state of mind to take advantage of the opportunities if available.
Now moment: means not to associate an opportunity to get into, get out of, add to, or detract from a trade with a past experience.
Don’t expect to be able to take advantage of every opportunity; don’t be afraid of missing out.
Principles of consistency, the building blocks:
1. Objectively identify opportunities. (no fear, no euphoria)
2. predefine the risk of every trade; decide about accept the risk or let the trade go
3. proper action without reservation or hesitation
4. proper portfolio management
5. continually monitor susceptibility for making errors
6. understand the absolute necessity of these principles and, therefore never violet them
Guard against euphoria, desire to impresses others, addiction to random rewards, be right about expectations, and fear.
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