[idaxtrader]

The nature of probabilities is that each individual hand played is statistically independent of every other hand. This means that each individual hand is a unique event. 102

If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands. But on a collective basis, just the opposite is true. If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome. 103

Here's what makes thinking in probabilities so difficult. It requires two layers of beliefs that on the surface seem to contradict each other. We'll call the first layer the micro level. At this level, you have to believe in the uncertainty and unpredictability of the outcome on each individual hand. 103

The second layer is the macro level. At this level, you have to believe that the outcome over a series of hands played is relatively certain and predictable. 103

It's the ability to believe in the unpredictability of the game at the micro level and simultaneously believe in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do. 103

They have learned and completely accepted the fact that they don't know what's going to happen next. More important, they don't need to know in order to make money consistently. 104

Because they don't have to know what's going to happen next, they don't place any special significance, emotional or otherwise, on each individual hand, spin of the wheel, or roll of the dice. In other words, they're not encumbered by unrealistic expectations about what is going to happen, nor are their egos involved in a way that
makes them have to be right. As a result, it's easier to stay focused on keeping the odds in their favor and executing flawlessly, which in turn makes them less susceptible to making costly mistakes. They stay relaxed because they are committed and willing to let the probabilities (their edges) play themselves out, all the while knowing that if their edges are good enough and the sample sizes are big enough, they will come out net winners. 104

Don't try to predict or know in advance the outcome of each individual event. Aside from the fact that it would be extremely difficult, given all the unknown variables operating in each game, it isn't necessary to create consistent results. All they have to do is keep the odds in their favor and have a large enough sample size of events so that their edges have ample opportunity to work. 106

It may look exactly the same on a chart as it did at some previous moment; and the geometric measurements and mathematical calculations used to determine each edge can be exactly the same from one edge to the next; but the actual consistency of the market itself from one moment to the next is never the same. It is extremely important that you understand this phenomenon because the psychological implications for your trading couldn't bemore important. 107

The most fundamental characteristic of the market's behavior is that each "now moment" market situation, each "now moment" behavior pattern, and each "now moment" edge is always a unique occurrence with its own outcome, independent of all others. 107

Being aware of uncertainty and understanding the nature of probabilities does not equate with an ability to actually function effectively from a probabilistic perspective. Thinking in probabilities can be difficult to master, because our minds don't naturally process information in this manner. 108

I responded that just because he put in a stop it didn't mean that he had truly accepted the risk of the trade. There are many things that can be at risk: losing money, being wrong, not being perfect, etc., depending on one's underlying motivation for trading. I pointed out that a person's beliefs are always revealed by their actions. We can assume that he was operating out of a belief that to be a disciplined trader one has to define the risk and put a stop in. And so he did. But a person can put in a stop and at the same time not believe that he is going to be stopped out or that the trade will ever work against him, for that matter. 109

He said that he had been waiting for this particular trade for weeks and when the market finally got to this point, he thought it would immediately reverse. I responded by
reminding him to look at the experience as simply pointing the way to something that he needs to learn. A prerequisite for thinking in probabilities is that you accept the risk, because if you don't, you will not want to face the possibilities that you haven't accepted, if and when they do present themselves. 109

The mental work necessary to "let go" of the need to know what is going to happen next or the need to be right on each trade. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. 110

They commit themselves to taking every trade that conforms to their definition of an edge. They don't attempt to pick and choose the edges they think, assume, or
believe are going to work and act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren't going to work. If they did either of those things, they would be contradicting their belief that the "now" moment situation is always unique, creating a random distribution between wins and losses on any given string of edges. 110

For the typical trader, determining what the market would have to look, sound, or feel like to tell him that a trade isn't working would create an irreconcilable dilemma. 111

The degree of clarity or relative lack of inner conflict. 112

Looking at the process of convincing yourself that you're right from this perspective, it seems a bit absurd, doesn't it? 112

For the traders who have learned to think in probabilities, there is no dilemma. Predefining the risk doesn't pose a problem for these traders because they don't trade from a right or wrong perspective. They have learned that trading doesn't have anything to do with being right or wrong on any individual trade. As a result, they don't
perceive the risks of trading in the same way the typical trader does. 112

Any of the best traders (the probability thinkers) could have just as much negative energy surrounding what it means to be wrong as the typical trader. But as long as they legitimately define trading as a probability game, their emotional responses to the outcome of any particular trade are equivalent to how the typical trader would feel
about flipping a coin, calling heads, and seeing the coin come up tails. 112

A wrong call, but for most people being wrong about predicting the flip of a coin would not tap them into the accumulated pain of every other time in their lives they had been wrong. 112

So when we believe in a random outcome, there is an implied acceptance that we don't know what that outcome will be. When we accept in advance of an event that we don't know how it will turn out, that acceptance has the effect of keeping our expectations neutral and open-ended. 113

Now we're getting down to the very core of what ails the typical trader. Any expectation about the markets behavior that is specific, well-defined, or rigid—instead of being neutral and open-ended—is unrealistic and potentially damaging. 113

If each moment in the market is unique, and anything is possible, then any expectation that does not reflect these boundary-less characteristics is unrealistic. 113

The potential damage caused by holding unrealistic expectations comes from how it affects the way we perceive information. 113

We have to be careful about what we project out into the future, because nothing else has the potential to create more unhappiness and emotional misery than an unfulfilled expectation. 113

Here's where we run into problems. Because our expectations come from what we know, when we decide or believe that we know something, we naturally expect to be right. At that point, we're no longer in a neutral or open state of mind, and it's not difficult to understand why. 114

If we're going to feel great if the market does what we expect it to do, or feel horrible if it doesn't, then we're not exactly neutral or open-minded. Quite the contrary, the force of the belief behind the expectation will cause us to perceive market information in a way that confirms what we expect (we naturally like feeling good); and our
pain-avoidance mechanisms will shield us from information that doesn't confirm what we expect (to keep us from feeling bad). 114

Defining and interpreting information is a function of what we assume we know or what we believe to be true. 119

When we expect to be right, any information that doesn't confirm our version of the truth automatically becomes threatening. Any information that has the potential to be threatening also has the potential to be blocked, distorted, or diminished in significance by our pain-avoidance mechanisms. It's this particular characteristic of the way our minds function that can really do us a disservice. 119

As traders, we can't afford to let our pain-avoidance mechanisms cut us off from what the market is communicating to us about what is available in the way of the next opportunity to get in, get out, add to, or subtract from a position, just because it's doing something that we don't want or expect. 119

There is nothing at stake because there's no expectation. You haven't projected what you believe, assume, or think you know about that market into some future moment. As a result, there's nothing to be either right about or wrong about, so the information has no potential to take on a threatening or negatively charged quality. 120

We have to be rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective. 120

To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation. You can do this by being willing to think from the markets perspective. Remember, the market is always communicating in probabilities. 120

To think in probabilities, you have to create a mental framework or mind-set that is consistent with the underlying principles of a probabilistic environment. A probabilistic mind-set pertaining to trading consists of five fundamental truths. 1. Anything can happen. 2. You don't need to know what is going to happen next in order
to make money. 3. There is a random distribution between wins and losses for any given set of variables that define an edge. 4. An edge is nothing more than an indication of a higher probability of one thing happening over another. 5. Eveiy moment in the market is unique. 121

When you adopt these five truths, your expectations will always be in line with the psychological realities of the market environment.
With the appropriate expectations, you will eliminate your potential to define and interpret market information as either painful or threatening, and you thereby effectively neutralize the emotional risk of trading. 121

The idea is to create a carefree state of mind that completely accepts the fact that there are always unknown forces operating in the market. When you make these truths a fully functional part of your belief system, the rational part of your mind will defend these truths in the same way it defends any other belief you hold about the
nature of trading. This means that, at least at the rational level, your mind will automatically defend against the idea or assumption that you can know for sure what will happen next. 121

When I put on a trade, all I expect is that something will happen. Regardless of how good I think my edge is, I expect nothing more than for the market to move or to express itself in some way. 124

The best traders are in the "now moment" because there's no stress. There's no stress because there's nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren't working or that it's time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge. 124

And all that's required to put us into a negatively charged, "I know what to expect from the market" 128

Consistency is the result of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever the market is offering us (from its perspective) in any given "now moment." 129

When you are in a carefree state of mind, you won't feel any fear, hesitation, or compulsion to do anything, because you've effectively eliminated the potential to
define and interpret market information as threatening. To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at peace with any outcome. To be at peace with any outcome, you must reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. What's more, you also have to integrate these truths into your mental system as core beliefs. 129

Making yourself available means trading from the perspective thatyou have nothing to prove. You aren't trying to win or to avoid losing. 129

Market information is only threatening if you are expecting the market to do something for you. If you don't expect the market to make you a winner, you have
no reason to be afraid of losing. 131

On the other hand, if you believe that all you need to know is: 1. the odds are in your favor before you put on a trade;2. how much it's going to cost to find out if the trade is going to work; 3. you don't need to know what's going to happen next to make money on that trade; and 4. anything can happen 131

If you're never certain about the viability of your edge, you won't feel too confident about it. To whatever degree you lack confidence, you will experience
fear. The irony is, you will be afraid of random, inconsistent results, without realizing that your random, inconsistent approach is creating exactly what you are afraid of. 133

The task is to learn how to properly integrate these truths into your mental system as core beliefs that are not in conflict with any other beliefs you may hold. 137

There are three basic characteristics you need to understand in order to effectively install the five fundamental truths about trading at a functional level in your mental environment: 1. Beliefs seem to take on a life of their own and, therefore, resist
any force that would alter their present form. 2. All active beliefs demand expression. 3. Beliefs keep on working regardless of whether or not we are consciously aware of their existence in our mental environment. 153

The easiest and most effective way to work with our beliefs is to gently render them inactive or nonfunctional by drawing the energy out of them. 154

The belief was transformed into a nonfunctional, inactive concept about how the world works. 155

The difference between them is in the amount of energy they contain. The first has virtually no energy; the second has energy. So from a functional perspective, there is no contradiction or conflict. 155

This is an example of what I call an active contradiction, when two active beliefs are in direct conflict with each other, both demanding expression. In this example, the first belief exists at a core level in the boy's mental environment, with a great deal of negatively charged energy. The second belief is at a more superficial level, and has very little positively charged energy. 162

But if there are conflicting beliefs and we aren't willing to de-activate the conflicting forces (expending some effort), especially if they're negatively charged, then acting on what we've discovered will be a struggle at the very least, and perhaps down right impossible. 163

When you believe at a functional level that every edge has a unique outcome (meaning that it's a dominant belief without any other beliefs arguing for something different), you will experience a state of mind that is free of fear, stress, and anxiety when you trade. 164

To do so he had to create a new belief and de-activate the conflicting ones. This is the secret to achieving consistent success as a trader. 166

The first stage is the mechanical stage. In this stage, you: 1. Build the self-trust necessary to operate in an unlimited environment. 2. Learn to flawlessly execute a trading system. 3. Train your mind to think in probabilities (the five fundamental truths). 4. Create a strong, unshakeable belief in your consistency as a trader. 172

If producing consistent results is your primary objective as a trader, then creating a belief (a conscious, energized concept that resists change and demands expression) that "I am a consistently successful trader" will act as a primaiy source of energy that will manage your perceptions, interpretations, expectations, and actions in ways that satisfy the belief and, consequently, the objective. 173

He desired to express himself in a way that he found, at least initially, virtually impossible. To satisfy his desire, he had to
step into an active process of transformation. His technique was simple: He tried as hard as he could to stay focused on what he was trying to accomplish and, little by little, he de-activated the conflicting belief and strengthened the belief that was consistent with his desire. 174

When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire. Ultimately, for this process to work, you must choose consistency over eveiy other reason or justification you have for trading. 174

The first step in the process of creating consistency is to start noticing what you're thinking, saying, and doing. 174

If producing consistent results is a function of eliminating errors,then it is an understatement to say that you will encounter great difficulty in achieving your objective if you can't acknowledge a mistake. Obviously, this is something very few people can do, and it accounts for why there are so few consistent winners. 176

When our intent is clear and undiminished by any opposing energy, then our capacity to stay focused is greater, and the more likely it is that we will accomplish our objective. 177

What separates the "consistently great" athletes and performers from everyone else is their distinct lack of fear of making a mistake. The reason they aren't afraid is that they don't have a reason to think less of themselves when they do make a mistake. 177

Belief that mistakes simply point the way to where they need to focus their efforts to grow and improve themselves 178

Remember that every thought, word, and deed reinforces some belief we have about ourselves. 178

All you have to do is decide why you want to monitor yourself, which means you first need to have a clear purpose in mind. When you're clear about your purpose, simply start directing your attention to what you think, say, or do. 179

If and when you notice that you're not focused on your objective or on the incremental steps to accomplish your objective, choose to redirect your thoughts, words, or actions in a way that is consistent with what you are trying to accomplish. 179

The more willfully you engage in this process, especially if you can do it with some degree of conviction, the faster you will create a mental framework free to function in a way that is consistent with your objectives, without any resistance from conflicting beliefs. 179

Initially, my desire to be a runner had no foundation of support in my mental system. In other words, there was no other source of energy (an energized concept demanding expression) consistent with my desire. 182

I actually had to do something to create that support. To create a belief that "I am a runner" required that I create a series of experiences consistent with the new belief. Remember that everything we think, say, or do contributes energy to some belief in our mental system. Each time I experienced a conflicting thought and was able to successfully refocus on my objective, with enough conviction to get me into my running shoes and out the door, I added energy to the belief that "I am a runner." And, just as important, I inadvertently drew energy away from all of the beliefs that would argue otherwise. 182

Now I can effortlessly (from a mental perspective) express myself as a runner, because "I am a runner." That energized concept is now a functioning part of my identity. When I first started out, I happened to have a number of conflicting beliefs about running 183

If there's anything in your mental environment that's in conflict with the principles of creating the belief that "I am a consistently successful trader," then you will need to employ the technique of self-discipline to integrate these principles as a dominant, functioning part of your identity. 183

I AM A CONSISTENT WINNER BECAUSE:
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent
success and, therefore, I never violate them. 185

Keep your expectations neutral, focus your mind in the "now moment opportunity flow" (by disassociating the present moment from your past), and, therefore, eliminate your potential to commit these errors. 187

When you genuinely accept the risks, you will be at peace with any outcome. When you're at peace with any outcome, you will experience a carefree, objective state of mind, where you make yourself available to perceive and act upon whatever the market is offering you (from its perspective) at any given "now moment." 187

A clear desire aimed squarely at a specific objective is a very powerful tool. You can use the force of your desire to create an entirely new version or dimension to your identity; shift energy between two or more conflicting concepts; or change the context or polarity of your memories from negative to positive. 187

The implication of "making up our minds" is that we decide exactly what we desire with so much clarity (absolutely no lingering doubts) and with so much conviction that literally nothing stands in our way, either internally or externally. 187

To get there, you must "make up your mind," with as much convictionn and clarity as possible, that more than anything else you desire consistency (the state of mind of trust, confidence, and objectivity) from your trading. This is necessary because if you're like most traders, you're going to be up against some very formidable conflicting forces. 188

From a probabilities perspective, this means that instead of being the person playing the slot machine, as a trader, you can be the casino, if:
1. you have an edge that genuinely puts the odds of success in your favor;
2. you can think about trading in the appropriate manner (the five fundamental truths); and
3. you can do everything you need to do over a series of trades.
Then, like the casinos, you will own the game and be a consistent winner. 189

This means that we have to expand our definition of success or failure from the limited trade-by-trade perspective of the typical trader to a sample size of 20 trades or more. 196

By setting up the exercise with rigid variables that define your edge, relatively fixed odds, and a commitment to take every trade in your sample size, you have created a trading regime that duplicates how a casino operates. 199

If you believe in the five fundamental truths and you believe that trading is just a probability game, not much different from
pulling the handle of a slot machine, then you'll find that this exercise will be effortless—effortless because your desire to follow through with your commitment to take every trade in your sample size and your belief in the probabilistic nature of trading will be in complete harmony. 199