Eliminate emotional risks
To eliminate emotional risk in trading, you must reduce your expectations of what the market will do at any time or under any circumstances. To do this, you can deliberately think from the perspective of the market. Remember, markets always convey information in a probabilistic way. On the whole, although the advantages are perfect in all aspects; However, at the individual level, every trader may become a force affecting price fluctuations and offset the favorable results of your advantages.
To think from the perspective of probability, you must create the basic principles of matching the mental structure or mentality with the probabilistic environment. The transaction related and probability based mindset consists of the following five basic facts:
(1) Anything can happen.
(2) To make money, you don't have to know what will change next.
(3) The profit and loss generated by any set of variables defining advantage are randomly distributed.
(4) Advantage simply shows that one thing is more likely to happen than another.
(5) Every moment in the market is unique.
Remember, whether you feel emotional pain or not depends on how you define and interpret the information you come into contact with. When you accept these five facts, your expectations will always conform to the psychological reality in the market environment. When you hold appropriate expectations, you will not define and interpret the market information as painful or threatening information, which can effectively reduce the emotional risk in the transaction.
The purpose of this is to create an open mind and fully accept the fact that unknown forces always operate in the market. When you treat these facts as a fully functioning part of your belief system, the rational part of your mind will protect these facts, just as it protects your belief in the nature of trading.
This means that at least on a rational level, your mind will automatically resist the idea that you think or assume that you really know what will change next. This idea and each transaction are unique events, the results are uncertain, and conflict with the idea that any transaction in the past is a random relationship; At the same time, it conflicts with the idea that you think you determine what will happen next and expect your judgment to be correct.
If you really believe that the outcome is uncertain, you should also expect almost anything to happen, otherwise your idea of knowing everything will control your mind. You will no longer consider all unknown variables, and your mind will not let you work in two ways at the same time.
If you believe you know something, the present moment will no longer be unique. When the present moment is no longer unique, then everything is either known or known, that is, nothing is unknown. However, when you no longer consider the situation you don't know or can't know, and no longer accept everything provided by the market, you will be easy to make all typical trading mistakes.
For example, if you really believe that the outcome is uncertain, would you consider trading without defining the risk? If you really think you don't know, will you hesitate to stop? How do you deal with hasty trading errors? If you don't believe you will miss the opportunity, how do you expect the signal that the market hasn't shown yet?
If you're not sure that the market will always fluctuate according to your expectations, why do you turn profitable trading into a loss? Why don't you make a profit? Why are you hesitant and unwilling to trade unless you believe that trading from your original entry point is bound to lose money? If you are not sure that you will make a profit, why do you break your capital control rules and trade too large a position, even beyond your capital or emotional tolerance of loss?
Finally, if you really believe that winning or losing is a random distribution, have you ever felt the market betray you? If you throw a coin, you don't expect to guess right next time because you guessed right last time. I don't expect to guess wrong next time because I guessed wrong last time. Because you believe that the probability of positive and negative occurrences is randomly distributed, your expectations should closely match the actual situation.
Of course you like to guess right. If you guess right, it's good, but if you guess wrong, you won't feel that money betrays you. Because you know that there are some unknown variables that will affect the result when you accept coin throwing. Unknown means "things that cannot be considered in the process of rational thinking and can only be completely accepted before throwing coins". Therefore, you are unlikely to feel the emotional pain of betrayal.
If you expect to get random results when trading, even if the results fully meet your definition of advantage and are profitable, you will at least be a little surprised at the behavior of the market.
However, the expectation of random results does not mean that you can not fully apply your thinking and reasoning ability to predict the results, nor can you guess what will change in the next step, or what inspiration or feeling you have for the next change, because you can do so.
In addition, you may be right every time. You just can't expect yourself to be right every time. Even if you're right, you can't expect what you did right last time to be right next time, although the situation may look, sound or feel exactly the same.
What you see as like as two peas in the market is never exactly the same as some old experiences in your mind. But that doesn't mean your mind won't try to make the two exactly the same according to its natural way of operation“ There must be something similar between "now" and something you know in the past. But this kind of similar place can only let you use it as the basis of your efforts to turn the probability of success to your advantage.
If you operate from the perspective that you don't know what will change next, you will avoid the brain's natural tendency to confuse "present" with previous experience. This seems unnatural, but you can't let past negative or extremely positive experiences dominate your mind. If you do, it will be difficult for you to see the information that the market intends to communicate with you from its own point of view.
When I trade, I only expect something to happen. No matter how strong I think I am, I can at best expect the market to fluctuate in some way. Or show their own state. However, there are some things I do know. According to the past behavior of the market, the market trend fluctuates in the direction of my operation, or the opportunity I can accept is quite large. At least willing to bear the cost and understand the actual situation.
Before I trade, I also know how much the market deviates from my position, and whether it is the limit I am willing to accept. Compared with the profit potential, there will always be a certain time point when trading, and its probability of success will be greatly reduced. At this point, there is no need to spend money to confirm the transaction results. If the market comes to this point, I know I will have no doubt and hesitation, and there will be no conflict in my heart. I will get out of my position.
Loss will not cause any emotional harm, because I will not interpret this experience from a negative perspective. For me, loss is just the cost of promoting business, which must be spent when I hope to make a profit; In addition, if the transaction is profitable, I generally know when I will stop making profits (if I don't know very well, I must know quite well).
The best traders are in the "present" situation because there is no pressure in this situation. There is no pressure because there is no risk other than the amount they are willing to spend on the transaction. The best traders don't try to be right, or try to avoid mistakes, or try to prove anything.
If the market tells them that advantage is useless, or that they should make a profit now, their mind will not stop this information. They will thoroughly accept the information provided by the market and wait for the next advantage.
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作者:cleverboy
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来源:Learn forex trading – Foreign exchange blog
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