Trading in the zone pt2

Believing is seeing, Jesus said. And how true. Whatever we believe in, we are right about that believe.

And our world viewed is seen thru that believe. Are you handsome? If you believe so, you are. Can you do it? If you believe you can, you can. And amazingly enough ppl around us detect that energy and respond with you. The concept is not new, believing is seeing. Books like "the secret", "think and grow rich", "as a man thinketh"... etc are repeating the same thing.

But what if we believe in the 'wrong' thing? like for example, if I believe that ALL dogs are friendly, my natural reaction when I see a dog is to pet it and befriend it. What if a dog bites me- I will get hurt, because I wasn't ready for a dog to bite me. After all, ALL dogs are friendly in my world. Will I still think that ALL dogs are friendly?

See, our brains are wired to prevent physical and psychological pain. If the dog's bite is pain enough, chances are my belief will change to prevent future painful occurences. Maybe my belief will be changed to SOME dogs are friendly. Maybe then, I will hurt less....And when that change occur, chances are we get hurt less. We aren't caught surprise the next time we meet an unfriendly dog.

Our believes are now aligned closer to the actual 'truth'. This, I believe, is the core of the book. Changing our beliefs to match that of the market.

One of the most common wrong belief is that we can predict the market through our analysis- be it fundamental or technical. When we belief that and the market doesn't move the way our analysis predict it, we feel hurt. After several losses, we start to question our analytical tool. After 10 losing trades in a roll, we start to believe that the system we're trading with is shit and it's time to learn a new system. This cycle continues with us learning more and more. We try different system, changing timeframe, using different indicator or worst pile on more indicator. With each change comes new hope that the next one will be THE system that gives us the consistently. I think many traders are not unfamiliar with this feeling.

We feel hurt because we our expectation are not met. We feel angry with the market. We feel revengeful (sounds familiar?) We want to be right.. and in the end we made foolish mistakes- overtrading, revenge trading... etc.

Other times, we get scared of pulling the trigger although the setups are all there. We're afraid that we may just be wrong like the last 10 times (... and maybe, a tiny voice tells you, the system you're trading with is shit). We hesitate on pulling the trigger to see the trade run and out of panic, we jump in the middle....

Truth is, the market is neutral to all system. It's not alive. It's like gravity. It doesn't hurt you nor benefit you unless you have a right belief on it. And no tools on earth can give you a prediction on it...

THE MARKET CAN DO WHAT IT WANTS

And if we truly belief that, we won't be hurt by the outcome of our trades. We would remain calm at all times. The reverse is also true. If we are not calm at all times, then chances are our beliefs are not in sync with the market.

All we can do then is have a system that have a positive edge that give us a long term winning strategy.

Now that we belief that the market can do anything it wants, the book gives us the 5 fundamental truth of the market:-

1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.(because anything can happen)
   
3. There is a random distribution between wins and losses for any given set of variables that define an edge (so don't worry if you have 10 losses, it's just random distribution)
4. An edge is nothing more than an indication of a higher probabiligy of one thing happening over another (ie you get to win in the long run)
5. Every moment in the market is unique ( no two instances are going to be alike: just because the last double top works out to a nice short doesn't mean that this one will)

Think about these. When we do belief these truths, we would be constantly in sync with the market because nothing will 'shock' us anymore.