Think in Probabilities Embracing Uncertainty Your Key To SuccessPicture this: You’re at your trading desk, eyes on the charts, heart pounding as the market swings unpredictably. Do you feel that fear creeping in?
Now, imagine knowing that this unpredictability doesn’t have to scare you. Instead, it can be the key to your success. Let's dive into why thinking in probabilities and staying calm in the face of uncertainty can turn trading from a gamble into a calculated path to consistent success.
Many traders struggle with uncertainty because they lack a solid, tested system. Trading randomly or without a proven strategy leads to anxiety and inconsistency. But once you have a reliable system that suits your lifestyle and mindset, and you fully understand your edge, you realize that while the outcome of each trade is random, the probabilities of your trading system will work out for you over time.
The Role of Probabilities in Trading
Trading isn’t about predicting the next big market move; it’s about understanding the odds and working them to your advantage. Each trade is a small part of a larger statistical framework, where the focus shifts from individual outcomes to the bigger picture.
Why Is Learning To Think In Probabilities So Important For Trading Success?
Reduces Emotional Bias : By thinking in probabilities, you understand that each trade is just one in a series of many. This helps reduce emotional reactions to individual losses or gains, such as revenge trading, doubling up on position sizing, or even smashing your new iPhone against the wall (been there, LOL).
For example, if you know that your strategy wins 60% of the time, you won't be devastated by a single loss. You'll see it as part of the statistical outcome.
Encourages Rational Decision-Making: Knowing your strategy has an actual edge helps you stick to your plan, even during losing streaks, and avoid impulsive decisions. To know your edge, you need to do plenty of backtesting and forward testing so you can gain confidence in the system.
For instance, if you experience a string of losses, understanding that this is normal and statistically probable helps you remain disciplined and not deviate from your strategy.
Builds Confidence in Your System : Confidence comes from knowing your strategy is backtested and has a proven edge over a large number of trades.
This knowledge helps you stay disciplined and focused on executing your plan. For example, if your backtesting shows a positive expectancy over 1,000 trades, you can trust your system even when short-term results are unfavorable.
Things That Have Helped Me Over the Years to Deal With the Uncertainty of Trading
Finding or Developing a System/Strategy That Suits You : As humans, we are all different, and this is especially true in trading. Some people are happy to be in and out of the market fast (scalpers) and have the ability to make big decisions quickly under pressure.
Others are slower thinkers and like to make decisions carefully, staying in the market for a longer period of time (swing traders).
You need to find what you're best at and stick to it. If you have a busy life with work and family, maybe swing trading suits you. If you’re younger and not as busy, then perhaps scalping is your style.
Playing Strategy Games and Games of Chance : This may not be something you've heard before, but I've met many traders, including myself, who have found that games like poker can really help your trading by teaching you to think in probabilities.
Another game I love to play is chess, as it encourages you to think ahead, and I’ve found it has helped me in my trading over the years.
Practicing Visualization : If you've ever read anything on the subconscious mind, you know it’s responsible for 95% of all your automatic behaviors, especially in trading. The subconscious doesn’t distinguish between what is real and what is imagined.
This is why visualization is such a powerful tool to help you embrace market uncertainty. By visualizing yourself placing trades confidently, managing risks well, and handling outcomes calmly, you prepare your mind for real trading scenarios.
This mental practice reinforces your belief in your system and prepares you for the market's ups and downs.
Books That Helped Me Think in Probabilities
Reading has been an invaluable part of my journey to understanding probabilities. Here are some books that have profoundly impacted my trading mindset:
"Thinking, Fast and Slow" by Daniel Kahneman
This book helped me understand how cognitive biases affect decision-making and how to overcome them by thinking more strategically.
"Fooled by Randomness" by Nassim Nicholas Taleb
Taleb's insights into the role of chance and randomness in our lives and the markets were eye-opening and changed how I view risk and probability.
"Beat the Dealer" by Edward O. Thorp
Although this book is about blackjack, Thorp’s exploration of probability and statistics offers valuable lessons for trading.
"The Theory of Poker" by David Sklansky
Sklansky breaks down the mathematics of poker, showing how to make decisions based on probability, a skill directly applicable to trading.
"The Intelligent Investor" by Benjamin Graham
This classic on value investing emphasizes the importance of long-term thinking and understanding market probabilities.
"A Man for All Markets" by Edward O. Thorp
This autobiography offers a fascinating look at how Thorp applied probability theory to beat the casino and the stock market.
"Sapiens: A Brief History of Humankind" by Yuval Noah Harari
Harari’s book provides context on human behavior and decision-making, offering insights into the psychological elements of trading.
"The Signal and the Noise" by Nate Silver
Silver’s exploration of how we can better understand predictions and probabilities is highly relevant to making informed trading decisions.
"Superforecasting: The Art and Science of Prediction" by Philip E. Tetlock and Dan M. Gardner
This book teaches how to improve forecasting skills through careful analysis and thinking in probabilities.
Thinking in probabilities was a game-changer for me. It shifted my focus from trying to predict every market move to playing the long game. By embracing this mindset, I turned fear into confidence and uncertainty into strategy.
Remember, trading isn’t about guessing the market. It’s about responding with a clear, composed mind. Trust your strategy, know your edge, and let the probabilities work in your favor. This approach transformed my trading journey, and it can do the same for you. Happy trading!
Tradingmind
Mindset and Beliefs: The Foundation of Successful TradingAfter 16 years of trading, I have come to realize that mindset and beliefs are critical to achieving consistent success in the markets.
Through personal experience and countless hours of market analysis, I've discovered that the psychological aspect of trading often makes the difference between consistent gains and recurring losses.
Today we will explore how your mindset and beliefs shape your trading performance and provide practical exercises that I've personally used to develop a winning trading mentality.
Understanding Mindset and Beliefs - The Role of Mindset in Trading
Your mindset encompasses your attitudes, beliefs, and emotional responses towards trading. It influences every decision you make, from the trades you choose to enter to how you react to losses and gains.
A positive, growth-oriented mindset helps traders navigate the volatile nature of the markets, while a fixed, fear-driven mindset can lead to poor decision-making and emotional trading.
Reflecting Beliefs in Trading Results
One of the most profound realizations I've had is that the market will reflect your limiting beliefs back to you in the results you achieve. If you have negative beliefs about money, success, or your self-worth, these beliefs will manifest in your trading outcomes.
For instance, if you subconsciously believe you are not deserving of success or wealth, you may find yourself making decisions that lead to losses, reinforcing those beliefs.
Key Beliefs for Successful Trading
To become a consistently profitable trader, it's crucial to cultivate empowering beliefs. Here are the key beliefs that have transformed my trading journey:
The Market is Neutral: - The market does not act against you personally. It moves based on the collective actions of all participants. Believing the market is neutral helps you stay objective and not take losses personally.
Accepting Uncertainty: - Embrace the uncertainty of trading. Each trade's outcome is unknown and should be viewed as part of a probability game. Accepting this uncertainty reduces emotional reactions to market movements.
Deserving of Success and Wealth: - Develop the belief that you are deserving of success and allowed to make money. This positive self-concept can shift your actions and decisions, aligning them with wealth creation.
Focus on Process Over Outcome: - Successful traders focus on following their trading process rather than fixating on individual trade outcomes. This helps in maintaining consistency and emotional stability.
Practical Exercises to Develop a Positive Trading Mindset
These techniques are not just theoretical. They are exercises I have practiced over the years, transforming me from a consistently losing trader to a consistently profitable one.
Self-Awareness Journaling - Objective: Identify and challenge limiting beliefs.
Exercise:
Step 1: At the end of each trading day, write down any negative thoughts or beliefs you had during trading. For example, "I always lose money on Fridays" or "The market is out to get me."
Step 2: Challenge these beliefs by questioning their validity. Ask yourself, "Is this belief based on facts or emotions?"
Step 3: Replace negative beliefs with positive affirmations. For example, "I am continuously improving my trading skills" or "The market offers opportunities every day."
Frequency: Daily - This exercise helped me recognize and reframe the negative thoughts that were sabotaging my trading efforts.
Visualization Techniques - Objective: Build confidence and a positive mental image of trading success.
Exercise:
Step 1: Sit in a quiet place and close your eyes.
Step 2: Visualize yourself successfully executing trades. Imagine each step, from analyzing the charts to placing the trade and seeing it reach your target.
Step 3: Feel the emotions associated with successful trading, such as confidence and calmness.
Frequency: Daily for 5-10 minutes - Regular visualization has ingrained a sense of confidence and calm, enabling me to approach each trading day with a clear and focused mind.
Cognitive Reframing - Objective: Change negative trading experiences into learning opportunities.
Exercise:
Step 1: Reflect on a recent trading loss.
Step 2: Write down the negative emotions and thoughts associated with the loss.
Step 3: Reframe the experience by identifying what you learned from it. For instance, "I learned the importance of setting stop-loss orders."
Frequency: After every significant trading loss - By reframing losses as learning opportunities, I've been able to grow and improve my trading strategies continuously.
Meditation and Mindfulness - Objective: Enhance focus and emotional regulation.
Exercise:
Step 1: Find a comfortable sitting position.
Step 2: Close your eyes and focus on your breathing.
Step 3: If your mind wanders, gently bring your focus back to your breath.
Frequency: Daily for 10-15 minutes - Meditation has been a game-changer for maintaining emotional control and staying calm during volatile market conditions.
My Transformation in Trading Mindset
Early in my trading career, I struggled with a fixed mindset, believing I wasn't cut out for trading due to a few early losses. I often felt the market was against me and reacted emotionally to trades, resulting in a cycle of poor decisions and further losses.
My beliefs about money, success, and self-worth were reflected in my trading results. The market seemed to mirror my negative beliefs back to me, causing me to lose money consistently.
By incorporating the exercises above, I gradually shifted my mindset:
Self-Awareness Journaling helped me identify and challenge my belief that I would never be a successful trader. I replaced negative thoughts with affirmations of continuous improvement and opportunity.
Visualization Techniques built my confidence by allowing me to mentally practice successful trades, which in turn manifested in real trading scenarios.
Cognitive Reframing turned my losses into valuable learning experiences, reducing my emotional reactions and helping me grow as a trader.
Meditation and Mindfulness enhanced my focus and emotional control, helping me stay calm during volatile market conditions.
Over time, I developed a more positive, growth-oriented mindset. I started to see losses as part of the learning process and focused on following my trading plan diligently.
This transformation in mindset led to more consistent trading performance and increased profitability. The market began to reflect my new, positive beliefs back to me in the form of consistent trading gains.
Conclusion
Your mindset and beliefs form the foundation of your trading success. By developing a positive, growth-oriented mindset and challenging limiting beliefs, you can enhance your trading performance.
The practical exercises outlined above provide a roadmap for transforming your mindset and achieving greater consistency and success in trading.
Remember, the journey to mastering trading psychology is continuous. Stay committed to these practices, and you'll gradually build the mental resilience and confidence needed to thrive in the markets.
These techniques have been instrumental in my journey from a consistently losing trader to a consistently profitable one. I believe they can do the same for you.
Draining Trading Habits: The Pitfalls to Avoid for Market SuccesYou know that trading is a mental game.
And if you play it wrong, it can be very draining on the mind and the soul.
Your aim is to make trading effortless and not overstressing.
And to do this, you need to avoid making these draining trading habits.
That’s what we’ll cover in this piece.
Personalise Losses: The Emotional Pitfall
Ever felt like the market is out to get you?
Go look at any chart and you’ll see there were times where you would have won and would have lost.
It’s a common trap.
Losses are not personal attacks.
And winners are not personal appraisals.
They’re part and parcel of the trading game.
Remember, the market is as impersonal as it gets.
When you personalize losses, you cloud your judgment, making it harder to learn from mistakes.
Instead you need to:
Shift Your Perspective:
View losses as the trading costs of doing business.
And if you’re still learning, then you can see losses as tuition fees for your trading education.
Keep a Trading Journal: Document your trades and reflect on your overall track record.
This way you’ll see both losses and gains as part of the process.
Cling to Long-term Trades: The Hope Trap
Ah, the classic ‘hold and hope’ strategy.
It’s easy to fall in love with a trade.
It’s also easy to marry a trade or even an investment.
But as a trader, you must NOT get married to a trade.
See them as short term conquests where you take one – lose one win one. But know that the next one is on the way.
So, how do you break free?
Set Clear Exit Strategies:
Before your enter a trade, know your exit points for both profit and loss.
Practice Detachment:
Treat each trade as just another business transaction. Or like I said – Conquest.
Always checking your trades: The Anxiety Generator
Checking your trades every five minutes? ‘
This can turn into an obsession.
I must say. This is not a good for your stress levels and your trading performance.
This habit can turn trading into a nerve-wracking obsession.
So instead:
Set Alerts:
Use technology to your advantage. Set alerts for price movements.
Schedule Check-ins:
Limit how often you check your trades.
Discipline is key!
Overstress about trades: The Health Hazard
Stress is the silent killer in trading.
It not only harms your health but also impairs your decision-making abilities.
So, how do we keep our cool in the heat of the market?
Practice Mindfulness:
Meditation and mindfulness can work wonders for stress management. Maybe even self-hypnosis at night to manage your worries, stress and to compartmentalize them.
Physical Activity:
Regular exercise helps in reducing stress and improving focus. You’ll be surprised what a simple walk, exercise or even punching the old bag can do to calm your mind.
The complaint department: Trading’s Emotional Baggage
Complaining about trades is like carrying around a bag of emotional bricks.
It’s exhausting! It’s heavy on you! And it’s just plain unnecessary.
This habit breeds negativity and affects your mindset.
Focus on Solutions:
Instead of complaining, channel your energy into finding solutions through your track record and money management strategies.
Seek Constructive Feedback:
Engage with a trading community for support and advice.
FINAL WORDS:
Your job is to manage stress, worry and to make trading as effortless and as easy as possible.
This requires some physical and mental activities.
And not just once off. On an ongoing basis…
Let’s sum up the draining trading habits so you know what NOT to do.
Personalise Losses: The Emotional Pitfall
Cling to Long-term Trades: The Hope Trap
Always checking your trades: The Anxiety Generator
Overstress about trades: The Health Hazard
The complaint department: Trading’s Emotional Baggage
Tips to be a Healthy Trader - Wisdom Yields HealthI came up with a corny slogan in 2013.
“Wisdom Yields Wealth”.
Well, today I came up with another corny slogan but relevant to today and this year.
“Wisdom Yields Health”.
As you know, health is the greatest wealth of all when it comes to your:
Physical appearance
Mental cognitive thoughts
Important decision making
Longevity
In 2023, health is everything as the world continues to linger in a very stressed phase. (Especially, what’s going on in South Africa with Eishkom, water issues and tax month having kicked off).
If you want to be a good trader, you need to focus on not only your money and mind but also your health.
Health will help you optimise your trading performance.
So, this is a short but important article to remind you to try be a little bit healthier.
HEALTH TIP #1:
Sleep Even Hours
It’s an old wife’s tale that you need 7 hours of sleep.
It’s proven that the sleep cycle works on EVEN hours, NOT odd.
So if you sleep 7 hours, you’ll deprive yourself of the last 1 hour you need to complete your cycle.
When you decide to go to sleep, set an alarm for 6 hours or 8 hours to get the right amount you need.
Also, if you wake up before the alarm and you feel fresh – stay awake, don’t go back to bed. Listen to your body more and it will reward you better.
You need to be clear headed when you wake up in order to take on the markets with a fresh mindset.
HEALTH TIP #2:
Drink COLD Water
Listen… You’re made up of over 73% water.
So you might as well fuel yourself up and stay hydrated.
First glass in the morning and another glass every two hours. Or just have a 2 litre bottle next to you. When it’s finished, refill it.
Ok you’ve heard that a million times. Here’s where it gets interesting.
Did you know that if you drink ice cold water, it will help you to keep awake, will fire your neurons and will boost your thinking capabilities.
That’s the big tip with drinking water as a trader. Ice, Ice baby!
HEALTH TIP #3:
Eat less ‘high energy to consume’ foods in the day
You know what puts us off work, trading and life?
Having a bloated and painful stomach, because of the stuff we ate.
I’m talking breads, pastas, sweets, crisps and fried food.
When you eat this stuff, you won’t feel in the mood to trade, think or work. It’s also probably affecting in the bedroom too!
Eat these in moderation and NOT when you trade or a few hours before you trade.
Anyway, I’m not giving advice, just some tips that’s helped me to trade better over the years.
HEALTH TIP #4:
Keep Walking
Gyms might be inaccessible right now. And exercise is just too difficult to keep motivated to follow.
So instead, take your trade for the day and go for a walk around your complex, park or anywhere just to burn those calories and keep you fit and healthy.
I’m in Greece right now and nothing beats a good walk around the Ancient historical sites in Monastiraki such as the Agora, Acropolis and even the amphitheatres.
Or a walk around the Marina – Flisvos harbour to take in the cool breeze and breathtaking view of the sea.
Find your piece of heaven (where ever it is) to walk around and burn those calories at least twice or three times a week.
I can go on about health tips, but four is more than enough to start with.
Please look after yourself, your body and your mind.
Don't let Captain Hindsight mess with your tradingCaptain Hindsight is bound to get in your head.
Whether you’re just starting out or you’ve been trading for the last 10 years or so.
He is going to question you with two simple words.
And these two words, can really cause a negative impact on your trading portfolio.
In this short article, I’m going to warn you about how he’s going to uppercut your mind and most likely cause havoc with your trading.
This way, you’ll know what to watch out for.
A dangerous two word question to interfere with your trading
What if?”
Here are some…
“What if the market is in a bubble and I buy too high?”
“What if I’m wrong about this trade?”
“What if my trading strategy worked then, but won’t work now?”
“What if the market is in a period where I’m just going to take losses?”
Whenever the captain whispers these questions, you’re going to feel vulnerable and start second guessing your trading system, strategy and skills.
Succumb to the Captain and he’ll be back stronger and more powerful than the last time.
Here are THREE ways to beat Captain Hindsight before he returns
ACTION #1:
Extend your back-testing
So you have a trading system that you believe works… Prove it.
Go back and re-test different markets and jot down every time the system lined up.
Record every trade, including the costs and the statistics and prepare yourself for what is to come.
The more you back-test your system, the more markets and environments it would have weathered and endured. If it came out with all time highs on your portfolio, it’s a winner.
Captain Hindsight – won’t have anything on you – with a decent track record…
ACTION #2:
Drop your risk
The most common way for a trader to feel emotional, is when they have a lot to lose.
The larger your trading position, the more desire to win and the more fear you’ll have to lose.
This is why greed, fear and panic are the most ongoing reasons for traders to annihilate their portfolios.
Trading is a get rich slowly but surely game. And when you accept the gains and losses, you won’t care what the Captain has to say.
ACTION #3:
Step away from the screen
Not only will Captain Hindsight creep in before you take a trade. He’s bound to enter your mind while you’re in the trade.
“What if you’re wrong about this one?”
“What if you get out of your trade now while you’re in a profit?”
“What if you take a small loss, because it looks like this trade is a loser?”
The best action to take, when you’ve entered your trade with your trading levels (Entry, Stop loss and Take profit), is step away from your trading account.
Distract yourself by getting a drink, water your garden, take a drive or do other work.
The less you’re glued to the screen watching your trades, the less you’re going to feel worried about the small moves that happen in the day.
Always remind yourself…
“My trading strategy will REWARD me for following it.
My trading strategy will PUNISH me for NOT following it.”
These three actions will eventually help you beat Captain Hindsight for good, as it did for me over 20 years ago.
Happy New Year 2023 - Only 1 tip for you!If you don't know your trading levels, then you don't have a game plan...
The only time you're ready to trade is where you have the exit plan in mind through risk and reward as well as WORST case scenario...
Are you ready to trade in 2023!
My only tip for this year is go where you are appreciated NOT where you are tolerated.
Trading View is such a special place because we all have one thing in common.
To take control of our own life without any dependency.
I've been trading since 2003 and now have the platform to share some ideas and experiences that I've gone through to eventually trade for a living from 2011.
Welcome to 2023. May it be a year of learning, improving, growing and profiting.
Trade well, Live free...
Timon
MATI Trader
4 Problems when you Hold a Delisted ShareAs we are expecting Steinhoff to delist soon.
What if you continue holding shares in the company?
From my experience when a company goes from listed to private it means a few things.
1. Liquidity issues
Volume will be low where you might not be able to exit a position with a rightful buyer or sell
2. lack of transparency
This leads to uncertainty for the business as shares holders won't have the transparent information like they would with a public company.
3. Valuation
With a company listed privately, this can lead to investors pricing in the business rather than shareholders. This can result in slower performance in the price of the share.
4. Market perception
The fact that a company has been delisted can be seen as a negative development by some investors, who may view it as a sign of financial distress or poor management. This can affect the market's perception of the company and its shares, which can in turn affect the value of your investment.
Do you have a fundamental analysis question?
Let me know in the comments and I'll answer in simple terms.
Trade well, live free.
Timon
MATI Trader
