All language subtitles for 7. trading mental models

be in line with the
psychological realities of the

define and interpret market
information as either painful

emotional risk of trading. That
is how you evolve towards the

expectations you will then
eliminate your potential to

or threatening and thereby you
effectively neutralise the

market environment. And then
once you have those appropriate

end. When you adopt these five
your expectations will always

acceptance of the uncertainty
of each edge and the uniqueness

of each moment, your
frustration with training will

definition of an edge. Now,
when you achieve complete

will play out because it's only
yours and not everyone's

Therefore, you can't expect to
be right that your radial setup

again but every setup that you
see and take and every bit of

exactly because for every
trader, they are different.

improbabilities. No one knows
what the probabilities are

always be slightly unique in
one way or another and in its

price action, it's never
exactly the same. It will

uniqueness, the market is just
simply communicating

for and we execute them the
same way over and over and over

our strict and clearly defined
setups in our rules-based trade

plans, right? The setups have
the same criteria that we look

truth is that every moment in
the market is unique. We have

make up for your losers and
more and the final trading

probability of winning than
losing but when you win, you

win big and when you lose, you
lose small. So, your winners

need to combine the strike rate
with your average P and L per

your true edge. So your
strategy may have lower

trade so that you know your
profit expectancy as that is

than 50% right? Remember strike
rate alone is irrelevant. You

about this truth is that your
edge doesn't have to be greater

self-explanatory one to be
honest. The only thing that I

would kind of personally argue
or I should say maybe change

potential reward. Now the
fourth trading truth is that an

edge is just a higher
probability of one thing

happening over another. So a
pretty simple and

that small risk you take on is
the price you pay for your

what this means in more
practical terms is that when

that trade losing. So you are
essentially paying the market

you enter a trade you must have
already accepted the risk of

misery than unfilled
expectation. So you have to

to happen onto the market.
Nothing else and I mean nothing

are projecting your
expectations of what you want

to find out if your trade idea
is going to work or not. And

fear or greed. You have to
completely accept the fact that

That's why we strive to remain
neutral as possible and look at

expect to know what happens
next, what that means is you

will not do at any given moment
or in any given situation. Now

neutralise your expectations
about what the market will or

everything through an objective
lens. So, we're not blinded by

else has a potential to create
more unhappiness and emotional

you don't know what's going to
happen noone does. If you

blinded to valid reasons of
actually why you should not be

trade and you may actually be,
you know, subconsciously

most conducive state of mind to
produce consistent results.

taking that trade. In either
case, you will not be in the

justify not taking the trade
but on the other hand If your

losing, then you will gather
evidence in favor of taking the

trade and you'll be looking for
technical reasons that maybe

FOMO, your fear of missing out,
is greater than your fear of

you're not even part of your
strategy in order just to

any information you can find as
evidence against taking the

against taking the trade if
your fear of losing is greater

than your fear of missing out
then you will start to look for

will then cause you to start
gathering evidence for or

anxiety and you're going to be
sitting there nervously looking

at your screen wondering if
it's going to work and this

anticipate the next trading
opportunity with fear and

probability game but if you
still believe trading is about

and waiting to jump in without
the slightest reservation or

being right or wrong then after
you take a loss you will

hesitation because you
understand that it's a

to the next occurrence of your
edge. You know, you'll be ready

short-term volatility. So, when
you understand that every loss

puts you that much closer to a
win, you'll be looking forward

vision on the numbers rather
than getting lost in the

is a probability game and you
have to have that long-term

but we also don't know how much
money the market is going to

only do we not know the
sequence of our wins and losses

make available to us on our
winning trades. Trading truly

remember it Now, another thing
we need to consider is that not

many people just don't get this
or they just don't accept and

underlying expectancy to show
through so with a 60% win rate

you can still have seven or
eight losers in a row and so

rate it could take 3050, maybe
even 100 trades for that

right but this is because
although you have a 60% strike

example there are only five
green tickster solely five

winning trades when you think
that maybe there should be six

although it's based on a 60%
strike rate in the reality

What you also might notice in
this illustration is that

is a sequence in which those
wins and losses will occur.

10 trades you can expect on
average that six will be

performance of your edge you
may know that out of the next

define an edge. So in other
words based on the past

winners and four will be
losers. But what you don't know

between wins and losses for any
given set of variables that

In the third truth is that
there is a random distribution

you're in the mindset to react
instead of trying to predict.

plan and you see our criteria
has now been met then you can

execute without emotional
interference okay so make sure

rather than hesitating out of
fear it's a subtle but

extremely important difference
and then when you look at your

do nothing just means you're
being patient with confidence

meets your criteria and you
just sit on your hands and you

situation so you look at your
plan and you see that nothing

do next instead you just react
and you have a plan for every

energy and trying to predict
what price action is going to

what ifs instead think if then
so don't sit there thinking

level and it does X and Y then
I'm going to do Z but it go if

steps ahead of this stuff so
that way and you're not wasting

that truth that truth releases
you from the expectations of

that to think improbabilities,
you have to create a mental

sample size of trades so that
our edges have more than enough

Trading A Zone, which I'm sure
many of you have heard of, says

opportunity to work. Now, Mark
Dunnes in the book called

not attach their own self worth
to the outcome of an individual

trade that they take. So as a
result, it's much easier to

come out net winners in the
long run. So don't try to

wheel, or roll of the dice. In
other words, they're not

care and because they don't
have to know what's going to

restricted by their unrealistic
expectations about what is

casino and the professional
speculator effective, and

predictability of the game at
the macro level that makes the

collective basis, just the
opposite is true. If a large

ability to believe in the
unpredictability of the game at

you have to believe in the
uncertainty and

at the start it's all pretty
much down to luck but it's the

to perform a large number of
trials for the true underlying

you compound and start to scale
your account. It's basic human

training. Now, in fact, many
successful entrepreneurs and

versus micro. So, we know that
if you focus on each trade

trading that day because
there's no way they're going to

avoid pain and protect you at
all cost and remember it views

what if price does this you
know what if price is that

your screen you know watching
price move don't be thinking

next in order to make money so
when you're sitting in front of

know, they're going to try and
force their will on the market

by taking more risk on poor
setups to try and get rid of

even larger stakes and trying
to avoid realizing the loss.

difficult you know given all
the unknown variables it's just

not necessary to create
consistent results. All we have

principles of a probabilistic
environment. A probabilistic

predictable and remember the
law of large numbers you need

prefer in the situation and
write down your answer. Okay?

the micro level and
simultaneously believing in the

volatile and unpredictable
right you could first start off

event because aside from the
fact that it would be extremely

people chose option D. So 84%
of people chose the option of

onto it and that's why the
majority of traders they take

is because once we have
something the majority of

completely accepted the fact
that they don't know what's

twenty-four hours, I looked at
the results and 81% of people

see this when you speak to
people about their preference

trade and the second layer is
the macro level and at this

stay focused on keeping the
odds in their favor and

few months ago where I asked
those who follow me a couple of

on risk taking. So, I ran the
survey on my Instagram story a

will emerge that produce a
consistent predictable and

we'll call the first layer the
micro level and at this level

trading. The first of which is
what I like to call the macro

biological fear response from
our primitive brain and you can

you have to think in terms of
probabilities as that small

one trade, are you? So, over a
large sample size of trades,

businesses, they use this
structured thought process and

gratification. However, if you
start to employ your primary

imminent survival. To the
untrained brain of mind, any

the profit expectancy of option
A so sure gain of 700 pounds is

obviously 700 pounds but for
option B it's actually slightly

to avoiding pain your primitive
animal brain is just trying to

emotional brain was built to
manage, consistent and

over time and on a longer time
horizon than which our

is risk management and that's
all we're doing to make money.

survival mechanism. It does not
perceive risk, only threat. So,

trading performance. So, going
back to this diagram, the real

So hopefully you've watched the
first episode in this module

infatuations, naiveties, and
skepticisms about trading and

what I want you to do is just
take a few seconds to think

was your answer with the
majority or the minority? So

the majority of people chose a
guaranteed gain of 700 pounds

a guaranteeing gain of 700 or B
-a 75% chance of gaining £1,

of trade entries down to a much
more manageable amount of

simple questions and I asked
would you prefer A a sure gain

over the 75% chance of gaining
£1, 000 and a 25% chance of

this stuff so they just happen
to be very balanced individuals

from the start and they don't
even realize what's really

gaining nothing because humans
generally tend to be risk

already successful, they don't
even really know about any of

things from their lives into
the market. The traders who are

stress so much important on it.
You really have to break down

management. However, you know,
to the short-term immediate

instead you want to be thinking
okay if price comes to this

off the radar and it's why we
have placed such a massive

operating in the market at
every moment meaning at this

trading edge looks like you
know that is what it looks like

either really naive or they're
really skeptical off the radar

everyone who has a good
strategy that holds a profital

relaxed because they are
committed and willing to let

between real biological fear
and the psychological

discomfort of risk but the
essence of successful training

let the numbers fall as they
to. All the while knowing that

susceptible to making costly
mistakes. So they stay very

and the sample sizes are big
enough then they're going to

happen. Literally, anything can
happen at any point in the

emotional or otherwise on each
individual hand, spin of the

trades per month, you know, a
week, a you can change your

going to when they are sitting
in a trade nor are their egos

fundamental truths. The first
truth is that anything can

to do is keep the odds in our
favor and have a large enough

mindset applicable to trading
consists of these five

seem not to be able to lose and
then they have periods of

are still going to have periods
of winning streaks where they

need to know in order to make
money consistently. They don't

losing streaks where they tend
to lose more often than they

win but this is a bell curve
and this is what a profitable

do have good analytical skills
but they have completely

what trading means to them
because when you can break

that approximately around this
ballpark and then we still have

successful at what they do
because they have learned and

completely off the chart.
Whereas the professionals are

going to happen to next and
more importantly, they don't

in a draw down for a while or
maybe on a hot one streak but

people just bring their own
stuff into the market and if

expectancy so the true edge to
play out that start is very

on what like you know 10 to 20
positions a month or a week

probability opportunities so
that we are stacking

infinite possible potentials
with layer upon layer upon

broker. So now when we sit down
at our computer and we have

infinite times a month because
we are building a portfolio of

technical confluence to filter
out the you know the infinite

trades taken is actually
relatively certain and it is

pulling the quantity of trade
setups down by filtering

level you have to believe that
the outcome over a series of

improbabilities so difficult
because it requires two layers

twenty trades a week or a month
that is much more practical and

their decision-making processes
each and every day. So, how can

of beliefs that on the surface
seem to contradict each other

they're up this end projecting
I can never lose then they are

possible. Infinite trades
obviously not so much. Because

that we can actually
logistically sit at our

solid perceptions that people
bring into the market you know

enough of trades are taken with
a profitable edge then patterns

losing streaks on the left half
of the curve but trading an

until the end of time with a
fixed one-to-one RR, you will

look at two mental models that
we can use to apply to our

the right half of the curve and
you'll have some that form your

infinite number of positions
every week, it's not really

distribution between our
winning and losing trades,

practical or realistic, is it?
And the transaction cost will

will fall in, just like the
roulette table but on a

It's the same way when many
traders will take a loss or two

subconscious mind to recognize
this and to start taking action

time and experience and these
principles are not exclusive to

just keep gambling and
gambling. Sometimes there's

reward. So anywhere on the area
over on the right hand side is

You will see the polarities in
trading. You know, some people

possible amount of trades so
that way we're not trading

clicking the buy button you
know whenever you felt like it

instincts in the market, it's
pretty much a sure way to lose

only 50 pounds, it may seem
like that is not enough reward

the activity on social media
and you'll see it first hand.

they're all the way over there
on the left hand side you know

nature to prefer immediate
gratification over delayed

000, but a 25% chance of
gaining absolutely nothing so

you would win 1hundred percent
of the time but either I look

losers, it will look a lot more
like a bell curve. So, when you

opposite side of the trade that
you do is 100% of the time so

swing. You know, go and look at
the forums online or some of

then likewise if you think that
you've got a 0% property of

irrational so it's completely
irrational to think that you

and you're going to lose 100
times in a row that's obviously

value of the underlying 50 50
edge of a one to one risk to

can win 100% of the time right
because if you took the exact

have to do is flip to the
opposite side of the trade and

in the morning, you know, they
are much more likely to keep

trades that you've taken are
really low. But as you take

people answered the way they
did because it all comes down

gamblers get hooked. You know,
once they've made a loss, they

When you're trading one-to-one
reward to risk, the number of

sporadic. They're going to be
all over the place. So the

chances of you stringing
together you know four or five

scenario only 16% of people
chose option C and so 84% of

higher at £750 pounds in the
second scenario, the guaranteed

all risk as a biological threat
to life but now that you should

nothing over the choice of a
guaranteed smaller loss of only

profit expectancy of each
decision you will find that

they tend to be risk seeking
when it comes to losses. They

700 pounds. Now the majority of
people chose option D because

ten, 20, fifty, a 000 trades.
Over time the law of large

their profits and they run away
too quickly when they're in

executing flawlessly which in
turn makes them less

want to give that back to the
market. So now in the second

losses or maybe four or five
wins in a row is pretty high

So after the survey was up on
my Instagram story for

and it will be in the tail ends
of the curve when the number of

humans are violently opposed to
risk losing it we want to hold

chose option A with 19% of
people choosing option B. So

avoiding when it actually comes
to gains the reason why that is

then some are so resentful.
They're so skeptical. ****

profitable trading becomes
possible with good risk

trading strategy is because the
human mind is not wired to

think in terms of probability.
Rather it's designed to think

guaranteed loss of 700 pounds
or a 75% chance of losing 1,

statistically reliable outcome
but here's what makes thinking

our odds of profitability are
higher than our odds of loss

000 pounds and a 25% chance of
losing nothing. Again, take a

brains are built around fear
and the avoidance of fear as a

are so infatuated with trading.
You know, they really think

what you think the market
should or should not do truth

looks like this. This green
line represents someone's mind

going on here, you know, behind
the scenes of other people who

goes nowhere, right? It just
ranges and it goes sideways.

completely flip around into
resentment and you'll

individually, there will be a
random and unpredictable

at 100% probability of a win
and it goes up on a log scale

know, they think they're
going to quit the job and be a

predict or know in advance the
outcome of each individual

win. And these again are the
polarities of the losing

and naivety are with trading
the bigger that you'll flip

it goes to that level and it
does A and B then I'm going to

0% and they think, I know that
some trades are going to be

unpredictability of the game so
the outcome on each individual

mind is infatuated now
beginners, they tend to lean

irrational doubts and fears
because people tend to bring in

edge are not making money is
due to their risk preference.

involved in a way that makes
them have to be right. They do

and it never will. And then
you'll compare your true

okay then I ask them a second
question would you prefer a

about those options pause the
video if you need to and then

number two you do not need to
know what is going to happen

easily. So, the probability of
a win, they start down here at

do C right so have a plan for
everything you want to get two

we know from the pendulum
diagram before? When someone

called are you destined to fail
and you will know that one of

market or in any given trade.
There are always unknown forces

framework or a mindset that is
consistent with the underlying

the probabilities, their edges,
play themselves out and just

if their edges are good enough
with strict money management

masses. And the bigger that
your misconceptions, fantasies

then down here at these amounts
of trades a month that means

losers but I'm a training god.
I'm going to win most of the

evidence of technical
confluence to make sure that we

filter out trade setups so that
we are left with just high

happen next. They don't place
any special significance,

computers and take those
positions. You know ten to

lose. I'm a trading God. All
the way around to I can never

in line with probability. Now,
naturally, this does come with

we start to think as successful
traders in? Well, let's take a

right? We have no idea what
sequence our winners and losers

Forex which over time pretty
much eventually cancels out, it

enough. However, in trading,
you're not going to only take

take a small number of trades,
you know, just like the coin

option D has a profit
expectancy of minus 7 hundred

moment in this trade anything
can happen and when you accept

you flip your mind and you
think ah I can never win.

to refuse a certain gain of 700
pounds in a one-off trial. Fair

go to sleep that night with the
pain of being in draw down. You

options B and C are actually
mathematically better decisions

your money. So, the hard part
here is retraining your

layer of filters so we're
basically using filters with

a 1% win it's a binary outcome
with the zero skill required

difference of fifty pounds
rapidly adding up, you know, as

right so the Y axis is getting
infinitely bigger so the point

50 quid. Now, although in both
scenarios, the difference is

will have some trades which
form your winning streaks on

at 0% probability of a win and
how many do we find each month

button and you close your eyes
and you just kept randomly

doing this. So you've literally
just gone from I can never

trades in a row which is
obviously completely normal and

loss is 700 pounds is actually
the better decision because as

source experiment, the results
are going to be completely

That means that you are dealing
with an underlying edge of 50

whatsoever so then over on the
Y axis on the left hand side we

focus of our emotional brain,
all risk is a threat to our

of one to one. So if you think
that your probability of

000 loss or with a much smaller
chance of potentially losing

know how to calculate
probabilities and calculate the

few seconds or pause the video
just to decide which one you

that pain. So in both of these
questions the majority of

suffering a certain guaranteed
moderate loss and this is how

triggering of threat
automatically produces a

taking their chances of
potentially losing a bigger 1,

trading. So down here on the
bottom X axis we have the

would rather risk a possible
big loss in preference to

opportunities were allowed for
a fifty-50 probability of

they're going to make millions
and get rich tomorrow. You

way. You can see both
polarities. Here's a truth.

naivety turns into resentment
and skepticism. Why? Cuz you

winning positions because they
can't handle the pain of giving

write down and take note of
your answer of either A or B

It's a process by which we
assign levels of risk so that

back the profit that they can
feel in their hands. They don't

the emotional survival brain is
incapable of distinguishing

trade because you just throw a
dart at dart bold right and you

overcorrect and you'll have a
losing streak of say five

Now another massive factor that
plays a role and why not

Trading is impossible. No one
can make money consistently

you'll get pissed off and
annoyed and you'll start to

the reasons people find it so
difficult to stick to their

objective truth is in the
middle. Find an edge by using

to risk ratio of 1 toone right
and we know that in trading you

in terms of survival and self
preservation. Biologically, our

layers of technical confidence
to reduce the infinite number

bell curve to have a much
higher probability of success.

way anyone can make money in it
it's all the lie I hate it you

different diverging results to
them due to their judgements,

means you think you will win
every single time with a reward

log scale so how many trades
per month do we actually find

through all of those, it makes
a massive difference to your

has gone into naivety when they
have a lopsided perception of

time and they have a scale,
right? Their mind scale that

in just 6 months, you know it's
easy I saw some random guy do

it on Instagram going to have a
Lambo by Christmas right we've

any naive fantasies that you
may have or any of your

all heard these people before
or you know these beliefs sway

psychology and what it means to
trading edge. It's why we

emphasis on and spent time
breaking down trading

and infatuation, so you're
thinking Forex is I'm

can enter a trade at random and
still lock in one to one you

doing this. There's a reason
most people are off the map and

just set the profit target and
the stop loss at an equal

worldwide you know 90% of them
are either green or red they're

can actually lock in a 1 toone
reward to risk at the time of

distance and then you can only
be stopped out for a 1% loss or

the only person who gets rich
in that situation is your

so if you want to take the
whole demographic of traders

look back around to the mind
game. The mind game is the

higher probability of success
that you will have. There's an

a bell curve because even the
best traders in the world they

completely changed and improved
our probability model to one

the roulette wheel, then why
isn't everyone doing it? Why

winning is at 0% then it
obviously means that you think

realistic and empowering you
can keep your beliefs the

probability on our side so then
that when we do this We end up

depending on if you're more of
a day or a swing trader and

master speculators as photon
traders is to find an edge by

trade trade trade every single
minute of every single day

win 50% of the time and you
will lose 50% of the time. You

they're projecting I can never
win then they're skeptics if

towards skepticism and
resentment all the way up to

trading game. And to understand
how successful traders think,

we're going to look at two
mental models to help you think

probability of a winning trade
based on a reward to risk ratio

naive but mastery is in the
middle if you log in to a

know your beliefs sway between
these two polls then naturally

you'll never win a trade and if
you think it's 100%, then that

like a winning and successful
trader. I'm sure we're all

lose 100 trades in a row with a
one to one raw to risk and show

the other end so thinking Forex
is an absolute scam there's no

interesting way of finding out
where someone's mind lies

start to add up rapidly. So,
what our job is, our job as

brokerage account and you know
you hobby a mouse over the buy

full-time trader just a few
weeks or months. You know, and

winning right and you think you
just can't win no matter what

numbers starts to kick in and
it returns to the expected

irrational thinking because
it's just not possible go and

me the data if it was that
consistent then all you would

about trading are balanced,
realistic and empowering, you

skepticism and naivety in
trading for a minute. So

bringing your stuff into the
market. Now if your beliefs

will naturally have the
greatest probability of

reward ratio will be much near
in the middle around 50% and

percent. So, the true
distribution of winners and

the previous lesson you learned
about the two trading profidity

success. However, if these
beliefs sway towards naivety

slight edge and trade it as
consistently as a casino spins

you will compare that to a
naive fantasy where you're

going to win but in truth it
doesn't happen, it never has

point by now, you would be
completely forgiven for

work. It's a scam. You know,
they're completely the other

definitely going to turn my 5K
account into a million pounds

success, right? Now, when
you're trading a market like

trading. It doesn't work. I
tried this and this doesn't

know you're coming along in
naivety thinking you're always

supposed to win all the time or
even most of the time. So

reality because they are naive
you will bang your head against

performance which in reality
with a one to one you know risk

the wall of truth until it
flips around to resentment. So

than you are right and still be
highly profitable and then in

parts of the human mind, the
higher mind and the lower

quite familiar by now with this
diagram representing the two

towards naivety and they tend
to think that they can win very

thinking, if all I have to do
is find a good strategy with a

numbers and realize that the
underlying profit expectancy of

on a scale of how naive they
are about training but what do

masters of the world at
exploiting their slight

any event will play out over a
large number of trials. We've

calculate probability and
profit expectancy. You should

to use the to develop a trading
strategy that has a positive

mathematical edge is and
hopefully now understand how to

four core elements that make up
the edge of a strategy and how

have the number of trade setups
per month right and it's in the

also be familiar with the
concept of the law of large

of doing this exercise remember
is to find out where someone's

outcome of each individual
game. You've also learned the

you will lower your probability
of success the more balanced

between those two polarities of
skepticism and naivety within

entry even if you have no
thought that goes into the

isn't everyone making money
this way? And that's when we

positive edge and how futile it
is trying to predict the

animal mind. So let's talk
about the polarities of

we must first understand how
the majority of traders, the

masses, the losing 90%, we must
and how they think and then

expectancy and we've seen how
you can be wrong far more often

models high strike rate and
high reward to risk so At this

discussed how the casinos make
money over time as they are the

By now, you should have a clear
understanding on what a

light. That is how you become a
photon trader.