Importance of Technical Analysis, Strategy, and Trading Psychology

In this section, the speaker discusses the importance of technical analysis, strategy development, and trading psychology in trading.

Focus on Technicals and Strategy Development

• At the start of your trading journey, it is important to focus on technical analysis and developing a proven profitable strategy.

• Having a strong strategy is crucial for making money in trading.

Trading Psychology as a Key Factor

• As traders progress and aim to scale up their trades and capital, they realize that psychology plays a significant role.

• Approximately 80-90% of success in trading is attributed to psychology.

• Many regulated retail brokers display statistics showing that around 75% of traders are losing.

Understanding Losing Trades

• A study conducted by FXCM revealed that 62% of trades were winning trades.

• However, the average gain from winning trades was only 48 pips, while losing trades resulted in an average loss of 82 pips.

• Losing trades tend to be significantly larger than winning trades, leading to negative profit expectancy over time.

Psychological Errors in Trading

This section focuses on common psychological errors made by traders that hinder long-term profitability.

Moving Stop Losses to Break Even

• One common mistake is moving stop losses to break even when it's not part of the trader's rules or strategy.

• Traders do this out of fear or wanting to eliminate potential risk.

• However, it often leads to being stopped out at breakeven before the market moves in their favor.

Common Mistakes Driven by Avoiding Pain

• Traders make various mistakes driven by avoiding pain:

• Taking low probability or invalid trades due to fear of missing out on potential profits.

• Not executing another trade after a winning trade because they don't want to give back profits.

• Taking profits too early to avoid potential losses.

• Increasing position size after a loss to recover quickly.

Understanding the Psychological Factors

This section delves into the psychological factors behind common trading mistakes and their impact on traders.

The Subconscious Fear of Losing Money

• Traders often break their rules or make mistakes due to a subconscious fear of losing money.

• Moving stop losses, taking low probability trades, not executing trades, and taking profits too early are all driven by this fear.

Biological and Psychological Influences

• Our brains have remained largely unchanged for 200,000 years, still operating with the same fight-or-flight response as our Paleolithic ancestors.

• This immediate return environment was conducive to survival but doesn't align well with the delayed return environment of modern trading.

Overcoming Trading Mistakes

In this section, the speaker discusses how traders can prevent or reduce common trading mistakes caused by psychological factors.

Acknowledging It's Not Your Fault

• Traders should understand that there is nothing inherently wrong with them when they make these mistakes.

• Our brains are wired in a way that prioritizes avoiding pain and seeking immediate rewards.

Preventing Future Mistakes

• To prevent or reduce trading mistakes caused by psychology:

• Gain awareness of your own psychological biases and tendencies.

• Develop discipline and stick to your trading rules consistently.

• Implement risk management strategies to control emotions during trades.

Speaker Introduction

The speaker introduces themselves and provides background information about their expertise in trading.

About the Speaker

• The speaker is M. Dony, the founder of Photon Trading.

• Photon Trading helps traders acquire funding and achieve long-term profitability using mechanical strategies.

The Challenge of Trading with Risk

This section discusses the difficulty of trading when real risk is involved and how our primitive survival instincts can hinder decision-making.

The Influence of Primitive Survival Instincts

• When real risk is on the table, such as trading with high capital or going for funding, it becomes harder to make the right decisions.

• Our primitive survival instincts take over during stressful moments, making it extremely difficult to make rational choices.

• Our brains are wired to want to win and survive at all costs, which served an evolutionary advantage in the past but can be detrimental in trading.

Short-Term Orientation vs. Long-Term Perspective

• Our brains struggle with taking a long-term perspective when faced with immediate risk and uncertainty.

• Emotional responses kick in when experiencing losing trades, leading to irrational decision-making.

• Market uncertainty and potential losses are perceived as biological threats by our caveman brains.

Emotional Hijacking and Mistakes

• When emotions run high, our decision-making abilities decrease, leading to illogical actions.

• Classic mistakes include closing trades too early or avoiding trades altogether due to fear of loss.

• Our subconscious desire to avoid pain influences these actions.

Overcoming Emotional Biases in Trading

This section explores the importance of overcoming emotional biases in trading and adopting a successful mindset.

The Desire for Winning and Being Right

• From a young age, we are conditioned to believe that winning and being right are rewarded.

• However, bringing this mindset into trading can be detrimental as it creates unrealistic expectations.

Embracing Uncertainty and Risk

• Successful trading requires being comfortable with uncertainty, risk, and accepting losses as part of the process.

• A probabilistic environment necessitates focusing on long-term profitability rather than short-term wins.

Making Money in the Long Run

• The ultimate goal in trading is to make money consistently over the long run.

• Profitability should be prioritized over the need to always win or be right.

Trading as a Business

This section emphasizes treating trading as a business and focusing on profitability.

Conventional Business vs. Trading

• In a conventional business, the goal is to make more sales than costs and achieve net profit.

• Similarly, in trading, the focus should be on making money in the long run rather than individual trades.

Importance of Profitability

• Profitability is the key metric in trading success.

• It is crucial to prioritize making money over winning every trade or being right all the time.

Shifting Mindset for Success

• Adopting a successful trading mindset requires letting go of the need for constant validation and embracing uncertainty.

• Viewing trading as a business helps shift focus towards profitability and long-term success.

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The Problem with the Brain on Uncertainty

This section discusses how our brains, as emotional beings, struggle with uncertainty and the desire for control. It introduces the amygdala as our emotional center and the neocortex as our thinking brain.

Understanding Our Emotional and Thinking Brains

• The amygdala is our lower-minded animal brain that seeks pleasure and avoids pain.

• The neocortex is responsible for self-governance, strategic thought, and execution.

• When stressed or trading, information is processed by the amygdala first, leading to impulsive decisions before logical thinking.

Regulating Emotions for Profitable Trading

• Traders need to regulate emotions that occur in the amygdala to allow logical decision-making in the neocortex.

• The brain cannot differentiate between true biological threats and psychological discomfort from risk.

• Untrained brains automatically produce fear responses even in non-life-threatening situations like trading losses.

Understanding Our Animal Minds: Diagram of Higher Animal Mind vs Lower Animal Mind

This section presents a diagram illustrating the higher animal mind (neocortex) at the top and the lower animal mind (amygdala) at the bottom. It explains how emotions can lead to polarizing behaviors.

Higher Animal Mind vs Lower Animal Mind

• The higher animal mind represents objective truth, while the lower animal mind represents primitive instincts.

• Positive charges represent elation and happiness, while negative charges represent fear and avoidance.

• Chasing only positive emotions leads to imbalance and eventual snapback towards negative emotions.

Light Particles, Charges, and Emotional States

This section explores light particles (photons), charges, and their relation to emotional states. It discusses how chasing elation without balance can lead to negative emotions.

Light Particles and Charges

• Photons (light particles) have no time, space, charge, or mass.

• When photons collide, they split into charged particles with mass, space, time, and charge.

• Emotional people are often referred to as "charged" individuals.

Chasing Elation and Imbalance

• Chasing only positive emotions leads to imbalance and eventual snapback towards negative emotions.

• Optimism and pessimism, pleasure and pain, greed and fear are polarizing emotions in trading.

• The more one sways away from balance, the stronger the snapback effect will be.

The Masses Chasing Pleasure and Avoiding Pain

This section discusses how the masses tend to chase pleasure while avoiding pain in trading. It emphasizes the importance of finding balance for long-term success.

Newton's Third Law: Equal and Opposite Reaction

• For every reaction, there is an equal and opposite reaction.

• The more one sways away from balance towards chasing pleasure or avoiding pain, the stronger the opposite reaction will be.

• Those who constantly chase elation may struggle with depression when they eventually snap back towards negative emotions.

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Understanding the Diagram and Low Vibrations

The diagram is structured like a triangle, representing a pendulum swinging between positive and negative poles. This represents low vibrations. As traders, our goal is to stop swinging between these poles and see things objectively without being blinded by emotions.

The Purpose of the Diagram

• The diagram represents a pendulum swinging between positive and negative poles.

• It symbolizes low vibrations in trading.

• Traders should aim to stop swinging between extremes and see things objectively.

Evolving Towards Higher Frequencies

• By staying centered and not chasing extremes, the pendulum swing becomes smaller.

• This leads to higher frequencies or vibrations in trading.

• Evolution as traders is towards the light, which means seeing things objectively.

Objective Viewpoint for Success

• Successful traders can see things objectively without being influenced by emotions.

• They are part of the top percentage of traders who can achieve this objective viewpoint.

Overcoming Emotional Biases

To become successful traders, we need to overcome emotional biases that hinder objective decision-making. Journaling trades after emotions have subsided helps us analyze mistakes objectively.

Analyzing Trades Objectively

• Emotions cloud judgment during trades, leading to rule-breaking or impulsive decisions.

• Journaling trades after emotions have subsided allows for objective analysis.

• We can identify missed opportunities or negative/positive confluences that were overlooked due to emotional attachment.

Emotional Influence on Trading Decisions

• When in a trade going against us, our brain focuses on reasons to exit rather than objective truth.

• Our middle brain tries to protect us from pain by avoiding risk.

• Emotional biases can lead to poor decision-making based on fear or excitement.

Balancing Positive and Negative Reactions

Balancing positive and negative reactions is crucial for maintaining a consistent mindset in trading. Emphasizing one side too much leads to swings in the opposite direction.

Chasing Positive or Negative Outcomes

• Chasing positive outcomes after a winning trade can lead to exaggerated excitement.

• This makes subsequent losing trades feel even more painful.

• The more we chase one extreme, the stronger the swing towards the opposite extreme.

Practicing Emotional Regulation

• A helpful exercise is to regulate emotions after both winning and losing trades.

• Focus on following rules consistently without emotional attachment to outcomes.

• Strive for a balanced mindset regardless of whether the trade was a win or loss.

Strategies for Staying Centered

To evolve as traders, we need strategies to stay centered, calm, and balanced. Developing mechanical trade plans and rewiring our brains are two approaches.

Short-Term Solution: Mechanical Trade Plans

• Building a mechanical strategy with clear rules helps reduce emotional decision-making.

• Mechanical trade plans provide specific actions for every scenario in trading.

• Backtesting or forward testing these plans helps prove their effectiveness.

Long-Term Solution: Rewiring Our Brains

• We need to retrain our brains to handle risk and uncertainty in trading.

• Becoming the designer of our minds allows us to overcome flight or fight responses.

• Rewiring our brains involves making long-term decisions based on probabilities and being comfortable with risk.

Benefits of Mechanical Trade Plans

Mechanical trade plans offer benefits such as consistency, scalability, and sustainable growth. Photon Trading provides traders with ready-made mechanical trade plans.

Consistency through Mechanical Trade Plans

• Following a mechanical trade plan ensures consistent actions in the market.

• Consistent actions lead to consistent results over time.

Scalability and Sustainable Growth

• Having proven mechanical trade plans allows traders to scale their accounts.

• Sustainable growth is possible by relying on a reliable and consistent method.

Photon Trading's Approach

• Photon Trading offers ready-made mechanical trade plans for day and swing trading strategies.

• Traders receive assistance in implementing the plans and collecting data to prove their effectiveness.

Overview of the Course

The course is designed to cover all aspects of trading, even for beginners. It includes teaching and sharing strategies, daily session recaps, analysis, and a supportive community on Discord.

Course Content

• The course consists of over 148 in-depth lessons covering various topics related to trading.

• Daily session recaps are provided for three pairs, offering detailed analysis and insights.

• The community on Discord provides a platform for asking questions and receiving mentorship.

• Additional resources include trade recaps, backtests, live meetups, and various channels for different trading approaches.

Finding the Sweet Spot in Trading Strategies

Trading strategies can range from completely discretionary to 100% mechanical. The ideal approach lies around 70-80% mechanical with some room for human discretion. This allows traders to leverage their intuition and experience while still benefiting from a systematic approach.

Balancing Discretion and Mechanical Rules

• Completely discretionary strategies lack rules and structure.

• 100% mechanical strategies rely solely on algorithms without any human involvement.

• A sweet spot exists around 70-80% mechanical where traders have room for discretion based on their expertise.

• Human discretion can provide an edge over purely algorithmic approaches by considering multiple variables.

Rewiring the Brain for Successful Trading

Traders need to rewire their brains to effectively manage emotions and uncertainty in the market. Neuroplasticity allows the brain to reorganize itself both structurally and functionally. By becoming the designer of our minds, we can engage with market uncertainty without letting primitive fight-or-flight responses take over.

Embracing Uncertainty through Mindset Shift

• Rewiring the brain may sound abstract but is supported by scientific evidence of neuroplasticity.

• Traders should aim to become the designers of their minds, embracing market uncertainty instead of trying to control outcomes.

• Letting go of the need to win and focusing on performance allows traders to approach trading with discipline, impartiality, and patience.

• Managing emotions and choosing thoughts that align with long-term vision are crucial for successful trading.

The Importance of Mindset in Trading

A trader's mindset is comparable to a surfer riding waves. Instead of fighting or predicting market movements, traders should adapt to whatever price action the market presents. Successful trading requires a profitable strategy, proper risk management, and a disciplined mindset.

Three Pillars of Successful Trading

• Profitable strategy: Having a well-defined and tested trading strategy is essential.

• Risk management: Implementing appropriate risk management techniques ensures longevity in trading.

• Mindset: A disciplined mindset allows traders to stick to their rules and manage emotions effectively.

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New Section Understanding Price Action and Mindset in Trading

In this section, the speaker discusses the importance of understanding price action and mindset in trading. They emphasize the need to avoid biases and go with the flow of price action, considering it as order flow. The correct mindset is paramount for successful trading.

Importance of Correct Thinking

• Understanding price action as order flow helps in avoiding biases and going with the flow.

• Having the correct mindset is crucial for successful trading.

• Emotional attachment to biases can hinder profitable decision-making.

Influences and Resources

• The speaker was inspired by Tom Hugard, Hermetic principles, John D Martini, Leis Mocka, and Randy Howell.

• Encourages further exploration of these resources for a deeper understanding.

Understanding Mistakes

• It is important to understand why we make mistakes in trading.

• Taking responsibility for our actions requires understanding the reasons behind our mistakes.

• Knowing what needs improvement allows us to work on becoming better traders.

Regulating Emotions

• Controlling emotions is essential for making long-term decisions conducive to profitable trading.

• Developing a mindset that regulates emotions is a long-term goal while having a profitable strategy serves as a short-term fix.

• Systemizing and mechanizing trading rules can help create a profitable strategy.

Personal Journey

• The speaker has combined influences from various sources into their own philosophy applied to trading.

• Acknowledges that not everyone may resonate with their approach but invites feedback from viewers.

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