Source: Golden Ten Data

How can I stop my mind in trading? Have you reached the point where profits are ignored and losses are ignored, and only whether the operation is correct?

I. Elephants and elephant riders

I thought about this question 10 years ago. I also read many books and materials. One of the better books is “The Elephant and the Elephant Riders.” Jonathan Haidt (Jonathan Haidt) wrote in this book: Half of the human mind is like an unruly elephant, while the other half is like a sane elephant rider.

Elephant levels: body, right brain, irrational, subconscious, automation; level of elephant riding: mind, left brain, rationality, consciousness, control. These two divisive parts cause people to often get caught up in a battle of ideas between reason and irrational. People who ride elephants belong to the controlled part, which is consciousness; elephants belong to the uncontrolled part, which is the subconscious.

We often think we are our own owners and that we have control over our emotions and actions. It's an illusion that people can control themselves for the most part. When the elephant becomes angry, the elephant becomes the owner, and the person riding the elephant cannot control it.

Traders will encounter various market trends, and will always encounter situations where the market is not going well, frequent stop-loss, or even liquidation of positions. Frequent losses cause traders to activate the battle and flight mechanism, that is, animals and elephants begin to be active. This is a physical process and occurs subconsciously. Just like Pavlov's dog, it secretes saliva when it hears a bell. It's a chain. Under the control of furious elephants, humans are animals that act entirely on instincts. This kind of desperate resistance in financial transactions is mostly meaningless; the end result is mostly liquidation and collapse.

Regarding whether the operation is correct, this is only the execution part of a system. In a situation where it is impossible to determine whether the entire system is correct, there is no point in talking about the correctness of execution. In fact, a trader's life is a process of continuous trial and error, and the continuous overthrow of systems one by one, until all systems are overthrown, and losses are about the same, so they realise that it's about the same.

Therefore, the level of transactions also depends on accumulation. It's just addition and subtraction, until it is finally discovered that there are almost no universal systems. All systems have their own loopholes, yet according to Murphy's Law, loopholes are always triggered, and tragedies are unavoidable, and they are bound to happen. Human rationality is the only characteristic of humans being superior to animals. Rationality is riding elephants on humans. The best way to control elephants is not to let elephants get angry. It embodies an ultimate sense of defense and interdiction warfare in trading.

When you're ready to sacrifice a small portion of your capital to keep your capital safe, your emotions are relatively manageable, and elephants don't get angry easily. The position at this time is not a stop loss in the usual sense, but a kind of sacrifice. It is not a loss in the usual sense, but a heroic act with a sense of justice. If you replace a sense of humiliation with a sense of heroism, you won't get angry easily. You may also be proud, chic, and at ease.

II. The meaning of having a heart that stops water

What is the point of staying in the heart? My slightly deductive question ignores profit and loss and only cares about whether the operation is correct, so please ask, what is your purpose? Isn't trading just about trying to make a stable profit? You ignore profit and loss, but only focus on whether each trade is executed according to plan. What if the more you execute, the more you lose? Do you still want to stop ignoring profit and loss and carry on with execution? This is also a problem that has arisen with investors in my contacts with many investors. I always feel like I need to have a good mindset. If I don't treat money as money, then I can only win money, and I'm not good at telling people in person. Actually, this isn't necessarily true, because even if you do that, you may still lose money.

There is another copy of this type of investor. That is, people who seek to find out the bottom from the top. What is the purpose of finding the bottom? Isn't it just for profit? So you've always sought to find out the bottom. If you can't make a profit, do you still pursue it? What surprised me as a result was that many people were still immersed in one or two victories to get to the bottom and forgot the fact that they lost money overall. This is simply the same as investors who stop thinking about the title, ignore profit and loss, and only care about implementation.

If you use turtle trading to break through a 20-day high and open a long time, you can make a profit if you do it for a long time. However, if you use a turtle trade to break through a high of 20, then you open a hole; if you continue to do so for a long time, you guarantee losses. Following the principle of putting an end to one's heart, ignoring profit and loss, and a high degree of execution, breaking through the high on the 20th to open the sky, the results have always been a loss. What is the point of you persevering?

I'm not denying the importance of execution; I can say unequivocally that execution is important. But it's not the deciding factor; the deciding factor is strategy, not execution. Strategy is the foundation; without strategy, you have the power to execute, and it's useless. However, with regard to how to stop thinking like water, ignore profit and loss, and implement a high level of execution, there are currently two common practices. First, quantify the trading strategy, run it through a computer, and let the computer execute it at a high level. Second, order placement, risk control, and decision-making are carried out by three people separately, so as to avoid the emotional risk of one person trading.

3. Subtle mentality

This question is very interesting. As a technical and ideological question, I actually prefer to talk about this kind of mentality problem, because mentality is a very delicate thing. Human nature is a wonderful combination of reason and sensibility. This is something that everyone must be clear about. I hope to remove emotion and embrace reason is the goal that many people pursue, but what you need to know is that these two themselves are equivalent to two sides of the same coin, and I prefer to be close to my own kind of humanity. Once you really understand it, you can only control it.

Therefore, in my opinion, the most powerful thing is that people can control their own emotions. People who don't make decisions based on their emotions at any time can actually understand human nature. I have met some talented people like this in real life. In fact, this kind of skill can be obtained through training, and the same is true of trading. Just like I answered before, how to control your trading frequency and how to trade not because of emotions, all require constant understanding and training.

Why is trading difficult? Because the industry is closer to humanity and emotions, most people cannot profit and cannot control losses. The root cause is that emotions follow accounts and follow the market. If you stop controlling your own personality, the probability of success is minimal.

I don't think it's possible to actually stop a deal from the heart. So, is it necessary to stop trading? In my opinion, there is no need, because human nature cares about changes in the net value of the account, whether the transaction is reasonable, and looking for erroneous transactions and summarizing them. This itself requires your full attention, yet when you don't care about transactions anymore, in my opinion, there is actually no need to trade anymore.

When you don't care about one thing, what is the probability of doing it right!! When you focus deeply, you may have made the mistake of paying too much attention and not paying attention, then you have made the mistake of deliberately not paying attention. This is a philosophical question. When you think and have desire, it is normal to be free; how is it normal, or is still inseparable from the word “control,” so the ultimate destination of the transaction is to seek a level of “freedom.” That is, you will have a normal human reaction to all kinds of events that may affect your mood during the transaction, yet you can achieve the right thing through continuous training to make yourself do the right thing.

IV. How to view profit and loss

So how should we view the profit and loss in the transaction, we only care about whether the operation is in the right context. A few key words, “training,” “principles,” “persistence,” and “continuous replication.” You need to know that every aspect of the transaction, or in other words, every problem in the transaction that may affect the mood of the transaction can all be achieved through training to achieve the goal of reasonable control. This can definitely be achieved.

Training is strengthening all trading links. At the same time, training itself is a kind of training. Practice is not just about trading skills; at the same time, it is also training the movement itself. What is the method of training? The first step is to establish principles. Principles are a fundamental truth that forms the foundation of all trading behavior. Principles enable people to achieve goals in transactions through actions.

Every day, the market experiences all kinds of fluctuations. There are three structures of market fluctuations. However, what form of rise and when are these all unknown. If there are no principles, you will only be forced to respond in isolation to all kinds of unpredictable situations you may encounter in trading, just as if you had experienced this situation for the first time. However, if you can classify different situations in the market and have the ability to handle different market conditions, I believe it is only a matter of time before you trade well, look down on profit and loss, embrace principles, and make the right decisions.

With this awareness, you need to establish the most basic principles for every aspect of your trading system. For example, limit daily losses to less than 1%, weekly losses to less than 5%, and reduce your position volume by half after 8% of account losses. This is a basic risk control principle. Of course, in my subsequent transactions, I discovered that this risk control method did not work well, but this is how I limited my losses in the early stages. This is the simplest principle. Just ask how many people can do it. When you lose money continuously, can you really control your own hands and not trade because of emotion.

Similarly, as the framework becomes more mature, then there will be more and more principles. For example, for each product, the number of transactions should not exceed 5 times per month. This is also a basic principle. Can it be done? Whether it's less than five times is not important. What matters is whether you can actually stop; it doesn't matter; what matters is whether you can actually feel the kind of emotional inducement you can't stop, so what really matters in the process of implementing the principles is not that you can actually control it, but whether you actually feel human nature, and you can understand your own humanity before you can formulate principles to overcome your own arbitrariness. Reading this passage carefully will help you.

The above is the first stage. For those who have not experienced training, some basic frameworks are needed to get close to the training itself. What kind of training content is not important; it is most important to start first. Because your understanding of the market is limited at this time, many principles will be constantly revised and adapted, but the act of formulating principles and training yourself to implement them is very important.

When you gradually implement the principles and implement the principles, in this process, as you deepen your understanding of the market and yourself, you can gradually formulate the principles that suit you. This is a process of learning and self-transformation. Of course, the process is certainly not as simple as I said a few words. This process is tedious and painful. Because of human nature, no one wants to be controlled to do one thing, but only if you actually have this process can you embrace true freedom in the near future.

This process involves several steps. The first is to establish some basic principles, then keep failing, continue to learn from yourself, improve your principles, and secondly, keep getting close to 100% execution. You need to know that true 100% execution is rare. Because there are variables in the system, being able to execute to 80% is already very successful. Then by strengthening execution and improving your skills and mentality, you can form more efficient and effective trading principles, that is, improve your trading skills. You will gradually improve your trading skills. While you are gradually doing the right things, you won't have that much energy to care about profit and loss.

If you want to talk a little more about what is the right thing to do, the initial principles are not necessarily correct, but through the process of continuous implementation of principles, continuous self-learning, continuous improvement, and continuous reshaping of principles, you will form more efficient principles. This more efficient principle is the right thing you need to do, so it becomes clear whether you are doing it or not. I believe this framework can not only guide transactions. In my opinion, this is a kind of systematic thinking for me to improve myself at any time, and it is applicable to all times.

The process of self-learning and reshaping principles allows you to leap from the level of “you think you're right” to “how do you know you're right”, so there's no end to the goals you pursue. It's not like you can succeed when you do what you think is right. In this process, you will constantly optimize your principles and your trading framework to achieve higher goals, so stable profit is not the ultimate goal.

When you actually stabilize profits, you will have higher goals. If you want to maintain a stable profit state, you must have this process of continuous crushing, continuous restructuring, and continuous improvement. So why do the best traders spend a lot of time every day summarizing and revising their trades to find problems? I think it's not just principles that can keep you profitable at all times; it's more about your continuous improvement and getting to know your new self.

5. The transaction process

Next, let's start talking about what aspects need to be paid attention to in the transaction. Still starting from the trading system, there are not many links, but generally just a few points:

1. Criteria for defining market conditions

2. Time-specific choices

3. Grasping entry points and exit points

4. Stop loss control

5. Risk control system

6. Position management

7. Mindset control

Basically, these are the above seven points, but every step requires a large number of principles to be bound. How do these principles come from, firstly, your understanding of yourself based on your understanding of the market, and our understanding of these two parts is often limited because “how do you know you are right”, which requires continuous learning.

However, to begin this work, you must first establish basic principles based on your current perceptions, let this matter begin, and then gradually implement new standards and eliminate some of the original standards through implementation, restraint, control, and a deep understanding of the market. To be precise, it is not elimination, but upgrading.

As this process continues to deepen, you will find that many of the principles you originally formulated, which shows that these are some core things, and also some things that have the correct probability, so if you deepen it and stick to it, a clear framework will come out.

edit/lambor