Mark Douglas: Seminar on Trading Psychology - Part 1 of 10

Summary

In this insightful presentation, the speaker reflects on his experience in trading and coaching, highlighting the significant gap in understanding between novice and professional traders. He discusses the challenges of writing a third book aimed at beginners, emphasizing the need to simplify complex trading concepts and psychology to help new traders develop a successful mindset. The talk delves into the importance of mental state in trading, using sports analogies to illustrate how confidence and focus can impact performance, and stresses the need for traders to be in a balanced state of mind to achieve consistent success.

Takeaways

• 📚 The speaker is writing a third book to address the needs of novice traders, which the previous two books did not fully cover.
• 🤔 The speaker emphasizes the importance of understanding that trading is not about winning each individual trade, but rather having an overall edge in a series of trades.
• 🧐 The audience is reminded that successful trading requires a shift in mindset and beliefs about market trading, including becoming detached from the outcomes of individual trades.
• 📉 The speaker highlights the difference between mechanical and discretionary trading, noting that the latter requires a high level of mental and emotional control.
• 🤯 The difficulty of the trading business is underscored by the fact that many people, even after reading the speaker's previous books, struggle to implement the concepts.
• 📈 The concept of a 'threshold of consistency' is introduced, which traders must cross to achieve a consistently rising equity curve.
• 💡 The speaker discusses the realization that their previous assumptions about their audience's understanding were incorrect, leading to a more detailed explanation in the new book.
• 📝 The importance of doing exercises that challenge and change one's mindset is stressed, as it is a critical part of the learning process for trading.
• 😐 The speaker points out that the mindset required for trading is very different from other professions, where being detached from outcomes is not typical.
• 🏀 An analogy is made to sports, illustrating how even with perfect physical skills, the mental state can greatly affect performance under pressure.
• 🧘‍♂️ The need for traders to be in an optimal mental state, neither too confident nor fearful, is highlighted as crucial for consistent success in trading.

Q & A

Why is the speaker planning to write a third book after 'The Disciplined Trader' and 'Trading in the Zone'?

The speaker plans to write a third book because they realized the existing books did not address the issues in a way that novice traders could relate to. They felt the need to write from the perspective of someone who doesn't know anything about trading to help beginners understand the concepts better.

What was the speaker's experience like when they attended a user group meeting in the Phoenix area?

The speaker was surprised by the enthusiasm of the attendees towards the company and its products, but also by their lack of understanding of trading. This experience motivated the speaker to write a book for people who are new to trading and might not fully grasp the concepts.

What is the main challenge the speaker faced while writing the new book?

The main challenge was breaking down complex trading concepts to a core level that someone new to the business could understand, without making assumptions based on their own experiences and expertise.

Why did the speaker feel that 'The Disciplined Trader' and 'Trading in the Zone' were not suitable for novice traders?

The speaker felt that these books made many assumptions based on their own experiences and did not explain the concepts in a way that beginners could easily understand and relate to.

What is the 'threshold of consistency' the speaker refers to?

The 'threshold of consistency' is a mental state or mindset that traders need to break through to achieve a consistently rising equity curve and ensure a steady income from trading.

How does the speaker describe the difference between mechanical and discretionary trading?

Mechanical trading involves rigid entry and exit rules that the market must conform to, while discretionary trading allows the trader to make decisions based on various information and their mental state, requiring a higher level of mental skill and awareness.

What is the importance of a trader's state of mind according to the speaker?

A trader's state of mind is crucial because it affects their decision-making, confidence, and ability to execute trades successfully. It influences the selection of information, trade location, size, stop, and profit objective.

What is the analogy the speaker uses to explain the impact of state of mind on performance?

The speaker uses the analogy of a basketball player taking crucial free throws in a championship game, where the player's state of mind can determine whether they make the shots or choke under pressure.

Why did the speaker find it challenging to teach trading concepts to novices?

The speaker found it challenging because teaching requires breaking through one's own assumptions and explaining concepts in a way that beginners can assimilate, which is a different process from learning to trade oneself.

What was the speaker's realization about the effectiveness of their previous books?

The speaker realized that despite their efforts, the readers of their previous books were not able to effectively assimilate and apply the concepts, especially the exercise in 'Trading in the Zone,' which led to the decision to write a new book.

How does the speaker emphasize the difference in mindset required for trading compared to other professions?

The speaker contrasts trading with professions like law, medicine, and engineering, where being detached from outcomes is not an option, whereas successful trading requires a detached mindset from individual trade outcomes.

Outlines

00:00

📚 Returning to Writing After a Hiatus

The speaker begins by acknowledging their return to public speaking after a three-year hiatus, with their last appearance being in 2012 for John in Chicago. They express potential apprehension about the time it might take to get through their presentation. The speaker then addresses rumors about writing a third book, following the success of 'The Discipline Trader' and 'Trading in the Zone'. They explain their motivation for writing the new book stems from an encounter at a trading conference in Texas, where they discovered a gap in understanding among novice traders. This experience prompted the speaker to consider writing a book that would cater to those new to the trading world, unlike their previous works which assumed a level of experience and understanding.

05:01

🎯 The Challenge of Educating Novice Traders

The speaker delves into the realization that their previous books may not have resonated with novice traders as they had assumed. They recount attending a user group meeting in Phoenix, where they were struck by the enthusiasm for a company's product and the stark lack of understanding among attendees about trading. The speaker reflects on their coaching experience, which primarily involved professional traders who already grasped the psychological aspects of trading. This contrast highlighted the need for a new book that could bridge the gap for beginners, addressing the fundamental misunderstandings and lack of awareness about the nature of trading and price movements.

10:05

🧘‍♂️ The Importance of Detachment in Trading

The speaker emphasizes the necessity for traders to be detached from the outcomes of their trades, contrasting this with other professions where attachment to outcomes is crucial. They discuss the difficulty of achieving this mindset, especially for those new to trading. The speaker also touches on the common misconception that traders are inherently risk-takers, pointing out the irony in traders' efforts to eliminate risk through analysis. They stress the importance of understanding probabilities and having faith in one's trading system to provide an edge over time, rather than expecting each individual trade to be a success.

15:09

📈 The Struggle to Convey Trading Concepts

The speaker shares the challenges they faced in writing their new book, which aims to teach trading from a ground-up perspective. They reflect on the difficulty of breaking down complex trading concepts into understandable parts for beginners, without making assumptions about their readers' prior knowledge. The speaker also discusses the difference between teaching trading and being a successful trader, noting that these are distinct skills. They express the complexity of their task, especially in light of their own biases and experiences, and the impact this has had on their personal life.

20:11

🤔 The Disconnect Between Reading and Practicing

The speaker recounts their surprise at the lack of engagement with the exercises from their previous book 'Trading in the Zone'. Despite conducting presentations and expecting readers to apply the teachings, they found that few actually carried out the exercises. This led to a realization that they needed to provide more detailed guidance in their new book. The speaker also introduces the concept of trading in a subjective or discretionary mode, as opposed to mechanical trading, highlighting the importance of mental state and psychological skills in achieving success in trading.

🏆 The Impact of Mental State on Performance

In the final paragraph, the speaker uses the analogy of a basketball player in a high-pressure situation to illustrate the impact of mental state on performance. They explain how confidence, fear, and other emotional states can influence the outcome of a trade or a sports event. The speaker emphasizes the importance of maintaining an optimal mental state for successful trading, suggesting that traders must be aware of their emotional continuum and adjust their trading strategies accordingly to ensure the best possible results.

Keywords

💡Trading Psychology

Trading Psychology refers to the mental and emotional factors that influence a trader's behavior in the market. It is central to the video's theme as the speaker emphasizes the importance of a trader's mindset over their technical skills. The speaker discusses how professional traders understand the impact of psychology on their trading results, contrasting it with novice traders who may not yet appreciate this aspect.

💡Risk Management

Risk Management is the process of identifying, evaluating, and controlling risk in trading. The speaker mentions that while trading is inherently risky, the goal is not to eliminate risk but to manage it effectively. This concept is illustrated through the speaker's discussion of how traders often misunderstand the nature of risk and the need to accept it as part of the trading process.

💡Probability

Probability in trading refers to the likelihood of a particular outcome occurring. The speaker stresses the importance of understanding and accepting the probabilistic nature of trading, where no trade is guaranteed to be a winner. This is a key concept in developing a successful trading strategy and mindset.

💡Edge

An 'Edge' in trading is a slight advantage that a trader has over the market, often derived from a trading system or strategy. The speaker explains that a good trading system provides an edge by offering a higher probability of success over a series of trades, but it does not ensure success in any single trade.

💡Discipline

Discipline in the context of the video refers to the consistent application of trading rules and strategies, regardless of emotions or external factors. The speaker discusses the importance of discipline in achieving a consistently rising equity curve and ensuring a steady income from trading.

💡Threshold of Consistency

The 'Threshold of Consistency' is a mental milestone that traders must cross to achieve consistent profitability. The speaker explains that breaking through this threshold involves adopting a certain mindset and letting go of the need for each individual trade to be successful.

💡Detachment

Detachment in trading means being emotionally unattached to the outcomes of trades. The speaker argues that successful trading requires a level of detachment, as being overly attached to the results can lead to poor decision-making and emotional trading.

💡State of Mind

State of Mind refers to the psychological state in which a trader operates. The speaker discusses the impact of a trader's state of mind on their trading decisions and outcomes, emphasizing the need for a calm and focused mindset to make rational trading choices.

💡Technical Analysis

Technical Analysis is the study of historical market data, primarily price and volume, to predict future market trends. While the speaker does not delve deeply into technical analysis, it is implied as part of the overall trading process, where traders use various tools and indicators to inform their decisions.

💡Mental State Continuum

The 'Mental State Continuum' is a concept introduced by the speaker to describe the range of emotional states a trader can experience, from confidence to fear. Understanding one's position on this continuum is crucial for adjusting trading behavior and managing emotions effectively.

💡Exercise in 'Trading in the Zone'

The 'Exercise in 'Trading in the Zone'' is a specific activity from the speaker's previous book aimed at helping traders develop the right mindset. The speaker reflects on the difficulty readers had in engaging with this exercise, indicating a need for clearer guidance and a deeper understanding of the process.

Highlights

Speaker's return to presenting after a three-year hiatus and the pressure to perform well.

Announcement of a third book, prompting questions about the necessity after 'Trading in the Zone'.

The revelation of the speaker's motivation for writing源于 attending a trading conference and witnessing unethical practices in the industry.

Description of the user group experience in Phoenix, where the speaker observed enthusiasm but also a lack of knowledge among attendees.

The speaker's realization of the need to write a book for novice traders who are not yet professionals.

The speaker's past coaching experience with professional traders and the unique challenges faced by this group.

The distinction between the speaker's previous books and the new book aimed at beginners.

The importance of understanding the nature of price movement and the need for a paradigm shift in thinking for successful trading.

The misconception that traders are inherently risk-takers and the need to challenge this belief.

The concept of trading systems providing an edge based on probabilities rather than guarantees of success.

The necessity for traders to be detached from the outcomes of individual trades to achieve long-term success.

The speaker's personal struggle with writing the new book and the difficulty of breaking down complex concepts for beginners.

The challenge of teaching trading skills versus doing it personally and the disconnect between the two.

The importance of psychological skills in trading and how they differ from physical skills.

The analogy of a basketball player's state of mind during a high-pressure free throw to illustrate the impact of mental state on performance.

The concept of the 'threshold of consistency' and the mental shift required to achieve a consistently rising equity curve.

The speaker's reflections on the difficulty of teaching and the importance of understanding the audience's mindset.

The emphasis on the importance of traders being in the right mental state and the impact of emotions on trading decisions.

Transcripts

Hi everybody, good morning. Now that,  uh, John's put the pressure on, uh,  

that this is supposed to be held, um, bear with  me. Because I haven't done one of these in three  

years. As a matter of fact, the last one I did  was for John in April in Chicago in 2012. So,  

uh, it might take me so long to get going,  so hopefully, it'll be done. But anyway, um,  

I like the way I want to start out. It's, uh, by  answering a question that a lot of you guys – not  

a lot – but a few people I've talked to yesterday,  and um, and a few people I talked to last night,  

were asking me that, uh, I'm writing a third  book. And I guess I should ask you first:  

have a lot of you read "Trading in the Zone" with  this one Trader? And so you're probably wondering,  

"Well, why am I writing a third book,  right? Would that something come to  

your mind?" Okay, like, why am I doing that?  Well, okay, here's the reason why I'm doing it.

Um, about, uh, eight years ago, I was asked to,  um, speak at a trading conference that was going  

to be quite large. It would be about five or  six thousand people were expected to attend the  

conference. It was going to be in Texas. And uh,  you know, a few people have been in this business  

for a while; you'll know that there's a lot of  people that, um, just aren't that ethical. I mean,  

there's a lot of ways that people can  be taken advantage of in this business,  

and there's a lot of people that understand  that. A lot of people that exploit people who  

want to become traders. And so, as a result, they  didn't want to be associated with somebody or an  

organization that fell into that category. And I  asked them too. And I know they had user groups  

all over the country. And so I asked them if  I could, uh, attend some of their user group  

meetings to see just how well they lived up to  their claims of customer service and the kind  

of products that they offer. And so they had a  pretty substantial user group in the Phoenix area,  

and um, and I attended. There were probably a  little over 100 people, maybe 110-120 people,  

and uh, I was just kind of taken back. One, I  mean, by everyone was really enthused with this  

company. They really loved the product. They love  the customer service that they're providing. But  

the other thing I was taken back by was just  how absolutely, totally clueless they were.

And um, because I was, I was used to working, I  started coaching in, uh, really around 1982 or  

1983. And most of the people that I've worked  with were, uh, like floor traders, you know,  

the Chicago Board of Trade, Chicago Market Deal  Exchange, and then later on, a lot of hedge fund  

managers and uh, people who fell into the category  of what I call professional traders. I mean,  

people who are die-hard traders. And so  basically, my coaching client fell kind  

of into two broad categories with nobody in  between. And that I had the professionals,  

people who'd been in the business for a long time,  and they understood just based on their experience  

the importance of their state of mind and their  psychology played on their results. So there  

wasn't any convincing them, you know, that this is  the direction they needed to go. And then at the  

other end of the extreme was the person who had  been in the business for probably quite a while,  

lost usually a lot of money, lost their account  several times, and they're at the point of what  

I call total and complete exasperation.  Where you might want to think of someone,  

um, being on an alcoholic bender, and they wake  up with their head in the gutter. And literally,  

their head in the gutter, and they look up  and they say, "Okay, God, I'm ready. I'll do  

anything." And they mean it. It's not lip service;  they really mean it, "I'll do anything." And so I  

didn't have anybody in between because they  didn't realize what they were getting into.

Okay, so basically, this group of people in the  user group, they're all these in-betweeners. And  

not only were they just in between, but none of  them were professionals. They were like, you know,  

just really what I call nice people. But not  that professional traders can't be nice people,  

but they're a breed apart. They really are.  They're, uh, I'm not going to get into that,  

but in any case, very different. But  um, so I'm thinking, you know what,  

I have to write a book for these people. I just,  you know, because "The Discipline Trader" and  

"Trading in the Zone" did not really address the  issues in a way that someone's just starting out  

in the business could relate to. I've made a  lot of assumptions writing those books. I've  

made a lot of assumptions based on my experiences  of doing these kind of presentations and speaking  

at trading conferences back in the, you know,  in the early '80s. Like the first conference I  

spoke at was in 1984. And I spoke at, you know,  several years later, even went on a world tour  

for Dow Jones in 1987. I literally went around the  world for Dow Jones and right Reuters out of a 36,  

36-city tour. I could have done all 36 cities;  they didn't want to be gone that long. But I did  

18 out of 36 cities and went all the way around  the world. So, you know, it's like I have this  

basic experience. So, oh, you know, you know the  way people think about trading. But yet, like I  

said, I didn't write these books in a way that the  novice trader could relate to. And it shocked me.

It literally shocked me because "The Discipline  Trader" was published in 1990, and "Trading in the  

Zone" was published in 2000. And when the internet  started getting big, and you know, you got a lot,  

you had a lot of people doing chat rooms, all  that sort of stuff. And people were recommending,  

you know, "Hey, read 'Trading in the Zone.'"  And a lot of the people that were reading it  

were just novice traders. Because I'm getting  this feedback and emails, it's like, "Well,  

this book wasn't meant for you." And I didn't  even really know how you were relating to it. So  

I thought, you know what, I got to write another  book. I got to write it from the perspective,  

and I got to write it from the perspective, uh,  of someone who really doesn't know anything about  

this business. The people in that room in Phoenix  were people who basically had watched like a half  

an hour infomercial on how trading, how you can  take financial control of your life by being a  

trader. Okay, you know, secure your retirement,  go into trading, okay, with this particular  

methodology. You know, and you should be able to  do it. Well, the reality of it is, a lot of these  

methodologies, people aren't lying to you about  the fact that if, if you can actually follow the  

methodology, you can secure your financial future.  The whole idea is being able to do it. Because,  

like, for example, the very first workshop that  I ever attended was in Bermuda, like, I think in  

1981. And um, and at the time, it was being put on  by three, at that time, you know, people who were  

considered market gurus. And, uh, you know, at  the very first morning of the conference, I mean,  

I'm really excited. You know, "What am I going  to learn? I just can't wait." And, uh, you know,  

I sit down in the room, and the speaker, you  know, he gets going, and he's going for about 10  

minutes. And, uh, someone in the audience raises  their hand, and he stood up. And this guy, I got  

to say his name. And he stood up; as a matter  of fact, it was Dick Bernstein. He's probably,  

he's a lot of you probably heard of them. Anyway,  uh, so Jake acknowledges the guy in the audience.  

And the guy stood up, and the speakers, of course,  were talking about their trading systems and how  

people use them, that sort of thing. And, uh, the  guy stood up and, in a kind of an indignant tone,  

which surprised me, and I think it also surprised  Jake, he said, "Jake, if your system's so good,  

why are you selling it?" And, you know, I think  the whole thing kind of took Jake by surprise,  

like I said. And Jake just stood there  and thought for a second. He said,

" You know what, hostile minion? If you don't want to, don't buy.  Because of all the 100 or so people in this room,  

probably there is no one in this roon that could  go back and execute it." Now I'm sitting here  

listening to this. I think, you know, you know,  he didn't say this in a way that I thought he was  

kidding. You know, so, you know, I'm thinking,  "What's going on here?" And nobody asked him  

to elaborate. So it's like, you know, it's like  I'm just hoping this didn't apply to me. Okay,  

I'm just, you know, I don't know what he's saying.  I don't know why he's saying it. I just hope it  

isn't me he's talking about. Okay. And it was, of  course. It was, you know, it was definitely me,  

as possible as well as everyone else in  the world. So, um, anyway, like I said, I,  

I really felt I had to write something from ground  zero. In other words, if you don't know anything  

about this business, if you don't know anything  about the nature of trading, and especially if you  

don't know anything about the nature of price  movement, that you can actually go through,  

understand what you need to go through and go  through a process of changing the way that you  

think. Because this is what this is all about,  everybody. You're gonna have to get used to the  

idea that if you're going to do this successfully,  you are probably going to have to change some  

major assumptions, some major beliefs you have  about the nature of market trading to do it  

successfully. I'm not saying you're not going to  have winning trades. I'm saying that if you want  

to create a consistently rising equity curve and  assure yourself of an income, you're going to have  

to think differently than what you think right  now. There's no way around it. Like, for example,  

most of you in this room, just real, just a quick  example, most of you in this room would think that  

because I'm a trader and because I put on trades,  I'm a risk-taker. That makes sense because we  

know the trading is risky, right? Come on, dude,  I'm gonna have to get some feedback, guys. Okay,  

you're good. You can't, you can't sit there with  a stone face. No, you really can't. Seriously,  

you can, but it's going to make things hard  for me. I don't want to be hard, but I want  

to enjoy myself. Okay, so come on, just give me  some feedback. Yes or no? Yeah? Okay, thank you.  

I haven't done this in three years, so  give me a break. I'm asking you. Next. So, yeah,  

we're risk-takers, right? And yet, when you think  about it, everything that you do or let's say I  

used to do as a trader with respect to analysis  was to try to eliminate the risk. It was to try  

to make the risk go away. It was to try to make  sure that the trade I'm getting into right now,  

this trade, was going to be a winner. Not maybe  a winner, but going to be a winner. Why would I  

do it? Why would I get into a trade if I didn't  think it was going to win? Does that make sense  

to everybody? Is that the kind of logic that  makes sense? That's exactly the kind of logic  

that's going to make sure you're not going to  be successful in this business. It's exactly  

the kind of logic that is going to assure you  that you will not make it in this business.  

This business has nothing to do with winning on a  trade-by-trade basis. On a trade-by-trade basis,  

what you're going to learn today is that  your technical systems, okay, what they give  

you is an edge. Everyone, you've heard the word  probability said a hundred times. Probabilities,  

edges. Edges are nothing more than a higher  probability of one thing happening over another.  

There's a huge difference between understanding  that concept and actually believing it in a way  

that you can execute your trades properly.  You actually have to believe in the nature  

of probabilities at the very core of your trading  personality, which means you're going to have to  

give up on the idea that each individual trade is  going to be successful. What your system does is  

give you an edge over a series of trades where  the outcome of each individual trade is unknown  

and unknowable. Not just unknown, unknowable. The  more you think you got to know in this business,  

the less successful you're going to be. This isn't  a business about knowing what's going to happen  

next. It's a business of getting your mind to the  point where you're completely detached from your  

outcomes. Very different than the way we live our  lives. I was talking to Gino last night. What did  

you, Gino's been an attorney for how many years?  43 years. What did you learn when you became a  

trader in relation to the kind of strategies  that you used as a trader?

Did you hear what he said? Everything he used to be a  successful lawyer is completely opposite of the  

strategies and the thinking methodologies that  we have to use to be traders. If I'm a lawyer,  

if I detached from my outcome? Yeah. If I'm a lawyer, am I detached from my  

outcome? Oh, no, no, no. Am I, if I'm a lawyer,  am I detached from my outcome? Absolutely not.

I'm going to make sure that I get  the outcome I want. If I'm a doctor,  

am I detached from my outcome? If I'm an engineer, am I detached from my outcome? So,  

if I'm saying to you to be successful  in this business, you're going to have  

to become detached from your outcomes.  Just how in the world are you going to  

get to the point where you can do that? You  don't know. You're right; you probably don't.

Thank you!

Trade for somebody else. That's not for everybody,  you know. There's the group following the people  

that can trade for somebody else and be detached,  and trade for somebody else. And actually,  

they're even more attached than they would be  normally. I've worked with both ways. There  

are people who can actually trade their own  money; once they learn the right methodology,  

the right mindset, they can trade their own  money much easier than they can trade somebody  

else's. Because they're more concerned  about losing money for other people.

Somebody you don't know?! Still...  There's a lot of variables in there.

Yeah, that's...you know. So, basically, yeah,  I had to write this book from, like I said,  

the perspective of going from the ground up. And  having two books under my belt, which I thought  

were really tough books to write. I mean, I'm not...you know, they were very, very difficult  

for me to write. And, I'm thinking, you know, here this is my own bias that I'm going into this whole  

project with, like, okay, you know, I wrote the 'The Disciplined Trader' took me eight years.

'Trading in the Zone' took me five years. Come on, I should  be able to knock this out in a couple of years,  

right? Anybody would be able to knock this out in  a couple of years. Yeah, eight years. I'm still  not done.

Way harder than 'Trading in The Zone,' way over the top part of ''Trading in The Zone' or 'The Disciplined Trader'.

I just... I  can't even begin to tell you how difficult it's been and how challenging it's been for  

me. And the impact that it's had on my life, it's  really been very, very difficult. But in any case,  

I found that breaking these concepts down to  a core level, where someone who doesn't know  

the business can understand it, it's not  easy. Over the years, doing presentations,  

I've made a lot of assumptions. See, it's one  thing to know how to trade and break through  

a certain threshold of consistency. If over  here, this is a mental threshold, okay? Like,  

if you're down here and you're booming and  busting, your equity is, you know, you go up, you  

go down. And you want an equity curve that looks  like this? You're gonna have to break through  

what I call the 'threshold of consistency.'  And this is a mindset. It has nothing to do  

with your methodology. I'm not saying nothing,  but you're gonna have to have a good edge. All  

I'm saying is that, but there are a lot of  good edges out there. So, this is a mindset.

Yeah, but breaking these concepts down in  that way was just, you know... I made a lot  

of assumptions. And breaking through my own  assumptions was a really difficult process,  

you know. Because, what I was getting at is that  it's one thing to learn how to trade for yourself  

and however way you manage to break through this  threshold of consistency. It's another to actually  

learn how to teach people how to do it. The  process of doing it and teaching people how to do  

it are worlds apart. There's almost no connection.  There's almost no connection at all. Because there  

are a lot of people who teach trading because  they become legitimately successful traders. And  

they teach it from their perspective, without  realizing that their audience is nowhere near  

their mindset and cannot do what they do. When I  was coaching in the early to mid-80s, you know,  

there were some trading gurus out there that had  huge followings. Brilliant people, very successful  

traders, but they absolutely did not know how  to teach it. They did not know how to understand  

where the common guy was coming from. Most of  their really serious, suicidal clients were as a  

result of listening to these people, the ones that  ended up waking up. And I got to say, "Oh my God,  

I'll do anything!" Just because they knew how  to teach it. That's all. Because the process of  

learning how to teach it is just not the same.  It's completely different than the process of  

learning how to do it. So like I said, I made  assumptions, and those assumptions resulted in  

making it really difficult for people reading 'The  Discipline Trainer' and 'Trading in the Zone' to  

get what they needed out of it to break through  this threshold of consistency. And I didn't really  

know that until I got almost to the end of the  book. The exercise in 'Trading in the Zone,'  

when I finished that book in 1999, I thought I  explained it. I really did. I thought I explained  

it. I'm going to apologize now, realizing that  I didn't. I really didn't explain it. Because  

in this new book, I've devoted 30 single-spaced  typewritten pages to just the exercise. Because  

the big assumption that I made was that all the  background, all the foundation to do the exercise,  

that somehow people would find a way to assimilate  it and realize their connection on their own. And  

then when I started actually getting to the  point where I had to write about the exercise,  

I realized that that just wasn't going to happen.  And the reason why I know it didn't happen is  

because I would do presentations. For example,  in 2008, 2009, 2010, I did several in a row...

Like I said. Eight, Nine, Ten, Eleven... Until

last one was in 2012. So, in 2010, I go through  the whole presentation and explain what I felt  

people needed to get. And the exercise itself,  pretty much explained it was in the context of  

'Trading in the Zone.' Then the next year, a lot  of the same people, if there's a hundred people  

in the room, but there's a percentage of them  that were there the year before. And it's like,  

"How many of you did the exercise?" Nobody! Not only that, I was wondering, okay,  

everyone in the audience, let's say the large  percentage of people in the audience, had read  

'Trading in the Zone.' Right off the bat, I say,  "Okay, you've read 'Trading in the Zone.' A lot of  

people said they read it multiple times." So, I'm  thinking, "How many did the exercise?" Nobody. So,  

in 2011, we're going through this. This mystified  me. Now I was truly perplexed. I really was. I did  

not get it. I really didn't get it. So, in 2011,  somebody in the audience just happened to say,  

after getting to the point where the presentation  is completed, "How many of us do you think are  

going to do the exercise?" And I said, "Nobody."  They're all taken aback by that. Because I was  

just flat out, "None of you are going to  do it." And then the next year, in 2012,  

there were a few people that actually did it.  And they got the results they were looking for.

Now, we're going to talk about this.  We're going to talk about a great way,  

mostly tomorrow. But it's like, you know, I  want you to leave understanding the process.  

Understanding what it is that you have to do, and  the process is you're going to have to go through  

to get to the point where you can acquire the kind  of psychological skills. Because all the skills,  

there isn't anything about trading that's  physical. What are you interacting with?  

You're interacting with information. There  isn't anything physical other than, you know,  

if you've got the ability to use your mouse pad or  use a mouse, you've got the eye-hand coordination  

to put your mouse in a certain spot on your  trading platform. You've got the skills down pat.  

You're golden on the physical skills. It's mental  skills. It's how we interact with information,  

the state of mind that we're in. People don't  realize that. This is like a, to really do  

training at a really high level, in what I call  the subjective or the discretionary mode, as  

opposed to mechanical trading. Where you've got a  particular set of criteria that define your entry  

and exit, and it's rigid. So, the market has to  conform. The market has to conform to your rules,  

or you do nothing. Okay? That's... I'm just gonna  give you a cursory explanation. In the mechanical  

mode, the market has to conform to your entry and  exit rules, or you do nothing. There's nothing to  

do. There's nothing to think about. You're just  supposed to do, you know, enter when it says,  

put your stop where it says, put your objective  where it says. And it either happens, or it  

doesn't. Okay, in the subjective mode, basically,  discretionary mode, you can do whatever you want,  

whenever you want, based on whatever information  you expose yourself to. And the way you want to  

combine that information in your brain, to come  up with an entry or exit signal, and where to put  

your stop and where to put your profit objective.  To be in that mode and do it successfully,  

you better be in a really high, elevated state of  mind. Because what you're going to find is that  

it's your attitude. It's the quality of your state  of mind. Are you confident? Are you fearful? Are  

you in a carefree state of mind? Are you agitated?  Are you angry? Do you feel like getting revenge?  

If you're going through personal emotional trauma,  if someone said, you know, if someone you knew was  

trading, was a full-time trader, and they're  going through a really traumatic experience in  

their life, would you advise them not to trade? It  makes sense, right? It just makes sense. And yet,  

what people don't realize is that there are  degrees of states of mind. In other words,  

you've got, on a continuum, at one end, you've got  positive. You've got confidence. Okay? You've got  

confidence, and here you've got fear. And there  are degrees of confidence and fear. And until you  

become aware of where you're at on that continuum,  you have to adjust the way you trade based on  

your awareness of where your state of mind is.  Because your results are going to reflect that.  

The way you pick what information you pick or you  choose to utilize, and where your trade location,  

your size, your stop, your objective, all are  going to be reflected in your state of mind.

It would be... I'll give you an example. You've  got the NCAA college basketball championship,  

right? Now, if I said that at a professional  or even a college level, some of these kids,  

some of these guys, they can hit 25 or 50 free  throws in a row, would anybody dispute that?  

They practice thousands of shots, and they get  at the free throw line while they're in practice  

and just hit 25 in a row, 30 in a row. There are  people who can do that. So, if you can do that,  

you've got your muscle memory in place. Your  muscles are trained to the point, like as if  

you've got these little memory cells in each of  our muscles. They're completely in place. And you  

step, all the physical variables are exactly  the same. No matter where you're doing it,  

the foul line is right here. The basket's so  many feet away, the basket's a certain height,  

the rim is a certain diameter. That's  it. All the variables are the same. Now,  

put one of these kids who can do 25 in a row in  a situation where there's about two seconds left  

in the game. The national championship's on the  line. And with two shots, he can win the game.  

With one shot, he can tie. Two shots, he can win  the game for himself, his college, all the fans,  

and his team. One shot, he ties. What's going  to be the determining factor as to whether or  

not he wins that game? Well, we stay controlled  out there. You might not have any fear and say,  

what's going to be just at a general level,  what's going to be the determining factor?

"Mental state of mind."

Yeah, it's the state of mind. Why do you think,  you know, everyone knows, like, for example,  

field goal kickers, who are in a position where  they can kick a field goal and win the game?  

The opposing coach calls a timeout. They put  him on ice. Okay, what does putting them on  

ice mean? It means, you know, these guys are  pros. You give them the opportunity to get up  

to that tee and kick the ball without thinking.  Their muscle memory is going to come into play,  

and this is going to be automatic. Now, give  the guy the opportunity to start rolling some  

negative thoughts through his brain, and he might  choke. Same thing with the kid on the foul line.  

If he can keep his thoughts positively focused on  the process of doing what he needs to do, he'll  

probably make both shots. If he starts thinking  about how his life's going to go shit! To complete and  

absolute shit! if he misses those shots, chances  are he's going to miss them. If some thoughts  

start rolling through his brain about coaches who  have berated him, parents who have berated him  

throughout his life for being in these kinds of  situations, chances are he's going to miss those  

shots and choke. And this will go right along  here. Here we had just normal confidence. This  

is what's called a threshold of euphoria. Okay?  You could cross from normal confidence into a  

threshold of euphoria, which is just as bad as  being in a state of fear for a trader. But same  

way with this kid. Let's say he's standing at the  foul line, and he's starting to think about what  

a hero he's going to be in a couple of seconds.  And he starts celebrating in his brain before he  

actually takes the shots. That extra degree of  excitement just might have enough of an impact  

on the way the ball leaves his fingers for him  to miss the shots. So, it can't be too much. It  

can't be fearful. He just has to have the right  amount of confidence flowing through his brain,  

the right amount, and be focused in just the  right way before the ball leaves his fingers,  

and he'll make the shot because the muscle memory  is there. Anybody have a problem with this?