Interpretations that would result in a more satisfying experience

9-28-95: 
Bob called with a problem. He put on a belly trade and put his stop in the market. The market 
traded about a third of the way to his stop and then went back to his entry point, where he decided to 
bail out of the trade. Almost immediately after he got out, the bellies went 500 points in the direction of 
this trade, but of course he was out of the market. He didn't understand what was going on. First, I 
asked him what was at risk. He didn't understand the question. He assumed that he had accepted the 
risk because he put in a stop. I responded that just because he put in a stop it didn't mean that he had 
truly accepted the risk of the trade. There are many things that can be at risk: losing money, being 
wrong, not being perfect, etc., depending on one's underlying motivation for trading. I pointed out that 
a person's beliefs are always revealed by their actions.
We can assume that he was operating out of a belief that to be a disciplined trader one has to define the 
risk and put a stop in. And so he did. But a person can put in a stop and at the same time not believe 
that he is going to be stopped out or that the trade will ever work against him, for that matter. By the 
way he described the situation, it sounded to me as if this is exactly what happened to him. When he 
put on the trade, he didn't believe he would be stopped out. Nor did he believe the market would trade 
against him. In fact, he was so adamant about this, that when the market came back to his entry point, 
he got out of the trade to punish the market with an "I'll show you" attitude for even going against him 
by one tic. After I pointed this out to him, he said this was exactly the attitude he had when he took off 
the trade. He said that he had been waiting for this particular trade for weeks and when the market 
finally got to this point, he thought it would immediately reverse.
I responded by reminding him to look at the experience as simply pointing the way to something that 
he needs to learn. A prerequisite for thinking in probabilities is that you accept the risk, because if you 
don't, you will not want to face the possibilities that you haven't accepted, if and when they do present 
themselves. When you've trained your mind to think in probabilities, it means you have fully accepted 
all the possibilities (with no internal resistance or conflict) and you always do something to take the 
unknown forces into account. Thinkine this way is virtually impossible unless you've done the mental 
work necessary to "let go" of the need to know what is going to happen next or the need to be right on 
each trade. In fact, the degree by which you think you know, assume you know, or in any way need to 
know what is going to happen next, is equal to the degree to which you will fail as a trader. Traders 

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who have learned to think in probabilities are confident of their overall success, because they commit 
themselves to taking every trade that conforms to their definition of an edge.
They don't attempt to pick and choose the edges they think, assume, or believe are going to work and 
act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren't 
going to work. If they did either of those things, they would be contradicting their belief that the "now" 
moment situation is always unique, creating a random distribution between wins and losses on any 
given string of edges. They have learned, usually quite painfully, that they don't know in advance 
which edges are going to work and which ones aren't. They have stopped trying to predict outcomes. 
They have found that by taking every edge, they correspondingly increase their sample size of trades, 
which in turn gives whatever edge they use ample opportunity to play itself out in their favor, just like 
the casinos. On the other hand, why do you think unsuccessful traders are obsessed with market 
analysis.
They crave the sense of certainty that analysis appears to give them. Although few would admit it, the 
truth is that the typical trader wants to be right on every single trade. He is desperately trying to create 
certainty where it just doesn't exist. The irony is that if he completely accepted the fact that certainty 
doesn't exist, he would create the certainty he craves: He would be absolutely certain that certainty 
doesn't exist. When you achieve complete acceptance of the uncertainty of each edge and the 
uniqueness of each moment, your frustration with trading will end. Furthermore, you will no longer be 
susceptible to making all the typical trading errors that detract from your potential to be consistent and 
destroy your sense of self-confidence. For examnle not rlefminff the risk before crRftincr into a trarle is 
hv far rhp most common of all trading errors, and starts the whole process of trading from an 
inappropriate perspective. In light of the fact that anything can happen, wouldn't it make perfect sense 
to decide before executing a trade what the market has to look, sound, or feel like to tell you your edge 
isn't working? So why doesn't the typical trader decide to do it or do it every single time?
I have already given you the answer in the last chapter, but there's more to it and there's also some 
tricky logic involved, but the answer is simple. The typical trader won't predefine the risk of getting 
into a trade because he doesn't believe it's necessary. The only way he could believe "it isn't necessary" 
is if he believes he knows what's going to happen next. The reason he believes he knows what's going 
to happen next is because he won't get into a trade until he is convinced that he's right. At the point 
where he's convinced the trade will be a winner, it's no longer necessary to define the risk (because if 
he's right, there is no risk). Typical traders go through the exercise of convincing themselves that 
they're right before they get into a trade, because the alternative (being wrong) is simply unacceptable. 
Remember that our minds are wired to associate.
As a result, being wrong on any given trade has the potential to be associated with any (or every) other 
experience in a trader's life where he's been wrong. The implication is that any trade can easily tap him 
into the accumulated pain of every time he has been wrong in his life. Given the huge backlog of 
unresolved, negative energy surrounding what it means to be wrong that exists in most people, it's easy 

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to see why each and every trade can literally take on the significance of a life or death situation. So, for 
the typical trader, determining what the market would have to look, sound, or feel like to tell him that a 
trade isn't working would create an irreconcilable dilemma. On one hand, he desperately wants to win 
and the only way he can do that is to participate, but the only way he will participate is if he's sure the 
trade will win. On the other hand, if he defines his risk, he is willfully gathering evidence that would 
negate something he has already convinced himself of.
He will be contradicting the decision-making process he went through to convince himself that the 
trade will work. If he exposed himself to conflicting information, it would surely create some degree of 
doubt about the viability of the trade. If he allows himself to experience doubt, it's very unlikely he will 
participate. If he doesn't put the trade on and it turns out to be a winner, he will be in extreme agony. 
For some people, nothing hurts more than an opportunity recognized but missed because of self-doubt. 
For the typical trader, the only way out of this psychological dilemma is to ignore the risk and remain 
convinced that the trade is right. If any of this sounds familiar, consider this: When you're convincing 
yourself that you're right, what you're saying to yourself is, "I know who's in this market and who's 
about to come into this market. I know what they believe about what is high or what is low. 
Furthermore, I know each individual's capacity to act on those beliefs (the degree of clarity or relative 
lack of inner conflict), and with this knowledge, I am able to determine how the actions of each of 
these individuals will affect price movement in its collective form a second, a minute, an hour, a day, or 
a week from now."
Looking at the process of convincing yourself that you're right from this perspective, it seems a bit 
absurd, doesn't it? For the traders who have learned to think in probabilities, there is no dilemma. 
Predefining the risk doesn't pose a problem for these traders because they don't trade from a right or 
wrong perspective. They have learned that trading doesn't have anything to do with being right or 
wrong on any individual trade. As a result, they don't perceive the risks of trading in the same way the 
typical trader does. Any of the best traders (the probability thinkers) could have just as much negative 
energy surrounding what it means to be wrong as the typical trader.
But as long as they legitimately define trading as a probability game, their emotional responses to the 
outcome of any particular trade are equivalent to how the typical trader would feel about flipping a 
coin, calling heads, and seeing the coin come up tails. A wrong call, but for most people being wrong 
about predicting the flip of a coin