Interpretations that would result in a more satisfying experience

ELIMINATING THE EMOTIONAL RISK 
To eliminate the emotional risk of trading, you have to neutralize your expectations about what the 
market will or will not do at any given moment or in any given situation. You can do this by being 
willing to think from the markets perspective. Remember, the market is always communicating in 
probabilities. At the collective level, your edge may look perfect in every respect; but at the individual 
level, every trader who has the potential to act as a force on price movement can negate the positive 

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outcome of that edge. To think in probabilities, you have to create a mental framework or mind-set that 
is consistent with the underlying principles of a probabilistic environment. A probabilistic mind-set 
pertaining to trading consists of five fundamental truths.
1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an 
edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over 
another.
5. Eveiy moment in the market is unique.
Keep in mind that your potential to experience emotional pain comes from the way you define and 
interpret the information you're exposed to. When you adopt these five truths, your expectations will 
always be in line with the psychological realities of the market environment. With the appropriate 
expectations, you will eliminate your potential to define and interpret market information as either 
painful or threatening, and you thereby effectively neutralize the emotional risk of trading. The idea is 
to create a carefree state of mind that completely accepts the fact that there are always unknown forces 
operating in the market. When you make these truths a fully functional part of your belief system, the 
rational part of your mind will defend these truths in the same way it defends any other belief you hold 
about the nature of trading.
This means that, at least at the rational level, your mind will automatically defend against the idea or 
assumption that you can know for sure what will happen next. It's a contradiction to believe that each 
trade is a unique event with an uncertain outcome and random in relationship to any other trade made 
in the past; and at the same time to believe you know for sure what will happen next and to expect to be 
right. If you really believe in an uncertain outcome, then you also have to expect that virtually anything 
can happen. Otherwise, the moment you let your mind hold onto the notion that you 
know, 
you stop 
taking all of the unknown variables into consideration. Your mind won't let you have it both ways. If 
you believe you know something, the moment is no longer unique.
If the moment isn't unique, then everything is known or knowable; that is, there's nothing not to know. 
However, the moment you stop factoring in what you don't or can't know about the situation instead of 
being available to perceive what the market 
is 
offering, you make yourself susceptible to all of the 
typical trading errors. For example, if you really believed in an uncertain outcome, would you ever 
consider putting on a trade without defining your risk in advance? Would you ever hesitate to cut a 
loss, if you really believed you didn't know? What about trading errors like jumping the gun? How 
could you anticipate a signal that hasn't yet manifested itself in the market, if you weren't convinced 
that you were going to miss out? Why would you ever let a winning trade turn into a loser, or not have 

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a systematic way of taking profits, if you weren't convinced the market was going your way 
indefinitely? Why would you hesitate to take a trade or not put it on at all, unless you were convinced 
that it was a loser when the market was at your original entiy point? Why would you break your money 
management rules by trading too large a position relative to your equity or emotional tolerance to 
sustain a loss, if you weren't positive that you had a sure thing? Finally, if you really believed in a 
random distribution between wins and losses, could you ever feel betrayed by the market? If you 
flipped a coin and guessed right, you wouldn't necessarily expect to be right on the next flip simply 
because you were right on the last.
Nor would you expect to be wrong on the next flip if you were wrong on the last. Because you believe 
in a random distribution between the sequence of heads and tails, your expectations would be perfectly 
aligned with the reality of the situation. You would certainly like to be right, and if you were that 
would be great, but if you were wrong then you would not feel betrayed by the flip, because you know 
and accept that there are unknown variables at work that affect the outcome. Unknown means "not 
something your rational thinking process can take into consideration in advance of the Hi-r" ?jXCi>v'L 
^ fu!Iv accept that you don't know As a result, there is little, if any, potential to experience the kind of 
emotional pain that wells up when you feel betrayed. As a trader, when you're expecting a random 
outcome, you will always be at least a little surprised at whatever the market does— even if it conforms 
exactly to your definition of an edge and you end up with a winning trade. However expecting a 
random outcome doesn't mean that you can't use your full reasoning and analytical abilities to project 
an outcome, or that you can't guess what's going to happen next, or have a hunch or feeling about it, 
because you can. Furthermore, you can be right in each instance.
You just can't 
expect 
to be right. And if you are right, you can't expect that whatever you did that 
worked the last time will work again the next time, even though the situation may look, sound, or feel 
exactly the same. Anything that you are perceiving "now" in the market will never be exactly the same 
as some previous experience that exists in your mental environment. But that doesn't mean that your 
mind (as a natural characteristic of the way it functions) won't try to make the two identical. There will 
be similarities between the "now moment" and something that you know from the past, but those 
similarities only give you something to work with by putting the odds of success in your favor. If you 
approach trading from the perspective that you don't know what will happen next, you will circumvent 
your mind's natural inclination to make the "now moment" identical to some earlier experience.
As unnatural as it seems to do so, you can't let some previous experience (either negative or extremely 
positive) dictate your state of mind. If you do, it will be very difficult, if not impossible, to perceive 
what the market is communicating from its perspective. When I put on a trade, all I expect is that 
something will happen. Regardless of how good I think my edge is, I expect nothing more than for the 
market to move or to express itself in some way. However, there are some things that I do know for 
sure. I know that based on the markets past behavior, the odds of it moving in the direction of my trade 
are good or acceptable, at least in relationship to how much I am willing to spend to find out if it does. I 

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also know before getting into a trade how much I am willing to let the market move against my 
position. There is always a point at which the odds of success are greatly diminished in relation to the 
profit potential. At that point, it's not worth spending any more money to find out if the trade is going 
to work. If the market reaches that point, I know without any doubt, hesitation, or internal conflict that I 
will exit the trade.
The loss doesn't create any emotional damage, because I don't interpret the experience negatively. To 
me, losses are simply the cost of doing business or the amount of money I need to spend to make 
myself available for the winning trades. If, on the other hand, the trade turns out to be a winner, in most 
cases I know for sure at what point I am going to take my profits. (If I don't know for sure, I certainly 
have a veiy good idea.) The best traders are in the "now moment" because there's no stress. There's no 
stress because there's nothing at risk other than the amount of money they are willing to spend on a 
trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove 
anything. If and when the market tells them that their edges aren't working or that it's time to take 
profits, their minds do nothing to block this information. They completely accept what the market is 
offering them, and they wait for the next edge. 
CHAP 
TER 8