Interpretations that would result in a more satisfying experience

REALLY UNDERSTANDING RISK 
 
Other than the many issues surrounding responsibility that we discussed in Chapter 3, there isn't 
anything about trading that is more central to your success and also more misunderstood than the 
concept of accepting the risk. As I mentioned in the first chapter, most traders erroneously assume that 
because they are engaged in the inherently risky activity of putting on and taking off trades, they are 
also accepting that risk. I will repeat that this assumption couldn't be further from the truth.
Accepting the risk means accepting the consequences of your trades without emotional discomfort or 
fear. This means that you must learn how to think about trading and your relationship with the markets 
in such a way that the possibility of being wrong, losing, missing out, or leaving money on the table 
doesn't cause your mental defense mechanisms to kick in and take you out of the opportunity flow. It 
doesn't do you any good to take the risk of putting on a trade if you are afraid of the consequences, 
because your fears will act on your perception of information and your behavior in a way that will 
cause you to create the very experience you fear the most, the one you are trying to avoid. I am offering 

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you a specific thinking strategy composed of a set of beliefs that will keep you focused, in the moment, 
and in the flow. With this perspective, you will not be trying to get anything from the market or to 
avoid anything. Rather, you will let the market unfold and you will make yourself available to take 
advantage of whatever situations you define as opportunities. When you make yourself available to 
take advantage of an opportunity, you don't impose any limitations or expectations on the market’s 
behaviour. You are satisfied to let the market do whatever it's going to do.
However, in the process of doing something, the market will create certain conditions you define and 
perceive as opportunities. You act on those opportunities to the best of your ability, but your state of 
mind is not dependent upon or affected by the market's behavior. If you can learn to create a state of 
mind that is not affected by the market's behavior, the struggle will cease to exist. When the internal 
struggle ends, everything becomes easy. At that point, you can take full advantage of all your skills, 
analytical or otherwise, to eventually realize your potential as a trader. Here's the challenge! How do 
you accept the risks of trading without emotional discomfort and fear, when at the moment you 
perceive the risk, you simultaneously feel discomfort and fear? In other words, how do you remain 
confident and pain-free when you are absolutely certain you can be proved wrong, lose money, miss 
out, or leave money on the table?
As you can see, your fear and feeling of discomfort are completely justified and rational. Each of those 
possibilities becomes real the moment you contemplate interacting with the market. However, as true 
as all of these possibilities are for every trader, what isn't true or the same for every trader is what it 
means to be wrong, lose, miss out, or leave money on the table. Not everyone shares the same beliefs 
and attitudes about these possibilities and, therefore, we don't share the same emotional sensitivities. In 
other words, not everyone is afraid of the same things.
This may seem obvious, but I assure you it is not. When we're afraid, the emotional discomfort we feel 
in the moment is so real that it's beyond question, and it's natural to assume that everyone shares our 
reality. I will give you a perfect example of what I am talking about. I recently worked with a trader, 
who was deathly afraid of snakes. As far as he was concerned, he had always been afraid of snakes 
because he couldn't recall a time when he wasn't. Now he is married and has a three-year-old daughter. 
One evening, while his wife was out of town, his daughter and he were invited to a friend's house for 
dinner. Unbeknownst to my client, his friends child had a pet snake.
When the friends child brought out the snake for everyone to see, my client freaked and practically 
leapt to the other side of the room to get as far away from the snake as possible. His daughter, on the 
other hand, was completely enthralled with the snake, and wouldn't leave it alone. When he related this 
story to me, he said that he was not only shocked by the unexpected confrontation with the snake, but 
that he was just as shocked by his daughter's reaction. She wasn't afraid and he assumed that she would 
be. I explained to him that his fear was so intense and his attachment to his daughter was so great that it 
was inconceivable to him that his daughter would not automatically share his reality about snakes. But 
then I pointed out, there really wasn't any way she could have shared his experience, unless he 

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specifically taught her to be afraid of snakes or she had had her own painful frightening experience. 
Otherwise, without anything to the contrary in her mental system, the most likely reaction to her first 
encounter with a living snake would be pure, unadulterated fascination.
Just as my client assumed that his daughter would be afraid of snakes, most traders assume the best 
traders, like themselves, are also afraid of being wrong, losing, missing out, and leaving money on the 
table. They assume that the best traders somehow neutralize their fears with an inordinate amount of 
courage, nerves of steel, and self-control.
Like many other things about trading, what seems to make sense, just isn't the case. Certainly, any one 
or all of these characteristics may be present in any top trader. But what is not true is that these 
characteristics play any role in their superior performance. Needing courage, nerves of steel, or self-
control would imply an internal conflict where one force is being used to counteract the effects of 
another. Any degree of struggle, trying, or fear associated with trading will take you out of the moment 
and flow and, therefore, diminish your results. This is where professional traders really separate 
themselves from the crowd. When you accept the risk the way the pros do, you won't perceive anything 
that the market can do as threatening. If nothing is threatening, there's nothing to fear. If you're not 
afraid, you don't need courage. If you're not stressed, why would you need nerves of steel? And if 
you're not afraid of your potential to get reckless, because you have the appropriate monitoring 
mechanisms in place, then you have no need for self-control.
As you contemplate the implications of what I am saying, I want you to keep something in mind: Very 
few people who go into trading start out with the appropriate beliefs and attitudes about responsibility 
and risk. There are some who do but it's rare. Everyone else goes through the same cycle I described in 
the example of the novice trader: We start out carefree, then become scared, and our fears continually 
diminish our potential. The traders who break through the cycle and ultimately make it are the ones 
who eventually learn to stop avoiding and start embracing the responsibility and the risk.
Most of those who successfully break the cycle don't make the shift in thinking until they have 
experienced so much pain from large losses that it has the positive effect of stripping away their 
illusions about the nature of trading. With respect to your development, the 
how 
of their transformation 
is not that important, because in most cases it happened inadvertently. In other words, they weren't 
completely aware of the shifts that were taking place inside their mental environment until they 
experienced the positive effects their new perspective had on the ways in which they interacted with the 
market. This is why very few top traders can really explain what accounts for their success, except to 
speak in axioms like "cut your losses" and "go with the flow."
What is important is that you understand it is completely possible to think the way the professionals do 
and to trade without fear, even though your direct experience as a trader would argue otherwise.

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