This is Why You CAN'T Follow Your TRADING SYSTEM Rules

have you ever found yourself taking too many trades and jumping into positions because of a fear of missing out or on the flip side have you talked yourself out of taking a trade and hesitated to pull the trigger welcome back everyone this is the third lesson in the mini course on high performance trading and we're talking about two really common trading problems but before we go any further I'm going to ask you a question that will be one of the best predictors of whether or not you will succeed as a Trader if you flipped a

ficing 10 times in a row what are the odds of getting five heads and five tails if your gut instinct was to say 50/50 or 50% like the vast majority of people do you are spectacularly wrong and sadly you are very unlikely to ever succeed as a Trader don't take that too personally or negatively it can be fixed obviously but we do need to be honest if we're ever going to get to the root cause of our struggles there's actually only a 24.6% chance of doing five heads and five tails is not even close to

50/50 and that comes as a huge surprise to most people you maybe they are scratching your head thinking I'm nuts but if you don't understand those odds you don't understand trading trading is a game of probabilities but the human brain has never needed to think in those terms so it has no mechanism of understanding them intuitively I'll come back to this later in the video so just sit with that for a moment for now let's look at the problem of overtrading and under trading and you'll see how probabilities are involved in both your reason for

entering a trade should be based on your system which should tell you the type of trade you're looking for what the market conditions should be like how indicators and other filters should appear Etc but a system doesn't guarantee what will happen next with certainty it merely advises on probabilities of what is likely to happen and the Very nature of dealing with probabilities naturally leads to a degree of uncertainty and requires discretion and judgment on your part even rigid mechanical systems are open to some level of interpretation and as such you will find that your decision

to AER a trade or not comes down to how confident you feel about it so what is it that makes a Trader overtrade and take more trades than their system advises well there are three main reasons the first is our familiarity with Exchange in timed for money in just about every job or task through all of human history the more we do the more we have to show for it trading doesn't work like that you only get paid when the market conditions are favorable to your particular system you can't force the frequency or the quantity

of profitable opportunities that's down to the market and it's a very unfamiliar situation to get used to it's typical for Traders to sit in front of a chart and feel compelled to do something it just doesn't feel natural to sit there and do nothing a second reason you might overtrade is because you fail to adjust to change in market conditions for example the market may have been in a period that is excellent for your system with frequent and profitable opportunities and you have been very active but then the market slows down and there are fewer

opportunities I think of driving a car when the road opens up it's easy to step on the accelerator and speed up in response and we soon get used to that increased speed but when traffic slows us down we can get impatient and the new slower speed seems exaggeratedly even painfully slow and the same thing can happen to you in trading as the market es and flows it's easy to increase our trades as the opportunities increase it's much harder to slow down when the market slows down and the third reason for overtrading is most relevant if

your count has been doing badly is in draw down or you've recently taken a bid loss as you will recall from the previous two videos when we're behind we're much more likely to recall positive outcome trades we entered that went in our favor which start to get strangely optimistic and take more risk you become risk seeking when you're behind so there's a much greater tendency if you to feel confident about to entering more trades then you should be your brain will trick you based on how it prioritizes and recalls past memories if you haven't seen

my previous two videos please use the link in the description to the playlist so you can understand what I'm talking about here so what can you do to remedy overtrading well most of the answers you need won't be clear until you've watched the later lessons in this course especially lessons five and six but for now some things to consider are first remember trading is not like manual jobs more trades do not mean more money you are not exchanging time for money and although this seems obvious remember it's your system that defines whether or not there

is an entry opportunity not your desire to either work harder or speed up your returns or get paid for the hours you've put in pay close attention to your system and go down your checklist to confirm whether or not a valid opportunity really is present third be aware that it is harder for you to slow down than it is to speed up if the market activity has has legitimately increased and you have found yourself taking a greater number of valid opportunities you need to be more aware and extremely sensitive to any slowdown in the market

so you can quickly adjust number four don't expect to get into a trade when you sit down to trade remember that you are not exchanging time for money it's best if you trade in like fishing rather than hunting be patient and let the opportunities come to you number five remember that you are looking for good trades not the best trades and what I mean by that is all trades that you enter should score 10 out of 10 according to your system and if the market conditions have recently been 1 out of 10 well a find

out a 10 will suddenly look amazing but just because it's the best you've seen for a while it's still a portrait according to your system and lastly be extra vigilant after a loss or after a SE Ser of losses remember that we have a tendency to become more confident more optimistic and take more risks when we're behind as I said you will get more comprehensive Solutions later in the course but I need to give you the other lessons first for all to make sense but for now let's move on to under trading or hesitating to

end trade and this is much more closely linked to the question I asked at the start of the video about probabilities you will typically under Trade and hesitate because of a lack of confidence in either your system or the trade opportunity and again there are three main reasons and the first is something that you are already familiar with from the first two videos in this course you may be playing it safe to protect what you already have this is especially relevant if you've been on a recent winning Street or you've made a new Equity hind

in your account remember we become risk averse when we're ahead I won't expand on that here because it's been covered in the last to video so please re-watch those if you need a reminder the playlist link is in the description but the next two reasons are new territory for us first you may be mistaken in normal draw down for system failure new Traders often expect smooth Equity curves and understandably find it difficult to accept that there are periods of draw dang even when they're trading very well in this case your protection mechanism is acting like

an over sensitive smoke alarm it Stakes the natural series of losses for a glitch in your trading system and that's when you might begin to hesitate or perhaps stop trading the system all together it's important to see this as a useful protection mechanism protecting you from completely mic B at times when something is genuinely wrong this mechanism may be correct to slow you down but in periods of natural or normal draw dang it's a maladaptive system and the third closely related reason is a complete distressed of your system after a series of losses the next

video in this course is dedicated to this because it is such a big topic but I'll briefly cover some of the points now it's easy to understand why a Trader would hesitate to enter trade number six If the previous five have all lost especially if the previous five were all perfect setups that matched our system rules exactly when we get long strings of losers we see it as a pattern and assume that something is wrong and if we think something's wrong we are likely to become very hesitant on entries distrust our system and be reluctant

to trade but remember your system doesn't guarantee what will happen it simply advises what is more likely to happen probabilities and in truth we simply do not understand probabilities as you well know if you answered my question that started this video incorrectly in mathematical terms probability has only been around for a few hundred years and apart from mathematicians the average person has never had think about probabilities in their everyday life it's something our brains are simply not used to for most of us trading is the first time we've ever been exposed to an environment that

operates very heavily on probabilities this really is a major issue in trading perhaps the biggest issue if you can't think in probabilistic terms you cannot trade it is as simple as that but you'll find very few people talking about this the rest of this course will go into much more detail on this but for now here are a few things that you can do to start managing it first be vigilant of your tendency towards risk aversion when you're ahead if you've just had a winning streak or made new Equity highs pay attention to your desire

to protect your gains what we've talked about in the previous two videos when you do experience any hesitation or a lack of confidence ask yourself why is there genuinely a problem with my system are the market conditions poor or is this just me trying to overprotect my account you've got to ask yourself those difficult questions to snap yourself out of autopilot second remember that under trading is not necessarily always a bad thing this is a protection method and under the right circumstances it is essential so what you should try to do is look through your

trading journal and your history to recall previous periods in your trading where under trading was the right response and then conversely recall periods where under trading and hesitation was inappropriate and the wrong response just like the previous two videos what this is trying to do is recalibrate your memory recall so you can choose the correct response third make sure you know very clearly what draw down is typical for your system so you know what to expect if you have realistic expectations of what a normal draw down looks like it's very easy for you to mate

its small sling of losses to mean system failure if you haven't done thorough research for what kind of draw end you should expect make that a priority before you do anything else the next and the most important thing is to start making inroads to your understanding of probabilities especially in relation to random distribution with a coin flip the odds of any individual ual spin is 50/50 and if hedge represented a win and taals represent a loss you might expect to win one in every two goals and that is true over the very long term if

you were to toss the coin thousands of times but in the short term the distribution is random and nonuniform toss the coin thousands of times and you will definitely get streaks of 10 tals in a row that doesn't mean the coin is broken it's just the random distribution of results try it for yourself if you don't believe me and just as importantly 10 tales in a row doesn't mean heads on the next horse is more likely the odds of the next hor are still exactly 50/50 believing otherwise is a well-known thing called gamblers fallacy casinos

love people who don't understand probabilities and so does the market in trading regardless of your system probabilities you will see streaks of losses that are simply there due to random distribution and nothing to do with The Fault With the system or the market or you that is just how probabilities work under trading is almost always the consequence of not accurately thinking about trading probabilistically and I'll go into much more detail on this in the next video and the rest of the course I hope you've enjoyed this one guys and found it helpful I know you

haven't got all the answers yet but it's a complex subject and I'm trying to condense it into bite signs chunks for easy consumption on YouTube things will be clearer by the end of the course if you've enjoyed this please give the video a like comment and share and if you're not already a subscriber please consider it and of course keep your eyes open for the next upload in the series thanks for watching and I'll see you next time