Develop ELITE Level Trading Intuition | Trading Psychology
Kardec Trader explains how professionals build trading intuition through systematic evaluation, not gut feel. The lesson covers a three-part cycle: planning, doing, reviewing. Amateurs chase outcomes; experts focus on process, using deliberate practice and sample questions to train reliable decision-making over time.
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Hello and welcome to lesson 10 of the Advanced psychology course for high performance trading. And today we're talking about your decision evaluation. I'm going to go out on a limb here and say that this is what determines if and when you will become a profitable trader. When most people think of a trading system, they think of usually about 4 the entry, the risk management, money management, and exit. But there is a fifth element, decision evaluation. Without this, no system will ever work for you. How do you know if you're trading well? How do you know if your system is working? How do you know if you are going to become exceptionally rich or going to go broke? The preceded nine lessons of this course have all been building the foundation. Ready for this video. This one is going to show you the process that is required for successful trading. Do this and you will succeed. Ignore it and you will fail. Trading is a complex cognitive task, there's no doubt about that. But there are some really common myths and misunderstandings about what it takes to succeed at complex cognitive tasks that we need to dispel. The most popular and obvious myth is the work equals results. Now that is true for physical activities, but it's false in trading. Just because you put a lot of time into your trading, it doesn't mean you will be successful equally. Just because you put a lot of pain and effort into trading doesn't mean that you'll get results. And one of the most destructive is the just do it, don't think about it method. Now that's okay for beginners with nothing to lose and low expectations, but it isn't going to deliver anything worthwhile in the long run. And one of the most persistent beliefs you've probably heard of is that to be successful at something like trading, you you just need to do 10,000 hours. As if after that magical number, your intuition is just going to materialize out of thin air, which is closely tied to the last myth that you just need more experience, which is really just a vague summary of all of the above. But it is not simply about time and experience. It's evaluated time and experience. A very deliberate and focused process. And that is what this lesson is going to teach you. In its simplest form, trading is broken into three equally important. Planning, doing and reviewing. The planning phase in tennis, for example, would be preparing for your next game, reminding yourself of the overall strategy that you intend to use, and managing your mental state with mental visualization and rehearsing. Then you go and play the game, which is simply executing that strategy, maintaining your mental state, and keeping some level Assistance to your oversight. So you act deliberately rather than merely automatic reflecting your action. That just means being able to reflect whilst you're in the middle of doing something. And then the most important part is the review. And that involves replaying in your mind parts of the match to assess whether you executed your planned strategy, reviewing your mental state due in the game to see if you maintained it or lost it, and then finally reflecting on the action, concluding on your successes and failures, and identifying any lessons that you need to learn to take forward into future games. The exact same process goes for trading as well. Now, beginner traders just trade. All they really focus on is the doing phase. There's almost no preparation and if they do any reviewing, it is unstructured and it's sporadic and it usually is governed by the outcome of the trade. They may review a losing trade, but but the do nothing after a winning trade. For beginners, trading is all about the doing. As a more serious trader, demonstrated by the fact that you are watching this course, ask yourself with honesty some questions. Do you give equal consideration to planning, doing and reviewing in your trading? Is your preparation ever rushed? Are you just keen to get on with the doing? Do you even have a pre trade routine? And what about your post trade routine? What is your analysis like? What assessments do you make before you draw any conclusions about your performance or your results? To help you understand this, let's look at the tennis example again and look at what an amateur, an amateur tennis player in this case might do on a good day. In other words, what happens when they win a match? Well, most probably given that they won, they might conclude that for instance, their new rattat is fantastic or their serve is awesome, or perhaps they're just awesome. Now these are conclusions that's not a review. These are just conclusions that are driven by the outcome. And given that the outcome was good, the amateur player is unlikely to see any benefits of reviewing or analyzing. You know, what's the point? They won, they must be doing something right. And so they go straight into another match a week later without any preparation. And the amateur trader is likely to do the same. If a single trade or a trading session have a positive outcome, then they might conclude immediately that their system is working, or their indicator is accurate, or they just picked the right direction and so on. Again, this isn't a review of what happens. These are just conclusions driven by the outcome and it's important to know the difference. And in this instance, because the outcome was positive, they are very likely to do less or no preparation for the Next trading session. Basically, in that example, we have the doing phase followed by the conclusion. And as long as the outcomes were positive, the two step cycle just keeps going around. Note that there is no reflection. System one doesn't think there's any need. You've got a good outcome, you're doing something right. Okay, but what happens on a bad day or with a bad outcome? So let's go back to the amateur tennis player. It's likely that as soon as the match is over, they will start concluding immediately, generating the theories as to why it all went wrong. Maybe blaming on their racket or their serve, or because they didn't eat a banana at halftime. Whatever. These System 1 conclusions are as ever immediate and effortless as we know. They always feel true, even logical. And it's based on those conclusions that we review and reflect. But the problem is that the reflection is based on the conclusions that were formulated as soon as the match finished. Like, okay, the problem is my racket, so which new racket should I buy? Or if it's my serve, how can I improve that serve? And so on. This is totally the wrong way around. It's understandable because System 1 will impulsively conclude without any effort. It jumps to conclusions, which means you're then reflecting on something that is inaccurate. And amateur traders fall into the same trap. After a loss or a small cluster of losses, System 1 will immediately jump to a conclusion to explain that bad outcome. So it could be something like, my system isn't working, I need to be quicker on my entry, and so on. These conclusions, they could roll out without any effort. They come to us naturally, and then the trader will start to respond to those conclusions. What new system should I buy, what new indicator is going to help, etc. Etc. Again, this type of analysis and reviewing is based on impulsive and often false conclusions that System one offered up effortlessly and immediately. And this is a disaster for trading, because this is System one operating without any input or oversight from the more logical system 2. The chimp is jumping to impulsive conclusions about what went wrong and why. And remember, it's impossible to stop this. It is an automated subconscious process, so you need to recognize it to prevent it from taking full control. Those immediate conclusions are likely to be structured as loaded questions like why is this happening? Or why you did my entry not work? Or statements like, yes, well, that was my broker trading against me. It was a slow Internet or other similar excuses and justifications and explanations that can easily make sense. System one wants to construct immediate explanations because it's incredibly impatient. It wants to understand, remember, it hates uncertainty. And these impulsive System 1 conclusions, positive or negative, are likely to contain emotions or feelings such as confusion, a sense of loss, or perhaps gain elation, confidence or a lack of confidence, maybe anger, even apathy and despair. And if you trust these conclusions and their resultant emotions too much, this is what happens to your trade analysis. It starts with impulsive and immediate statements, theories and conclusions. And then the reflecting and analysis that happened afterwards can be more and more divergent, chaotic and complex. In other words, you end up with too many potential actions for consideration or questions that simply can't be answered. And this is why people don't enjoy and completely avoid trade analysis. The point of trade analysis is to provide clarity on future actions. But if it breeds chaos and confusion, we'll just avoid it and we'll stick to our initial impulsive conclusions. That is far easier. But let me be clear. This as you see it here is all upside down. Correct. Trade analysis should allow us to draw conclusions from a rational, methodical and analytical system two process and there are four stages to this. Firstly, we should accept that after any result we will have immediate, impulsive and intuitive conclusions. In other words, accept system one's initial reaction, recognize them as an impatient reaction to what has just happened, and treat them with some distrust and caution, not taking them at face value and true. Then begins the process of proper reflection. And to do that we must remember or replay in our mind what exactly happened, trying to recall the context in which we took certain actions and decisions for the professional tennis player. For instance, after losing the match, she may conclude immediately that it was the fault of her equipment. But then she would begin the process of recalling the match and replaying critical parts of the game, may even re watch the match if it was recorded. And from there we can begin to challenge the decisions and actions that we took by analyzing and critiquing. Noticing, for instance, that maybe she wasn't following the coach's advice, she wasn't applying the right technique or whatever. And it's only after reflecting in this way that we can trust any rational conclusions that we've come up with. For beginners and intermediates, the immediate conclusions pushed up by system one in the first instance are likely to differ significantly from the conclusions that arise from good systematic reviewing in this process. If we think about this in a trading specific context, you might start by immediately concluding that the system or the indicator doesn't work, or it doesn't have an edge, or perhaps that your broker is trading against you or some of the nefarious market participant was hunting your stops. But then you pause and you replay the trading day or the individual trade. It might be from memory, or it might be from notes that you took as you were trading, or even from screen recordings. If you've done that and you recall your decisions and the context that they were taken in, and you realize that actually you didn't follow the system correctly, you made a small subtle change to one of the rules. And then the correct conclusion is that we did not manage that trade well. We gave in to System 1 impulses during the heat of the moment. So unlike the previous slide, when we put our immediate conclusions to one side and we follow a methodical process of evaluation, it's much more likely that we will conclude with something that is far more rational, less defensive, and more accurate and helpful. Following this process, professional traders can identify real problems and know what to fix. Amateurs who give in to their initial reactions never find the real problems and so they can't fix anything. So this is what plan do and review looks like in professionals. And I'll start with the example of a tennis player again on a bad day. First of all, so the match goes badly and they lose. They may impulsively conclude that the reasons for this terrible result are a lack of fitness or perhaps it was bad advice from their coach. But they quickly put back to one side and they begin to recall how they prepared for the match and and then replaying how they played during the match, chronologically, walking through the key moments and decisions. They might even recall thoughts and feelings that they had at key moments. You know, what were they thinking as they made those key decisions? And only then will they start to draw conclusions by noting down what they did and didn't do. Well, points. They need to pay attention to anything about their strategy that might need adjusting, basically looking for lessons to be learned for the next time. And then of course, at some point they'll start preparing for the next match, taking those lessons learned and making a plan to execute them the next time much more effectively. And so the process goes round and around doing it, replaying and reflecting, concluding and then preparing for the next match. Now, with a professional trader, exactly the same routines apply after any kind of loss. They will start by recalling the preparation phase. Did they rush in or did they actually prepare properly as they traded? Did they have their system plan to hand? Did they follow it? What were they thinking or feeling as they watched the price movements? What decisions did they make and why? After that, they then begin to draw Conclusions noting down the good and bad decisions, more moments of good or bad, self regulation, self control. Moments where they deviated from their plan and gave in to system one urges and learning lessons to carry forward into the next trading session. And then in their next pre trading routine window, they do their preparation, making any adjustments they need to make, mentally rehearsing their strategy, visualizing their engagement with the market, clearing and calming their mind and resetting themselves emotionally. And that cycle goes around and around. But we're about on a good day, after a positive outcome, what does the professional tennis player do? Well, this is the point. Nothing different. The outcome has nothing to do with their approach to evaluation. Regardless of the fact that they won the match, they will still replay the match in their mind and evaluate their decisions in exactly the same way. They will conclude in the same way. And they will go on to prepare in the same way. And they never take a positive outcome for granted. It may have been luck. Maybe they won because their opponent was even worse than them. So there will still be lots to learn and take forward to improve next time. And obviously in trading the process is exactly the same. The good outcome has no influence on the analysis that you do. Your analysis is evaluating your trading consistency and execution. It is not evaluating the win or loss outcome. If you follow the process and you trade with consistency, assuming you've got a strategy with a positive expectancy, then over the long term you will be a profitable trader. So the big question you need to ask yourself is does the outcome of an individual trade or small cluster of trades change how you conduct your post trade analysis? You need to establish if your approach to post trade analysis is is process or outcome focused. And you can do that by asking yourself what ratio of winning trades do you evaluate? For most amateur traders, it's typically none, zero percent. If the trade won, why evaluate it? If the trade broke even, you might evaluate maybe 30%. But overwhelmingly most amateur traders only evaluate the trades that lost money. So. So let's say about 70%. If your ratio is anything like this, you are outcome focused, which is never going to improve your ability to follow your system and improve your intuition. To be probabilistic, your trade evaluation must be even across all outcomes, whether they win, lose or break even. This is the only way to improve decision making processes in the long term and build your intuition. The outcome of an individual trade has absolutely nothing to do with whether you should review your decisions, judgment, emotional regulation, self awareness, trading habits, strategy and intuitive reasoning. Because outcomes are random and probabilistic. So this is the proper trading cycle trading, which is the doing part, recalling and reflecting on that trading, then concluding and then preparing all of that regardless of the outcome. The best traders can win records amount of money on a single trade and be furious with themselves that they didn't manage the trade well and perform consistently. They're disappointed because it was a bad trade. And likewise they can lose money and they can walk away from it happy because it was a good trade, because they did everything right. They followed the process. And that may sound bizarre to beginners, but professionals know that they make money long term by thinking probabilistically and being process focused, not outcome focused. They focus on taking good trades. So here's a quick summary of what we've discussed so far. Experience means nothing where consistent and balanced evaluation. You don't learn just by playing a tennis match or just by trading. You learn by by evaluating after your experience and planning to do things differently, better next time. Planning, doing and reviewing are equally as important as each other. You can't pay lip service to any of these parts ever. The beginner trader loves the doing part, but they ignore everything else. Amateur traders see the outcome and usually conclude impulsively and then they review randomly, responding to the impulsive system one conclusions. But professionals plan, do, replay and review and then conclude and take those conclusions into the next planning clues regardless of the outcome, because the outcome does not change the evaluation process. In other words, reviewing is not trying to understand the outcome or why you won or lost money. It's assessing the quality of of the process of your performance. And lastly, your intuition is only ever going to be as good as the information you are feeding it. A solid evaluative process will develop powerful intuition that will enable you to trade just like any system. So let's look at these parts in a little bit more detail. In simple terms, the quality of your decision evaluation depends on the quality of the routine questions that you ask yourself. And these questions should become part of your system. That means they should be written down and routinely referred to just like any other trading rule. It's not an exaggeration to say these are as important as the entry or the imitator that you use your trading skill. And of course your intuition will develop and improve in proportion to the quality of these questions. So to help you, I'll go through some samples for each section of the trading cycle. You will need to create your own based on how you trade your timeframes, markets and strategies, etc. But these will help you to get started. So let's Start with the recall and reflection phase after a trading session. The very first thing you need to do is reflect on the preparation process and ask yourself whether the quality of your preparation may have impacted your trading. If you don't do this, you may make false assumptions about your trading decisions. So here are some example questions that you might ask yourself. You can pause the video or maybe come back to this slide later and go through them in a little bit more detail. You can see broadly what we're trying to establish first is whether we were thorough enough in building situational awareness, scanning news, financial events, calendars, etc. And we also want to know how you felt before you started trading and any other stresses that you might be bringing into the trading room. If you've just had an argument with your spouse, then that would definitely be answered here. Basically, anything you think is relevant to trading well, technically and mentally. The point is that you're reviewing your preparation so as to maintain it and improve it for the next time. So these questions are a starting point, but you should make your own and try and keep it simple. Don't make this too complex. Then you move on to reflecting on the trading itself. How did I feel in the session at the start? Was I relaxed when I saw the first opportunity? How did I respond? Did I enter well, time it well, and how did I manage it? Was I sticking to the rules? Was I tempted to override the strategy because of maladaptive System one urges? Did I give in to those urges? Were there any physical sensations at any point? Again, pause the video here if you want to study these examples. But then please design your own. Remember, you are reflecting on your performance. Essentially, you're rating the session as to how well you followed the process, your behavior, your decisions, and overall System two oversight. You're not rating anything based on the outcomes. Having done that, you now draw conclusions as to how well you prepared, how you traded, and any lessons that you've learned that need to be carried into the next trading session. And these are some more examples. And with this, over time you might start noticing themes or patterns in your trading behavior. So be sure to keep notes to look for those behaviors. And this is a really important point. When you do conclude that you mismanaged a trade, you gave in to system one urges, or you didn't prepare well, there's no point berating yourself. Not too much, anyway. A good analytical thinker is someone who accepts failure in the short term and is curious as to why they made that mistake or made that bad decision. If you don't accept your own mistakes and weaknesses, then you are more likely to look for external reasons for for your lack of performance. You'll blame it on anything but yourself, and if you do that, you're never going to correct the problem or make any progress. Finding your own faults is the quickest way to grow and become successful at anything. Actually. Again, make your own routine questions, but keep them simple. Don't go overboard. And lastly, trading is as much about preparing to trade as trading itself. This is what sets you up for a good trading session. Now here are some example questions for this phase. In my view, preparation for trading is as much about preparing yourself physically and mentally as it is about the technical side, such as chatting news, assessing market conditions and running through your system rules and checklists. Once you've created your own preparation questions, you can add all of this to your documented trading system. Remember, all of this is part of your system. It's as important as the entry and exit. There are very good reasons that professionals in all activities like pilots etc. Have checklists. As experienced as they are, they need routine, habitualized thinking systems, ways of ensuring they avoid complacency and don't overlook critical steps. Mistakes are avoided thanks to checklists in trading. Specifically, you need routine questions to ensure that you don't fall back into outcome rather than process analysis, which is really easy to do. But a quick word of warning don't overcomplicate this. Remember the quote from the last video? Keep everything as simple as possible, but not simpler. You do not need pages and pages of questions and you don't need pages and pages of answers. You'll give yourself information overload and you'll end up creating more problems than you solve if you go too deep with this. You want to find a happy balance of doing the minimum amount which gives you the maximum benefit. And as you get used to this, whilst you'll still keep the questions documented and written down, your answers may end up just being done purely mentally. As with everything, it will take more effort to begin with, but with practice and repetition it will become a habit. Now, whilst we're on the topic of planning, let me just quickly suggest that the preparation part should loosely be done in three parts and the first part of that is physical preparation. Lesson 12 of this course goes into detail about this in terms of the biology of your decision making. But very briefly now I'll mention something called bdnf. Brain Derived Nootropic Factor. It's a protein crucial to prevent cell death and encourage cell growth, but More importantly for us as traders, it prepares the brain for learning. It's the biological link between information input, accurate recall of experience, emotional response and action. If you want to recall accurately and encode your experiences accurately, in other words, you, you want to improve your intuition, you need BDNF in your system. And you can do that relatively easily with cardiovascular exercise, which instantly floods your brain. With BDNF up to 40%, even just three minutes of intense exercise, you could argue that if you don't raise your heart rate before trading, you're 40% less effective from a learning point of view and building intuition. Now I realize this can cause problems for a lot of traders depending on age and physical health. So you don't need to go nuts. If you can do something, tent exercise in the morning before trading, great. But if you can't, even just a brisk walk before you start trading will pay massive dividends for you. In this respect. And from a self control point of view, exercise like a brisk walk floods System 2 with oxygen, which, which greatly reduces the chance of system one taking over. Remember, system one takes over system two by restricting its oxygen supply. So any form of exercise is a quick win to improve your trading performance. So after some exercise, when you sit down to prepare for trading, you go into the technical preparation. That's checking relevant financial calendars, market conditions, news feeds, asking yourself questions about your readiness, or reading through the lessons learned from the last trading session, and so on. Check your tools, your platform, your Internet connection. Have you got everything that you're going to need for that trading session ahead? You can see why a checklist for this is so handy. And then once you've done that, you begin your mental preparation. This is where you will manage or neutralize your emotional state, perhaps using some breathing or physical techniques to calm you down. But it's also an opportunity to mentally rehearse decisions in in likely trading scenarios that you're going to face. Mental preparation is aiming to calm and reset system one. If you think about a tennis player again quickly, they start by going through their strategy with their coach. They check their racket, their shoes, the equipment and so on, and going over the lessons learned from their last match. But then they'll switch to the mental preparation. That's quiet time alone in their own headspace, preparing calmly for what is to come. Amateur traders tend not to emphasize this part at all. They are just keen to get on with the doing the actual trade in. But this is such a vital step. Okay, so the primary of this evaluation sequence is to ensure that we are evaluating process, not outcome, to monitor our ability to stick with the system without overriding in response to maladaptive system. One urges essentially to help us avoid all of the common mistakes that we've talked about in the other lessons in this course. But there is another huge payoff which I've obviously alluded to, which is developing your trading intuition. When your attention is largely on the process rather than on individual trade outcomes, your trading intuition will over time develop properly. Once over simplistic cause and effect between your trade management and individual outcomes are set aside, your intuition is left to build a much more probabilistic attitude to outcomes, basically aggregating outcomes much more effectively over along the time span. So let's talk about intuition for a moment, starting with a definition, a thing that one knows or considers likely from instinctive feeling rather than conscious reasoning. When you've traded and evaluated a trading system systematically and consistently for some time, your intuition will start to see complex patterns and trends in market behavior that are hard sense by conscious or system two reasoning. It's the same with anything. If you do a lot of fishing, your intuition will start to notice the complex relationships between location, weather, time of day, seasons and equipment used, for instance. And you'll begin to have reliable gut feelings. You will intuitively begin to know under what conditions you are more likely to get better results. It's an unconscious knowing, an unconscious spotting of patterns that system one has seen before. If you're an experienced trader and you've been consistently exposed to a lot of trades, your intuition will start to give you a sense that despite your system rules telling you that a trade ticks all the entry requirements to enter something in the market behavior is pointing to the fact that you should not trade on this instance. I've mentioned this before about good traders knowing when to break their rules. Now, I admit this is a really tricky subject. Intuition can't be taught. It is something you have to learn through deliberate processes. Learning to tell the difference between a maladaptive defensive mechanism and a real intuitive knowledge is really hard. In fact, it's impossible for beginners. It's why this concept is not taught in most trading courses. But developing trading intuition over time is crucial if you want to truly succeed. So let me at least dispel some myths about intuition. Firstly, intuition is a magical sixth sense. It is a sixth sense, so to speak. But there's nothing magical about it. It's just the process that system one goes through to make a probabilistic prediction in a complex and uncertain environment. Intuition is having a sense of conviction. Now, it can be. Your intuition can in some circumstances become completely convinced, like an experienced firefighter hearing a certain sang in the building and knowing for sure that the building is a bank to fall. But in trading, it's more likely to be probabilistic and suggest that an outcome is becoming more likely. Remember, there are no certainties in trading because we can never know all of the information. The third myth is that intuition is a separate process than fear or other feelings. Intuition is a system, one process, so it communicates with you via emotions and physical feelings. The phrase gut feeling says it all. An intuitive feeling will likely start as a sensory cue in your body. And once you've learned to discount maladaptive defensive urges and you've been exposed to many, many trades, then you can start to trust these feelings, but not before. The fourth is that intuition is a gift. Intuition is not a gift. It's not something that you're just born with. Intuition is simply the sum total of the evaluated experiences that you've had. It is completely trainable. It's just that not everyone wants to do the evaluation or has enough curiosity to do the evaluation. The idea that once you have intuition, everything else is just going to be fine, that's also a myth. There is no point at which you have it in its final form. It is consistently evolving and updating, just like the market. To think that you have it is likely. The moment that you become complacent and you over trust it. Intuition still needs challenging, hence this evaluation process. The next thing is that everyone's intuition works in the same way. No, intuition is a highly personal thing. I mean, Warren Buffett's intuition was something like a muscle tension in his back. But for others, it may be that they break out in a sweat or experience a feeling in their gut, or they find themselves sat on the edge of their seat. The idea that an intuitive urge will always be loud and clear is also untrue. Some of the best intuitive urges are very, very subtle and far less obvious than the more over the top strong maladaptive defensive urges that we've discussed earlier. In the course, if you're in a calm, relaxed, fluid state when you're trading, it's much more likely that you will pick up on some of these more subtle intuitive indicators, which is why mental preparation and resetting is so important before you trade. Without careful preparation, it's much more likely that you will miss the true intuitive nudges that you get, and you're only going to recognize the Much Louder Maladaptive System 1 defensive urges. Many promote that the idea their intuitive feedings should always be trusted. Now that is simply not true. Everyone has intuition. But the accuracy of that intuition depends on your experience. So if you're new to trading or you've just been trading whilst completely hijacked by maladaptive system one urges, or you've not had a good evaluative process, then your trading intuition should not be trusted. No matter how true and clear it feels, it is not trustworthy yet. And lastly, the myth that experience will inevitably lead to good trading intuition. As I said earlier, good intuition doesn't just need lots of experience, it requires good process based evaluation. There are loads of traders who have years and years of experience and may have been exposed to hundreds if not thousands or tens of thousands of trades. But because they have not evaluated correctly, their intuition has never been sharpened. It's of no use to them. Intuition is simply the name we give to the sum total of all of the effortless system one processes that are involved with communicating deep complex pattern recognition. It's limited by the information that it has and the experience that it has, and most importantly, the quality of the reflective habits of the thinker. In other words, your trade in intuition just simply describes the State of System 1's Long Term Memory as opposed to short term memories that we might lean on too much. So it is inevitable that for the beginner trader, they must rely wholeheartedly on their system rules because their intuition has not yet formed. But as you get more experience and you populate your long term memory with good process based evaluative experience, the more you can start to lean on your intuition. Now don't worry that intuition too much right now. It will come with time. If you apply what you're learning in the course. All you need to do is create the right environment in which it can build and be refined by by learning to discount maladaptive defense mechanisms in the first instance and ensure that you are evaluating your trades correctly in the second. Okay, in its simplest form, this is what we've been pushing in this lesson. It is that outcome based evaluation on single trades or small clusters of trades is pointless. Trading is a probabilistic exercise where you only have a small edge and therefore the inferences made on an individual or small cluster basis are false and it gives you no actionable information whatsoever. So the evaluative method that I've given you here counters system one's urge to derive any meaning from trade outcomes. But does that mean we should never conduct Outcome based evaluation? Well, no. You should, at various intervals, assess your results, assess the outcomes, but it should be looking at a much bigger sample size. You do need to confirm that your system does in fact have an edge and it is working. Otherwise everything else is for nothing. Sometimes it's not just you who needs improving. Your system may as well. But you can only determine that once you've got a much bigger sample size of trades to assess. So what does that look like? Well, it depends on the number of trades that you've taken, but even more importantly, the range of the market conditions that those trades were taken in. Now, an amateur trader looking for simplicity may look at a group of, let's say 100 trades, and they ask whether the outcome is a profit or loss after those hundred trades. But that isn't assessing the system, not correctly anyway. For example, if your system has created a loss from the last 100 trades, but it's been trading in really bad conditions and the loss is quite small, you've probably got a really good system. It's protecting your account under bad conditions. Whereas if it was a bad system, you may have already wiped out your account and have no balance left. Similarly, if you're only in a small profit, but you've been trading in amazing conditions, your system probably isn't very good. It may not have an edge. Even bad systems make money under good conditions. So if the profit is less than you would expect, be really cautious. You probably don't have an edge. An accurate assessment of outcomes looks at how big the account profit or loss is in relation to the market conditions and, and the expectations for performance in those conditions. And this obviously takes more effort, but it is more beneficial. You don't want to keep a bad system just because it's making money in good markets. And you don't want to throw away a good system just because it's losing money in a bad market. Look at your system's performance under those various market conditions, not just a very simplistic profit or loss balance sheet. This kind of assessment, like everything else in trading, requires much more effort than most amateurs are prepared to do. But this is what will help you make progress. Okay, so let me give you some general guidance now on what it takes to be a good evaluator. There are five factors. Firstly, curiosity. If you make a mistake or you give in to a defensive maladaptive urge, you should act like a good scientist and be curious as to why you didn't do what you hoped to do. If you take profit early, be curious as to why you tipped over the edge. Don't get angry with yourself. Secondly, you should be skeptical about the reasons behind your own decisions, not instantly finding an excuse. Being skeptical is a healthy attitude and it accepts that you are not perfect and ensures that you question your own thinking. In a sense, this is System two challenging System one and not just going along with everything that it pushes. Being optimistic is crucial to believe in, but you can and will improve. Don't believe that just because you're making mistakes now that there's something wrong with you and you will never improve. Believe in yourself. Number four is humility. And humility is simply one's willingness to admit when your decisions or opinions are or were wrong in the face of new evidence to the contrary, without humility or we defend our actions at any cost and we seek to explain our actions and we don't learn from them. And of course simplicity. In a complex environment like trading, a good evaluator looks for simplicity in their conclusions, systems, documentation and actions. In other words, look for the 20% that will get you 80% of the results. Now for this lesson in terms of System two oversight and self awareness. What I'm asking you is for you to pay attention to System one's urges to conclude impulsively after trading. The urge to reflect on those impulsive conclusions. The urge to evaluate or make sense of individual outcomes. Whether you are aware of System one sense that only negative outcomes need to be evaluated. In other words, to what extent are you paying equal attention to winning, neutral and losing trades? And are you impatient to get on with trading and not doing proper pre trade preparation as well as skip or not see the importance of mental preparation and of course System one's straight out of the box poor attitude to evaluating your own thinking which is counted by accepting but putting aside System one's impulsive conclusion straight after a trading session because remember, you can't turn them off. I'm just asking you to doubt their validity. Are you reflecting and analyzing only after you've recalled and repaid your trading session? Are you evaluating your process, your adherence to the system and reviewing any overriding of your plan? Are you checking that your approach to evaluation is consistent despite the outcome? And are you leaving plenty of time for technical planning as well as mental preparation? And now you fostering and maintaining a good evaluative mindset and attitude as much as possible? I'll finish off with this quote from James Allen, which I think summarizes this lesson quite well. One's mind may be likened to a garden, which may be intellectually cultivated or allowed to run wild, but whether cultivated or neglected, it must and will bring forth. If no useful seeds are put in, then abundance of useless weed seeds will fall therein and continue to produce their kind. What does that mean? Well, it just means that good evaluation in trading is all about planting the right seeds. Trade or decision Evaluation is what makes you a good trader. Eventually. This is the part of a trading system that amateurs ignore don't be one of the crowd Now Looking forward to the next lesson. I'm going to talk about apophenia, which in layman's terms is seeing patterns and making connections or giving meaning to things that are random. So varys seeing faces in the clouds or thinking that particularly shaped candlesticks cause the price to move or predict the price movements in a set direction. This is the trader's nemesis, and I warn you that the lesson may be quite uncomfortable for some of you. When traders study this kind of material, they often realize that what they've been basing their entire trade in ecotorm is nonsense and they've been given it for years and years and that can be a difficult pill to swallow. But I think you know enough about yourself and your mind and trading by now to accept that it is better to face reality than to just bury your head in the sand. Follow the herd if you want to be a great trader winning trader, you've got to work with the truth and facts. I think it's a really fascinating subject, it's really enjoyable to talk about, and I think you'll probably enjoy watching this next video more than most of the others, so be sure to click through and watch that as soon as you can. If this one has been helpful to you and you are enjoying the course overall, please consider subscribing or leaving a like or comment. That would really help me out. So thanks for your time and I'll see you in the next lesson.
