This is Why PROFITABLE TRADING is Almost IMPOSSIBLE

A 15 year study following 300,000 traders in Taiwan showed that only 1% were profitable after five years. A long term Brazilian study showed that only 1% of traders made profits greater than minimum wage. And a University of California study also concluded a success rate of only 1% after three years. Users in forums typically state that 90% of traders fail, but the real stats prove it's much worse than that. You have a better chance of becoming a brain surgeon than than a profitable trader. Welcome back everyone. I'm not trying to dishearten you, but if you want to be among the 1% of traders who achieve trading success, you do need to face facts. The next and the final lesson in this course is going to show you some strategies that will help you develop better trading skills. But for those strategies to make proper sense in this video, I just want to explain why your decision systems developed the the way they have. If you understand what's really going on behind the scenes, you've got a much better chance of joining the 1% who succeed. Your greatest enemy in trading should actually be your greatest ally. Our brains are designed for a very different world than we currently live in. You almost certainly woke up this morning without any imminent fear of starving to death, freezing to death, being eaten to death, or dying from disease or infection. And the neighboring suburb across town is very unlikely to carry out a deadly raid on your part of town. You absolutely expect to survive until bedtime, but that's a very modern luxury. But we take for granted. For most of human existence, famine was commonplace. Exposure to bad weather would kill us. We lived side by side with nature and becoming lunch for a predator was a real possibility since simple cuts and grazes could kill us thanks to infection and hostile neighboring tribes within walking distance were a constant threat. Our brains, and specifically the part called the amygdala, was on constant alert, always looking for any sign of danger and preparing our body to react to the slightest risk. You can understand, as we discussed in the last lesson, why our defense systems are so oversensitive for most of our existence. The they needed to be. And when danger is perceived and our defense system springs into action, it can summon up seemingly superhuman strength and speed and reaction times, focus, coordination and planning abilities. It is a truly remarkable system. The problem is modern society is entirely different and unbelievably safe by comparison. The evolution of civilization is so rapid, our brains haven't even begun to adapt and catch up. Our defense system is oversensitive because it's anticipating and expecting risks and dangers that for the most Part are no longer there for us. So here's a simple example. We all own far more possessions than we need. Most of our belongings are luxuries, not necessities. And almost everything is manufactured in bulk. So even something relatively valuable like a smartphone, if we break or lose it, we just claim on insurance and it's replaced within 24 hours. And in the past, however, the small number of things we did own were critical to our survival and keeping hold of them was a priority. They were hard to make or acquire, they broke easily or could easily be taken from us. As a result, we formed strong bonds to our possessions. And when facing the choice over whether to protect what we already had or risk them to acquire even more possessions, keeping a few things that we had turned out to be a much more successful strategy. So having a second flint knife may be a benefit. But do I really want to risk smashing up pieces of flint that I could cut myself on and bleed to death in order to make that second one? Well, it's much safer, literally to just play it safe and hold on to what I've already got and not take any chances. And we've retained that same decision making process and unconsciously apply it in our trading using. You've just made a new equity high, you don't really want to risk giving that back to you. Every fiber of your body will be telling you to take profit and play it safe. But on the other hand, in the past when we were in real danger, it turned out that taking risks was a better strategy. Jumping over a ravine to escape a predator, discarding all our possessions to make the hike back to camp more manageable when we were exhausted, or taking a risk with an unknown plant when we were completely malnourished. When you're already behind and you have little left to lose, you may as well take the chance. And that's what we see when we're in a loss or have taken a string of losses in trading, we begin to take bigger risks, such as moving our stop loss wider, taking bigger position sizes, doubling down with our money management, or entering lower probability trades. All of our trading behaviors are directly tied to the historical development of our defensive survival systems. And you can see they are two opposite forces. Staying safe and protecting what we have on the one hand, and taking risks to gag of a sticky situation on the other. And by cleverly knowing when to play it safe and when to take abnormal risks, we've managed to thrive. But as I've said before, capitalism and trading didn't exist when those decision systems Were developing. The best way to understand this in trading is by looking at something more familiar, like our relationship with food. And this isn't an analogy, It's a direct relationship. The vast majority of us on the planet have easy and plentiful access to a wide range of food, and we eat several meals and snacks every day. Just missing breakfast puts some people in a panic, but that certainly isn't how our bodies were designed or evolved. In the past, our bodies expected to go without food. Periods of fasting were the norm, and the majority of food we did eat was low in calories and nutrients. Some leafy vegetables, occasional fruits and grains, and of course, it all varied by season. So as such, on the rare occasions there was a surplus of food, or we were lucky enough to have a calorie against meal of protein and fat, Our survival systems motivated us to consume as much of it as we could as quickly as we could, so our bodies could store the surplus to get us through the lean times. But now there's an almost limitless availability of food, most of which is packed with calories. It's not a coincidence that food manufacturers deliberately make products filled with sugar because they know our automated judgment and decision systems haven't caught up with the modern environment where supermarkets exist, and we'll shovel that food down our faces like there's no tomorrow. The technical term for this is maladaptive, meaning that your judgment and decision systems around food haven't adapted to the modern world. The same is true of trading. The defensive and intuitive decision systems you possess are maladaptive for the trading environment. And there's three things that really contribute most to how maladaptive our decision systems are for trading. First, the world our brains developed in were far simpler in terms of the complexity and the amount of information that we needed to process before making a decision. There's a lion. Should I fight it or run away? Fairly simple. But the volume of data and information coming at you from your trading platform and news feeds is off the scale compared to the past, and it can easily overwhelm your defense systems without careful retraining specifically for trading, those systems will be overwhelmed and they will default to their simplest setting, which is the very worst for trading. Secondly, it was more physical. The risks we faced usually meant bodily harm, and the solutions to problems usually involved hard work, persistence, and aggression. That's why you often want to do more and sometimes punch the computer screen after a loss. The threats coming out of the screen are subjective and have never been experienced before, and therefore cannot be accurately interpreted without retraining and recalibrating. And thirdly, the environment our defense systems developed in was much more spatial. We used to physically interact with the landscape and physically experience the cause and effect of our actions. But trading is largely conducted in a virtual two dimensional environment. We can't see or feel the data in its entirety. We're not getting three dimensional feedback. So you can see how the trading environment is worlds away from the environment that our defensive decision and judgment systems developed in. The good news is maladaptive does not mean incompatible. It just means we need to recalibrate things. Your intuitive defense and decision systems are formidable allies to have on your side. The very last thing you want to do is turn them off. You want to retrain them and use them. They're amazing. The best traders understand that there are four components to trade in. There's the trading system, which is your documented process with the rules and your statistical edge. Then there's your defense mechanisms, which if retrained, will govern your risk management and ensure your long term trading survival. Third, your intuitive decision system, which again if retrained will allow you to see unteachable patterns in the market and you can act on them profitably. And then lastly, your logical decision system, which acts in an oversight capacity to manage and orchestrate the other three systems in unison. Being a good trader means using all of those components cohesively to your advantage. And so the next video to round off this introductory series will give you some simple strategies to help you retrain and develop and strengthen your decision systems so you can finally move towards joining the 1% of traders who defy the odds and succeed. I hope you've enjoyed this video guys. As always, if you found it interesting, please, like, comment and share and consider subscribing. If this type of content is of value to you, look out for the final lesson in the series and maybe revisit the earlier lessons just to help cement your understanding and your knowledge. Thanks for watching. I'll see you next time.