Winning the Mental Game of Trading

Trading is a number game, but it's also very much a mental game.

I managed to beat the mental game of trading. When you see this, the next step is aggressive sellers.

You coded the algorithm up to the point where I was able to achieve 500% return during 12 months in the world most famous trading competition also known as the Rapids Cup. So on top of mastering the psychological game of you against the market, I was able to do it with the pressure of the world looking at me and thousands and thousands of people commenting on every up or down performance. In this video I will show you my mental models for a successful trading.

Welcome back everyone to the channel. We are going to go through the mental models today and I will explain to you my multi layer problem solving approach by explaining how the human psychology work against us and give you some tips on how to survive in these markets. These documents that I prepared for you that I will go through is called the ultimate trader blueprint. And I want to start with the nature of trading success, the dual nature of trading success. And I want to open the topic of consistent profitability. Because to achieve consistent profitability you don't need to predict the markets. And this is what is widely misunderstood. You need to switch to a concept of acceptance and understanding of your edge and the concept of probability, not prediction. I will explain this passage to you with two perspectives. The first one is the deeper inner transformation. There is something that goes beyond technical knowledge because you can have the best edge in the world but still lose money if you don't have the mental model and risk management model. So you need to start with the concept of acceptance. You are accepting to risk your money. You are accepting that business is a difficult profession. You are accepting the that you will only execute trades that have an actual edge. You need to take responsibility for your action. You don't need to blame the market for your errors. And you need to have consistent practice and patience every day. The second perspective is that trading is not difficult, it's misunderstood. And you need to shift from a prediction based mindset to a probability based approach following the law of large numbers and a achieving what is called expectancy and performance. So let's go on and let's understand how these two perspectives complement each other perfectly. I gave you some real world example. There is Michael, an IT professional and you have a tendency to over trade. What does it mean that Michael, even if he have an edge, he didn't develop the inner discipline and strategic framework to execute his trades only when the opportunity present. So he take more trades than Normal, he's over trading. And when you over trade in your samples of data in 100 execution, maybe you have 30 trades that follow the plan, but 70 trades that are just created by your over trading, they are not in line with your blueprint, your model. And this is the reason you still can lose money if you don't have the mental model to apply because you don't have discipline. And so we go back to the first perspective. Second one is the time investment. Now let's say that trading is not an easy skill. In his whole concept, the psychology development can take one to two years of consistent effort. It's like when we talk about fitness, when we talk about excelling in some professional field. You cannot dream or think to do it in one month or two months. You need consistent practice. And you need to adapt your brain and your neurons to this kind of discipline. Because we are human beings, we will react to losing money. We will go in revenge trading. It's totally normal. It's not you that is wrong, it's our brain. So let's go back to the inner transformation and let's go through the inner journey. So the trader's inner journey starts with five essential step. Awareness, acceptance, responsibility and consistent practice. Of course also patience. We go to transformational results after all these five are achieved and, and we achieve emotional control, rational decisions and consistent profitability. Because there is no consistent profitability if there is not a level of discipline that is enough to execute an edge only when the opportunity presents itself. So success requires more than technical knowledge or market strategy, but requires a paradigm shift. You need to go through a probability approach, not a prediction approach, not what the market will do tomorrow, but what's the result that I can expect after 100 execution on my trading account. Because there is this probability and this risk to reward. So what I can expect is this accounting for commission and loss. This is trading going on. To change your result, you must first change yourself. Remember that it's you that execute. It's you that understand the opportunity. It's you that frame the risk management. We are not algorithmic traders, we are discretionary trader. So if you expect to have a different result by putting the same input, it's just impossible. You cannot change a recipe and the taste of a cake if the ingredients are always the same. Just impossible. The five step of inner transformation go to the step one, that is awareness and step two, that is acceptance. The step one goes through recognizing patterns, identifying emotion and stopping them immediately. Revenge, anger against the market doesn't work out. They do More damage than benefits. Observe your behavior. Become the psychology of yourself. And trading journal. And on the right side, on the step two, Accept risk, accept losses. Accept uncertainty, acceptance. And give yourself the ability to project a simulation to do backtests to achieve in the end, the foundation for emotional stability. Why? Because you accepted the risk. You are aware of the risk. And more than this, you know how much you can lose. Okay, you can project it. So awareness, as we saw, is recognizing pattern, identifying emotion and observing behavior. And this phase requires all honestly with yourself and the ability to observe objectively. Don't be afraid to blame yourself. If there is no identification of the error, there is no improvement. Here we have some practical exercise. So is the benefit of journaling your emotion also? I gave you true example. I can't miss this opportunity. Fear of missing out. It's a psychology condition. Or I need to recover yesterday loss. So today I risk double. I know that every one of you went through this. It's normal. It's our brain. We are humans. The phase two. As I was saying, accept risk, accept loss. Accepts uncertainty. And in this phase, remember that the trader develops a balanced mindset. But you need to understand that trading is not a linear path to success, but a probabilistic activity with ups and downs. Okay, here is the loss simulation. If you want to go through it, I will stop for five seconds so you can take a screenshot. And the acceptance part? Paradox. What does it mean? That if you start by accepting that today you will take a loss and you get in this mental state, you will not overreact. But if you expect profit for today and you have a loss for sure, it will be guaranteed that you will overreact. Overreact to this. So going through the other three step. Responsibility, practice and patience. Step three is responsibility. Stop blaming is not a fail of the markets. Make conscious decision. Understand what you are doing and why. Take control of your brain and take responsibility. Step 4 Practice. Have a daily routine. Do journaling, do visualization. Understand what's your goal and have a morning ritual. For me in this case is meditation. I don't know if it's okay for everyone. Maybe you are busy and you cannot spare 20 minutes for this. But get in a mental state where you are. Calm down before going on charts. Step 5 Patience. Gradual process. Resist impulsivity. Trust the process and cost opportunity. Calculator. Understand how much the market is rewarding you for the risk that you are inputting. This is the framework for a complete inner transformation. Step three. Responsibility. Stop blaming. Conscious decision. Take control in this case I gave you an example of the responsibility, reframe, exercise. I enter without confirming the trend on a year time frame. This is not the failure of the market. Stop blaming. This is you not respecting the plan that you created, validated and came out an edge from it. So you are just deciding consciously to not respect your plan. This is not a problem of the plan. This is not a problem of the market. This is lack of discipline. You cannot wait for the correct opportunity to show consistent practice. We went through it. Then journaling, visualization, routine and ritual. Now let's talk about consistency threshold, how much time it requires for the mental brain to build an habit. It's around 66 days. If you can achieve 66 days of discipline, journaling, visualization, pre planning of the session, respecting your plan, you can be a trader. If you cannot even complete two months doing this, the probability that you will lose as a trader, it's huge. If not in the short run, in the long run, we go to the last one. Patience, gradual process, System impulsivity. Trust in the process. Understand what you are doing. Okay, Going on the opportunity calculator is the cost of impulsive trading. What does it mean? How much does it cost to me? An error. If I decide to break the plan, don't follow it. How much money can I lose? Three losses out of the plan, maybe with one hour of €1,000 or €3,000 or dollars that I lose in the days that I don't follow the plan, I are you able to sustain it? Understand that every time you want to untick this part of the checklist of the plan, you are taking this risk. Ask yourself if you are willing to go through it on this part, on the responsibility. I show you this image of the mirrors. Because it's always you versus you. It's you that take decision. You try to blame. Today is the failure of the markets. Today the condition was not good, the strategy don't work. But it's always you in the center, you. It's you that take decision. Okay? You need to identify the problem and fix it. Because if you let the crack go through your discipline, each day will sum up to the next and the bridge will fall. And the bridge, it's your trading capital. This part of acceptance and awareness. It's amazing. And I want to create a metaphor with the Japanese concept of putting together back the piece of broken stuff with gold. Why? Because everything that you can analyze, understand and improve is something that will be better. So you cannot improve what you cannot journal. In this case, the months necessary 66 days because there is no shortcut for practice. So you need a quantic leap. Okay. And the result that you can expect of the inner transformation are the following. Emotional control. You will be calm during losses. You will be stable during wins. You will not get euphoria because you don't know how you made profit. You think you are lucky. You will have reduced stress on the rational decision. You will be data driven. You will not execute anything that is not in line with your plan. You will have an objective evaluation of what you are doing and you will have a strategic thinking. This merged together is what is called consistent profitability. Okay? You cannot remove emotions. We are humans. But you can control the reaction that you have. Okay? So here is a summary of emotional control, rational decision and consistent profitability. And also life transformation. So going beyond trading, because personal growth is required by trading is the catalyst for a better life. And this is the spillover effect. I like to call it like this. It means that when you improve your discipline, you improve your habit, you improve your decision making process, you will see that not only your performance in trading improve, but your life at 360°. This is something that's a side benefit of trading. Let's go on. And let's go on the part where trading is not hard but is misunderstood. Because this is the trading reality. And most traders act like they will randomly stumble into profits. Maybe today it will be a lucky week. Please sir, give me the strategy that will change my life. They forget the problem. The problem is the trader, not the strategy. And the solution is a process over prediction. Stop asking in discord channel. What do you think Euros USD will do tomorrow? How will big gold next week? Please sir, tell me. I want to get rich. Okay. You need a psychological foundation and implementation path to get a strategic framework. This is the only path to consistent profitability. You cannot skip it by just saying give me a profitable model, I will be a profitable traders. They did this test in Wall street giving to 100 people the same strategy and they perform differently. Because it's called discretionary trader. Because there is discretion. You are yourself the strategy. It's not some different entity. You, the trader, the discretionary trader are part of the strategy, are part of the performance. You have a direct impact on the profit and loss of every month of trading. Let's go on. So isn't that trading hard, but rather that it's fundamentally misunderstood by most people who attempt it. So going into the trading journey, common misconception about trading. Success comes from finding the perfect strategy. The holy Grail or trading is about predicting the future. The reality trading is probability. Focus on process, not outcomes. Manage risk, not prediction. If I should give an explanation of what's trading, in simple words, trading. Profitable trading is consistent in execution of positive expectancy. And this is how you feel at the moment. You feel lost because there are a lot of influencers in the trading space that send you to multiple direction without explaining you this. You need to have an edge, you need to have a mental model to apply it. And you need to have a correct risk management. There is nothing more. This is trading. And this is the fundamental misconception. You are trying to put together a puzzle with the wrong pieces. Of course it don't work. Of course you are not profitable after years of testing. So there is no perfect strategy or indicator. There is no holy grail and there is no prediction based system. There is low or large number positive expectancy and edge also called alpha. This is something funny that I wanted to put you here. The strategy hopper journey. Have you ever been in this situation where you consistently change strategy day by day, week by week. As soon as the strategy goes in drawdown without understanding that every edge sooner or later will go in drawdown is normal. So the common trading mistakes is strategy hopping. Jumping from one model to the other one, having unrealistic expectation. I want to get rich with €1,000. You will not do it. Not in the short term. Maybe if you. If you use this money to build an edge, to refine it and get capital you can. But you will not get rich in the short term. You have to put too much risk on the table to make something reasonable with a small amount of money. So your risk of ruin goes to the moon. You don't need to over empathize on entry, focusing too much on entry points. And forget about risk management. Take a one shot. You know how a lot of people do challenge. I will take the best shot and that's it. I took 2000 execution all with the same risk. Emotional trading. Making decision based on fear, greed or other emotion. This is always wrong. Always, always. There is no case where this kind of trading is profitable. Psychological foundation gave you this crazy scientist here with all the emotions and going through the psychology we go back to the emotional control, acceptance and responsibility. You need to own your result. You need to embrace uncertainty. You need to manage your fear and greed. And in the concept of psychological capital management, you need to have consistent decision under pressure. You cannot change your decision only because you are going through pressure. This is the summary of how emotional control Work and you need to have a psychological circuit breaker. What does it mean that you need to have a way to interrupt the emotional escalation. I will give you an example of this. You are doing a prop firm. Okay? You are really close to the max drawdown. You lose one trade. You decide to increase the risk of the next one to recover this one. Because you are afraid of reaching the max loss. You are breaching the emotional balance. You are going to escalation. You need a way to stop it. Circuit breaker. It can be a maximum drawdown per day. It can be done directly from the platform. If I reach 1% of drawdown, I stop for the day. It can also be the best opportunity, the next one on the planet. I will not take it because I'm not in a mental state that let me trade successfully. Okay, this is the summary of this part that I just explained to you. So you need responsibility. You need to avoid blaming external factor, the market, the news. Powell Trump is not their problem. Just understand that you need to control what you can control. Recognize that the results come from your decision. Be proactive, don't be passive. Is not the world against you. Make conscious decision and take ownership of the learning process. Okay, now going on psychological capital account. We have a limited psychological capital account. That is the capacity to make clear decision under pressure. So don't take, if you are a beginner, 10 execution per day. Start with short execution and low number of execution. Don't try to take 20 execution per day. It requires a lot of discipline. Created for you this amazing image strategic framework on every piece of the chessboard. How you need to move, how you need to think. You need to have a perspective approach. You need to watch the table from the out outside. The understanding that when you are moving a wrong piece, when your emotion goes wrong, you cannot continue. You need to wait patiently. So the strategic framework goes through risk management consistency and testing and validation accordingly. Position sizing, process execution, backtesting and forward testing. Are you really able to do profit? Do you have an alpha? Do you have an edge? If no study positive expectancy system edge risk to reward and sustainable trading performance. This is the blueprint, the only blueprint that you will find also by yourself. If you will trade for long enough year and you will understand that this mental model is the only one that will make you survive in this market. Going on on the risk management side, you need to have a clear position sizing to have an appropriate stop loss, to have an appropriate risk to rewards and to have a nowhere portfolio exposure that is Sustainable. Okay. Create your own portfolio size calculators. Or if you have a professional platform, use directly in the platform. But make sure that every execution have the same amount of money of risk. Don't put more risk only because you think this is. This will be a good trade. Because I already took a three stop loss, the next one will be a good trade. This is the best way to go bankrupt. Okay. On the testing and validation, you need to have an edge. That is test. You need to have a detailed record to evaluate performance. What time of the day, trade, what trigger you use. Why? Because in the long term you can filter, you can understand. You know that London session is not worth to trade. For me, my profit factor is really low. I pay a lot of commission, but profit factor is really low. What's my benefit? I get half of the day for free. I can go around, I can spend time with my family and still having around the same results. It will be worth it. No, Everyone is searching for more free time. But when it's about trading, you always want to stay in front of charts. The first period of your trading will be like this. Time will go on. But you will need to get momentum on the other side of the mountain. Downhill. It's easier because your results start compounding with Newton law. So the ball start to go around and you don't need to push itself anymore. It's the ball that is pushing you. Implementation path. How can we go from theory to practice? Create a trading plan, create a delete practice and review the process. You need to have rules and guidelines. You need to have a routine and journaling. You need to have an analysis, a process of analysis. Bridging the implementation gap system over willpower. Have rules. It's really difficult to be disciplined if you don't have rules and have a gradual position scaling. Okay. If you are going good scale when the market is giving you the ability to do it, you made a lot of profit for the week, for the months. You can increase the risk if you want accordingly to the amount of profit. Don't risk all your profit because otherwise you are just putting at risk everything you already made. Consistent execution in real market. This is the framework going on on the trading plan. You need entry index rules, you need risk parameters, you need favorable market condition. And you need the procedure to handle various trading scenarios. For example, my trend following strategy don't perform really good in consolidation market. That's the reason I need to understand before how the market will behave in the session. You can do this with multiple parameters like atr or open session behavior to understand how much the session will have in average movement and you need to have dealt practice, you need to have a journal, you need to have visualization and you need to have practice trading skills. So going through result and evolution, the trading mastery outcomes goes through consistent profitability, psychological growth, adaptability, continuous evolution, market adaptation, strategy refinement and life integration. Because you need to change your life. The evolution paradox sustainable long term trading success.