Loss in the financial markets is inevitable, but the trader’s mentality is what makes that loss a part of the markets or a permanent feature of the markets, so do not resist the loss, but rather resist the way you think about the loss.”
Mark Douglas from the book The Disciplined Trader
What Mark meant in his book The Disciplined Trader is that markets, due to their random nature and probability environment, loss is inevitable, but the way you deal with that loss is what makes the loss either a permanent or temporary deal.
Why is the market a probabilistic environment?
Scientifically, if we want to understand a specific field, we must understand the behavior of this field. For example, if scientists want to understand the universe, they go to study the behavior of this universe, and to study behavior, we must study the components of what we study.
If we want to understand the market, we must study the components of the market, and the components of the market, without any doubt, are the traders who move the market up and down, and here we distinguish three types of traders.
Traders believe that the market is rising, so they buy and push the market to rise.
Traders believe that the market is bearish, so they sell and push the market down.
Observers.
There are many reasons that can push traders to trade, but in the end all reasons lead to one result, which is profit (no trader aims to lose).
Since everyone acts with the aim of one goal (which is profit), it means that there is behavior that can be studied, and this behavior has one result that is repeated with the repetition of the same circumstances.
Why is this behavior repeated?
Scientifically, we can study human behavior and more than that, as we can, using probabilities, predict their behavior if we know their history.
Suppose, for example, you have ten people. Seven of these people follow the same behavior while they are exposed to fear every time. Therefore, in terms of behavioral economics, we can say that this group, at a rate of 70%, follows this behavior every time, an infinite number of times.
The presence of a fixed behavior means the presence of a fixed pattern, and the presence of a fixed pattern means the possibility of measuring that pattern, with numbers. What is meant by studying numbers in terms of predictability is probabilities, and for this reason we can say that the market is a probabilistic environment.
The market is a probabilistic, not random, environment
When we say that the market is random, it means that it is not possible to predict the market, but when we say that the market is a probabilistic environment and that any possibility is possible, then the matter is completely similar to throwing a cube. You can calculate the odds of the appearance of this cube, but these probabilities will not give you the inevitable result, but rather they will give you the estimated result and be Markets are based on belief. Only one belief can change the markets, and the same applies to the throw of a cube (one variable can change the odds).
(Ask any expert in physics or mathematics whether this is true.)
Excerpted from the book Trading in the Zone.
The most common reasons that cause an Arab trader to lose
According to the Paris-based Ligan Foundation, it summarizes the two most famous reasons for a trader’s loss in the Middle East, in addition to those reasons mentioned in three books by Mark Douglas:
1. Believing that the matter is practical, not scientific
A very large group of traders trade in the markets based on strategies that have no economic basis, such as buying or selling based on the intersection of two indicators, knowing that you are dealing with a market based on supply and demand and a market governed by economic laws.
2. Addiction to random rewards
If we look at the way trading was marketed to us, we would find that the field was marketed as the promised land that fulfills your dreams of wealth in the shortest possible period, and in the easiest ways, and this is through brokers that taught you simple strategies, which made you a profit once upon a time because the market environment. Possibility, which makes you feel an overwhelming feeling of happiness, and unexpected happiness, according to Mark, causes addiction, and this addiction is what makes you accept the loss, which prompts you again and again to top up the balance in the hope of achieving the same feeling.
