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Friday Feature: Trading Psychology (Part 2): Apply the “I Don’t Know” Mental State

February 7, 2020

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Friday Feature: Trading Psychology (Part 2): Apply the “I Don’t Know” Mental State

It sounds crazy. The thought of trying to know what the market will do will cost you and lead you to a ruinous path. Many have tried and many are still trying to no avail.

All our lives we’ve been hard-wired to always try to be “In the know”. So much of being a successful trader and investor is to counter the psychology of the masses. If trying to be “In the know” makes a trader biased to no avail with increased psychology of greed and fear generating dismal results and a damaged ego, it is much better to adapt to a mental state of NOT KNOWING.

So, what is it like to trade like YOU DON’T KNOW? Quite liberating, actually.

All the coaches at Tackle Trading advocate repeatedly at all levels of trading to follow your rules. So, why do we still break them? It’s because we think we still know better and we still are operating out of our ego as if we know what’s going to happen subconsciously. Plus, the market at times really tempts us to be biased, doesn’t it? It seems that way in the beginning. If you realize this is a bad trading pattern, you know you have a mental map to reverse it. 

At times when I really struggled with trading, where my stop loss is hit too soon or I took profit way too early, I kept on fiddling and regretting until I finally started to accept that I DON’T KNOW ANYTHING. What I find is that when you can adapt to a mental state of “you don’t know what’s going to happen”, your trading behavior changes naturally in the following ways:

  • You don’t question the rules anymore. There is no longer self-resistance to rule-following.
  • When you feel greedy or fearful, you can identify it and quickly remind yourself you don’t know what’s going to happen and self-regulate back to rule-following.
  • Whatever the market does, you are position sized to be OK with it. Because you are more mentally secure with rule-following than trying to “be right”.

A recent example I traded through was a Call Butterfly, targeting 1:4 profit ratio and targeting the uptrend until $185, with 10 days in the trade.

Trading Psychology Part 2 - butterfly targeting chart

In this example, when you have the “I DON’T KNOW” mentality, you just trade based on the rules. The Butterfly did not expire until 11/15. Since I don’t know what’s going to happen with the gap on 11/11, I just stayed in and took profit on the last day.

The market will test your resolution and your firmness to stick with your rules and this is one of the examples to show that I stick to my rules and you just don’t know what’s going to happen.

Pearl Li. The Theta Finder. In the Making.

Tackle Trading: Pearl Li.

Pearl Li previously has been a product management professional for more than 10 years working at well-known companies such as Amazon and Nielsen Company. She took the leap in 2016 with Elite Legacy Education to learn about building long term wealth through financial market trading/investing. In 2018, Pearl happily left her job to pursue investing/trading fulltime producing theta style trading that generates monthly cashflow. She is thrilled to be a voice on the Tackle Trading platform to share her transformation as she goes through various phases of her growing experience.

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2 Replies to “Friday Feature: Trading Psychology (Part 2): Apply the “I Don’t Know” Mental State”

  1. IONVASILOS says:

    Good article and helpful, I applied this and works very well for me , but I have the tendency to not follow it, as most of us that don’t follow rules or follow it without thinking outside of the box.

    1. pearl.b.li says:

      Thanks for the comment. My next article is coming this Friday extending the mental state of I DON’T KNOW to be comfortable with accepting position sizing for full loss to realize rule-based trading.

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