Loss translation
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 certain field, we must understand the behavior of this field. For example, if scientists want to understand the universe, they study the behavior of this universe. To study behavior, we must study the components of what we are studying.
If we want to understand the market, we must study the market components. The market components are, without a doubt, the traders who move the market up and down. Here we distinguish three types of traders.
Traders believe that the market is going up, so they buy, pushing the market up.
Traders believe that the market is bearish, so they sell, causing the market to fall.
Observers.
There are many reasons why traders may trade, but in the end all reasons lead to one result, which is profit (no trader aims to lose).
Since everyone acts for the same goal (profit), it means that there is a studyable behavior, and this behavior has the same result and is repeated with the same circumstances.
Why does this behavior happen again?
Scientifically, we can study human behavior and more than that, so that we can, by means of probabilities, predict their behavior if we know their history.
Let's say, for example, that you have ten people, seven of whom follow the same behavior when they are exposed to fear every time. So, in terms of behavioral economics, we can say that this group, 70%, follows this behavior every time, an infinite number of times.
Having a consistent behavior means having a consistent pattern, and having a consistent pattern means that that pattern can be measured, in numbers. And 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 environment, not a random one.
When we say that the market is random, it means that it is unpredictable in the market, but when we say that the market is a probabilistic environment and that any possibility is possible, then the matter is exactly like throwing a cube. You can calculate the probabilities of this cube appearing, but these probabilities will not give you the inevitable result, but rather they will give you the estimated result. And since the markets are based on belief, then only one belief is enough to change the markets, and the same applies to throwing a cube (one variable is enough to change the probabilities).
(Ask any expert in physics or mathematics about the validity of this statement.)
Quoted from the book Trading in the Zone.
The most common reasons that cause Arab traders to lose
According to the Paris-based Legan Foundation, it summarizes the two most common reasons for traders’ losses in the Middle East, in addition to the 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 find that the field was marketed as the promised land that fulfills your dreams of wealth in the shortest possible time, and in the easiest ways. This is through brokers who push you to teach you simple strategies that have made you profitable over and over again because the market is a probabilistic environment, which gives you an overwhelming feeling of happiness. According to Mark, unexpected happiness causes addiction, and this addiction is what makes you accept the loss that pushes you over and over again to charge the balance in the hope of achieving the same feeling.
