Something that’s hard for traders to understand is the concept that all moments in the Market are independent from each other; each moment in time is unique in the manner that the Market processes it. We humans are different, however; we tend to create Pavlovian responses to specific “trigger” events through learned behavior. 
 
For example, when we’re young we figure out very quickly which things bring us pleasure, and which experiences bring us pain. A bag of Halloween candy will put a smile on our face, but picking up the cat and turning it upside down might get us clawed for our mischief. As we experience life, we catalog and inventory these experiences, which we eventually call “wisdom.” 
 
But then we start to tangle with the Market and we expect the same predictable response from stimuli and patterns. We note certain responses from the market to inputs, and we mentally catalog those responses as well. Pretty soon you’ve got it all figured out!
 
“I know that when I see the price test the lower edge of the Opening Range from below, it will always reject that level!” or “Every time I see the stochastic cross to the upside, it’s a great buy!”
 
We then entangle these beliefs with what’s called “recency bias” where we tend to give more weight to recent experiences over the span of time. Let me give you an example from this week that will help you understand how to pull all of these concepts together: 
 
A little while back on a Monday we had a pretty nice “range” day; the price stayed in a relatively tight range all day. That led to a nice Zero DTE Iron Butterfly trade. On Tuesday, the same pattern showed up for a “range trade” entry, same as Monday…and within ten minutes I had to close the trade for a loss. Something shifted in the sentiment and the “range” day became a “trend” day to the downside. 
 
Most new retail traders would immediately abandon that setup, not because it worked on Monday, but specifically because it DID NOT work on Tuesday. This is Recency Bias in action. They will sit on their hands for the next five good setups just because it failed that one time. 
 
Would you care to guess what will likely happen when they finally gather the courage to enter again on the next setup? More than likely it will fail on them again. This is the classic symptom of “trading NOT to lose” instead of “trading to win.” 
 
Learn to accept the fact that every moment in the Market is unique. By doing so, you can start to wean yourself off of the human need to apply recency bias to what you believe “should” happen. 
 
In your corner….Doc Severson

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Reading history can be enlightening…especially when it’s your own. 
 
When I first started trading, I reacted to pullbacks in an uptrend just like everybody else did: “Here we go! Price will crash from here! Time to sell everything!” At which point the price would pivot and move higher, thumbing its collective nose at me while I struggled to figure out what had just happened. I had to learn from these situations after the fact and understand that the “anchor trend” was still intact, and I had been “shaken out” like all the other chum in the market. 
 
I had to study my actions and learn to “fade” that temporary fear. After a while, I was able to stow my concerns and look to pullbacks as an opportunity to enter long. 
 
And then the crash of 2008 happened. Reading one of my entries from October 2008, it now sounds like a horror novel. Journal entries like “I’m not sure if this market will ever recover” are funny to read now, but it was the real deal at the time and certainly reason for concern. After seeing crash after crash occur that year and into 2009, I had to learn to study my fear and reactions after the fact, and learn to decode them as a signal for opportunity. 
 
Ultimately, what you learn to do over time is to detect your reaction as a human being to a normal situation that would create a fearful response, and try to learn to create a different response to it than the “fight or flight” response that we’re all programmed with. And the only way that you can create this feedback loop is to create some form of journal. I create a strategy journal for every different trading strategy to track the numbers, but I also maintain a written journal to record my perceptions to a certain situation, and it’s my job as a trader to decode that “normal” response and see if opportunity is on the other side. 
 
You must learn to think differently than the rest of the crowd if you want to do this for a living. Journaling your thoughts is the first step towards accomplishing this. 
 
In your corner…Doc Severson
 
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One of the questions that I get all the time in our live trading rooms is: “When you are confident of your income strategy, when and how do you scale up in contracts?” It’s a great question and a sign that someone is progressing on their path to financial freedom, but there’s a number of ways to do it right…and several more ways to do this wrong!
 
First off, I caution investors that there seems to be an unwritten rule in the universe that “the very first trade that you scale up will be a loser.” I’ve seen this same thing happen to me in the past, and I think I know why this occurs…it’s because you get much more cautious when you’re carrying a larger position and you tend to trade not to lose instead of trading to win. Someone will conduct themselves in a markedly different manner when they are confident and expect to win a small trade, versus the tentative and fearful steps that someone takes when they are scared of loss. You’re not used to the heavier risk element of the larger position and it affects your behavior. 
 
So how should someone scale up if they’re doing well? The first answer is to have a money management plan that shows your position size based on your available capital for that strategy. Take the guesswork out of the challenge and map it out. 
 
And this is required for a sophisticated money management strategy like “Fixed Ratio Money Management.” This is a strategy that can lead to hockey-stick like performance graphs IF you have a positive expectancy strategy, AND you can follow a plan. I will be adding this strategy to the Daily Target 100 course by year’s end. 
 
But I think that the TRUE answer for most retail traders is not to scale up too far with aggressive strategies; find your comfort level (size-wise) and trade UP to that point in your plan. Once you hit that level, celebrate your success and then SWEEP that capital down to slower and more conservative strategies that are focused on long-term goals. 
 
And then build up your aggressive account again using money management strategies!
 
The more that you make this an easy plan to follow, the better you’ll do. As always, let us know if we can help fill in the blanks for you. 
 
In your corner…Doc Severson
 
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