In this post I’m quoting from The Tao of Trading: How to Build Abundant Wealth in Any Market Condition, a trading book written by Simon Ree to highlight the importance of thinking in probabilities when it comes to trading. Sounds interesting? Please read on.
The Book:
The title, The Tao of Trading: How to Build Abundant Wealth in Any Market Condition, was inspired by Bruce Lee’s The Tao of Jeet Kune Do. This is because Simon Ree is not only a trader, but also a Jeet Kune Do instructor.
In his book, Simon Ree draws many parallels between the disciplines of trading and martial arts. He suggests that success in both fields requires not just skill / technique, but also the right mindset (psychology).
The book focuses on building wealth through trading, emphasizing the critical role of trading psychology. It also provides guidance on different trading strategies and proper risk management.
With decades of trading experience, Simon Ree’s expertise is clearly reflected in the book.
The Quote and a Short Explanation:
We are taught from a young age to think in a deterministic manner. To think in terms of cause and effect: if A happens, then B will happen. However, every trade we place is probabilistic in nature. If A happens, then B is more likely to happen, but anything CAN happen.
The above comes down to the following:
- Deterministic thinking is akin to conventional thinking, i.e. if you study hard, you will pass and be successful (if A happens B will happen).
- Generally, there is nothing wrong with deterministic thinking, but trading requires a shift to thinking in probabilities. If you place a trade based on your strategy (with a positive expectancy), there is a higher likelihood of a positive over a negative outcome, but there’s no guarantee. Instead of focusing on the outcome of a single trade, thinking in probabilities means you consider the results over a series of trades.
- Uncertainty is the name of the game when it comes to the market – nothing is guaranteed. Always remember, anything can happen.
Finally:
A trading strategy with an edge is important, consistently executing it is normally where we struggle – this is where working on yourself and cultivating the right mindset comes in.
Thanks so much for reading. I trust you found this post helpful. All the best with your trading.
Thanks and Regards,
Trading SOS SOS
