ELIMINATING THE EMOTIONAL RISK
To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation. You can do this by being willing to think from the market's perspective. Remember, the market is always communicating in probabilities.
At the collective level, your edge may look perfect in every respect; but at the individual level, every trader who has the potential to act as a force on price movement can negate the positive outcome of that edge. To think in probabilities, you have to create a mental framework or mind-set that is consistent with the underlying principles of a probabilistic environment. A probabilistic mind-set pertaining to trading consists of five fundamental truths.
Anything can happen.
You don't need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Every moment in the market is unique.
Keep in mind that your potential to experience emotional pain comes from the way you define and interpret the information you're exposed to. When you adopt these five truths, your expectations will always be in line with the psychological realities of the market environment. With the appropriate expectations, you will eliminate your potential to define and interpret market information as either painful or threatening, and you thereby effectively neutralize the emotional risk of trading.
The idea is to create a carefree state of mind that completely accepts the fact that there are always unknown forces operating in the market. When you make these truths a fully functional part of your belief system, the rational part of your mind will defend these truths in the same way it defends any other belief you hold about the nature of trading.