Dilemma Versus Choice in Trading in the Matrix

Every Tuesday Chuck releases a new Trader Tip video on YouTube. This week we will discuss that for you to succeed as a trader, you have to have psychological frames around everything you do, that empower you to make great decisions not disempower you or instill fear, and stress. The more you instill fear and stress, the worse your decisions will be. The more you create frames that empower you, the better decisions you'll make, and the better you will trade.

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!

Dlemma Versus Choice in Trading in the Matrix

So many people in life think that they have a choice, but the reality is, is that they're battling a dilemma.

What is the dilemma?

A dilemma is a circumstance in which a choice must be made between two alternatives that both of them are undesirable.

The choice, look at the definition.

It's an option. It's the ability to choose or select from a range of possibilities.

A lot of times when people think they have a choice, they really just have a dilemma. Let's talk about this as it relates to trading.

In trading, first of all, binary decisions, introduce stress. All or nothing thinking by its very nature is stressful, because you can put yourself in a frame where you're damned if you do and you're damned if you don't. You'll see somebody who has a position on, one of my students recently, whose student that's been with me for a while and knows all this stuff, this student was short the Japanese Yen. You could see he got himself all worked up. The Yen trade was working. He knew it was at his target. But he thought it could keep going. He had himself really worked up and he's like, should I cover it? Or should I hold it? Should I cover it? Or should I hold it? Should I cover it? Or should I hold it? Both choices seemed like bad decisions. We've been working really hard on teaching the idea of going for big wins. So in his mind, if I cover it, well, what if the trade works and makes more money. But the flip side is if he doesn't cover it, and the markets oversold, it could snap back, and he could give all his profits back. So he was really worked up about this. I said, Tom, just calm down. Let's use options. And he said what do you mean? I'm like, come on, Tom, you know, this, you know about options, let's buy calls against your short Yen will turn it into long synthetic puts, and you're done. The market keeps going, you'll keep making money, if the market goes up, you have locked in your profit. He loved that idea. He did it, and it gave him incredible freedom. You see, he was locked in on one of two choices. But the right choice was neither it was something else, and that's something else fit his objectives of what he wanted for the trade.

Remember, the average person holds about seven bits of information in their conscious mind at any given time. It can be plus or minus two to four. People who are really gifted can hold 11 bits. This is why phone numbers are seven digits. But under stress, the amount of information we can hold in our conscious mind reduces from seven, down to five, down to three, down to one. When we're under high stress, all we can think of is one thing. And what we think about in that one thing is a dilemma. It's all in or all out. It's a or b There's nothing in between, and the more we perseverate on this choice on this dilemma, the more stressed and upset we get. We get to where that's the only thing we can think about. So we want to avoid that.

We introduced this concept I call psychological smoothing, and psychological smoothing is the concept of moving away from one decision point to several decision points. This reduces stress around any single decision. For example, as we said, if you're long one contract, then you have a decision to stay in or get out, and there's stress around this one contract because you can frame it where you're damned if you do damned if you don't. Like Tom, market keeps breaking. If he covers it, he misses out on a big win. But if he doesn't cover it, the market could snap back and he gives all of his profits back. He's thinking I lose either way. You can literally see the stress rising in him.

But if you're long 100 contracts the decision to sell one is easy. You don't even think about it. Sure I'll sell one I got 99 left. See the difference between one versus 100. Same decision. All the factors around it are the same, the only difference is the quantity and the size of which you smooth it. The more we smooth their way in, and the more we smooth their way out, the less stress we have in our trade. That's why you see professional traders. Most of a lot of professional traders, they scale in, they scale out, they scale in, they scale up that way they feel like they're never wrong.

You'll hear me talk about the trading is highly psychological and it is. And this is a classic example. For you to succeed you have to have psychological frames around everything you do, that empowers you to make great decisions not disempowers you or instills fear, and stress. Because the more you instill fear and stress, the worse your decisions will be. But the more you create frames that empower you, the better decisions you'll make, and the better you will trade. This is all psychological.

That's dilemma versus choice, we want to get out of dilemmas, and we want to be in choices. Choices is where we open up our mind, and we see all the possibilities. in anything we do. Psychology is key and one of the key roles in psychology is to be able to see options. You got all these scenarios in life: a fight with your spouse, how you're going to pay your bills, should you take a job or not, what food you should you eat in this moment, should you eat ice cream or not eat ice cream. If you go through one after the other after the other, all of these decisions are dilemmas. When you look at really smart people, when you look at great thinkers, they don't operate in that realm.

We hear anything as possible. Well, to the great thinker anything is possible. Because there are always multiple choices. When presented with a dilemma they go That's bullshit. I do not accept that my choice is between two things. Neither one that I want. I refuse to accept it. So I'm going to push myself to think bigger. To do this, we have to get out of our head. Dilemmas occur in our head, options occur outside of our head. They occur when we commit to paper, or we commit to computers or spreadsheets or whatever it might be, but where it is out of our head.

When I called this the training matrix is not just a cool name. I love the matrix movies. But it's beyond that. What this is about is it's about matrices to make decisions. Similar concept to decision trees. Decision tree isn't about a or b, yes or no, black or white. It's about creating choices. Well, the matrix is a three dimensional matrice that you can make different choices to fit your objectives. Some of these are two dimensions. Some of them are three dimensions. I'm going to share some examples with you today, and you'll see why I think in terms of matrices.

First of all, patterns. This is on one of our pieces of software, and it is scanning for our trading patterns. In this example here, there are two types of patterns that are being displayed, one of which we call the moneymaker breakout and the other which we call Logan's Run. What both of them have in common is they identify environments that are breaking out and have accelerating momentum. Everything is starting to move and accelerate. Now, what I want you to notice those just in this example how different this is that how most people think. You can see here, in this table, there are seven timeframes represented each that have their own patterns. Okay, so we have a matrix in which we can make decisions as to where we want to allocate our risk in our capital, how we want to psychologically frame our trades.

In this table, we have seven timeframes, and this is just in fixed income. This is all the different fixed income contracts that we track from Germany and Europe to Euro dollars to JGB's, to treasuries. You can see this red and green, red represents sells and green represents buys. There are patterns everywhere. Lots of choices, I'm not locked in on one pattern in one timeframe, In one product, I can choose. Choosing like this gives me power because it allows me to choose the best one, not anyone.

Now, let me show you another example. This is what we teach in our Matrix Money Machine workshop. This is one of the concepts that we teach and we build on it in subsequent workshops. This is what we call Options Metamorphosis. What Options Metamorphosis is, is a series of decision trees that allow us to transform the payoffs, the reward to risk and probability of our positions as they unfold, and as our objectives change. In here, this trade starts out simply like many of your trades, with long underlying, long stock, long futures on crypto, long cash FX, whatever the case may be. Quite simply, what we have in here is we have four alternatives that we can do one trade to link to long underlying, and from that, we can create a long straddle, we can create a short putt, we can create a long call, and we can create a short straddle. Four positions, four different payouts, four entirely different sets of characteristics. Now what I want you to notice is off of each of these, just in this example, we've got eight alternatives of what we could do with a long straddle. So we could go from long underlying to long straddle, and the long straddle can be transformed to any of these eight positions: long a different straddle, long a butterfly, having a back spread on, having a strangle, having another butterfly, or iron butterfly and having another strangle. All of these things can be done with a single trade, all of them have different objectives. This is the matrix. This is being able to transform our trades into whatever we want.

One of the things I talked about recently, is that great traders are great at exits. Everybody looks for the magical entry. Entries are important, but they're not as important as the exit. I can go show you the greatest trading system of all time, and what you're going to see is that most traders will screw it up. Why do they screwed up? They screw it up at the exit. Great traders are great at exits, ane part of being great at exits, is being able to transform the trade as it unfolds to whatever your objectives are. This is how we do it. Look at it. It explodes with possibility. You're never in a dilemma. You have almost infinite possibilities of what you could do with your trades at any given point, with your positions at any given point.

Alright, let me show you something else. Now, this is a simple vertical spread. This is something we teach in our second level class, where we teach about how to use vertical spreads. Now this matrix is of vertical spreads. Almost all of it are different bear spreads and bull spreads, but what I want you to notice is that a bull spread is not just a bull spread. A bull spread can be tailored for your objectives. It can be tailored for very bullish. It can be tailored for moderately bullish. It can be tailored for volatility up hard, volatility down hard, volatility unchanged. You can set these for what you want, and do it all with a fraction of the margin and better payoffs.

It's a matrix of things that you can choose. You should never in your trading ever, ever, ever have to face the dilemma again. Being able to have choices and these psychological frames that promote these choices, gives you power. It helps you be elite. Everybody wants to be elite. This is how you become elite.

If you're interested in this, we're going to have an upcoming workshop in June, called the Matrix Money Machine. You can crawl, walk, run with us: we have a challenge, the 10 Day Red Pill Challenge, that you can actually do it for free if you do it right, and you can learn about options and begin to see why you want to understand this and start to see this world open up for you.

You can step in the matrix and create your own possibilities. So think about this. Remember, I do this every Tuesday. I won't waste your time I share valuable content every week. Come back next week, and let me show you something new. Welcome to the Matrix. Have a great week!