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Trading Psychology and How The Mind Works (IV)
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Trading Psychology and How The Mind Works (IV)

  #61 (permalink)
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welcome back...

“Be who you are and say what you feel because those who mind don't matter and those who matter don't mind.” - Dr. Seuss
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  #62 (permalink)
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There are a lot of techniques. I like breathing - breath in and out - conscious breathing. With this kind of release you can get "no mind". I also like sedona. It was my first CBT. I switched to Core Transformation (NLP). The end is the buddhism. I read a lot of books about NLP, Hypnosis ( like also Gerald kein) and so on, but "a new world" from tolle changed my mind. Tolle and Osho recite the buddhism in a wonderful style.

In this case: breathing and buddhism is meditation. you can learn a lot of breathing techniques ...

best regards

Interesting. I have dabbled in meditation and breathing, but never really explored it fully, especially in terms of increasing trading performance.

I like the idea of NLP, but I think I heard that there was no scientific evidence that it actually works, and has failed to prove efficacy in many double blind studies. I believe I heard this from Denise Shull

I really enjoy reading and listening to Tolle. I think he speaks from a place only a few of us dream to live, but find his material inconsistent with trading - his stuff is so good, I find myself not needing to trade, since everything is perfect as it is. That is until its been about a week or so since I put his work down. Then I start looking at charts again....

Adrian

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  #63 (permalink)
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adrianjm View Post
Interesting. I have dabbled in meditation and breathing, but never really explored it fully, especially in terms of increasing trading performance.

I like the idea of NLP, but I think I heard that there was no scientific evidence that it actually works, and has failed to prove efficacy in many double blind studies. I believe I heard this from Denise Shull

I really enjoy reading and listening to Tolle. I think he speaks from a place only a few of us dream to live, but find his material inconsistent with trading - his stuff is so good, I find myself not needing to trade, since everything is perfect as it is. That is until its been about a week or so since I put his work down. Then I start looking at charts again....

Adrian

There's lot of good stuff in all those resources. My favorite Buddhist resource is the Pocket Buddha. Lately though, I've been dabbling in cheap kindle books. The Answer has lot of good techniques.

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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  #64 (permalink)
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CBT is Great

Wow, This CBT stuff is great. Here is an example:

"Aaron Beck, founder of CBT and Dennis Greenberger, a well known CBT therapist, note that, if you can turn a counterproductive strategy on its head, your well on the way to a real solution. This concept basically means that by doing the polar opposite of your established coping strategies you can recover from your problems. Exposing yourself to feared situations rather than avoiding them is a good example of turning a counterproductive strategy on its head."

In terms of trading, for me, this can mean the following:

What's my fear? Being stopped out.
What's my current coping strategy? Increasing my risk by extending my stop, and thus reducing my R:R.
CBT: turn that on its head and accept the initial stops. Take enough trades with reasonable stops and your fears will dissipate (face your fears head on, and they will no longer be fearful (paraphrasing)).

Why its so good: I just realised that creating a strategy with stops too great is simply a counterproductive coping mechanism for my fear of being stopped out, and in reality I need to be stopped more often to create a productive coping strategy.

Adrian

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  #65 (permalink)
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Adrian,

I'm glad you've enjoyed the threads. My intent back then when I wrote them was to expose the why of this eternal 95% of all traders are losing money, and what lies behind it. Indeed this why of things is actually lying behind 95% of our daily lives. We're on autopilot constantly. Free will, with all the respect is only there about 1-5%. No wonder why there's this great of discrepancy between our conscious intents and our results. Now, of course trading is a wide topic including many, many more aspects than this, but those other aspects are merely only small branches of the basic concept which is pretty much determined by two things. Those two things are very much decisive for our constant outcomes. We posses these two things in our archives that turns us into what and who we are. Knowledge and Experience.

The greatest challenge in trading is not to get the knowledge and the experience but to get over the bad knowledge and the bad experience. You see, in my point of view life is very simple and our level of success is pretty much only based on one small thing. REPETITION!

What you keep on repeating you get good at. Needless to say that if we repeat bad things, we get good at bad things, if we repeat good things we get good at good things. That simple it is! In trading we have to get ourselves through the swamp, we are like innocent children that are being maltreated. Only the strong survives, but unfortunately thy keep on carrying with them all those bad aspects that has turned them into masters by repetition.

We can analyze it further, and we can keep on searching for the why of things. I've pretty much done that the most part of my adult life. I've constantly thought that if I understand the why of things that will help me to get through things and to get over to the good side. But I've come to understand that life is very, very simple and that it's all about the inner picture that we're carrying. That picture in itself is the result of repetition and it's acquired through knowledge and experience. If you take a look at your own life you'll very soon understand that life is not about understanding the why of things. It's just about what that inner picture is telling you. And your reality is only a reflection of that inner picture.

Have I changed my point of view regarding the solutions to all of this and to Sedona?! No! Is Sedona helping? Yes, there are many people out there claiming that. Has Sedona helped me? Yes and No! It helped me to understand certain things, but it didn't put the dot over the i for me. Was it the method itself? No! Was it me?! Yes! Or maybe I didn't repeat it long enough. I don't know.

We are constantly guided by our -knowledge- and -experience-. And that my friends is what lies in our subconscious minds. How did it get there? Through repetition. How do you change that? You can't! What's there is there and is always gone be there. But I've got good news! We can only have one picture active. You are either a loser or a winner. And how do you get the wining picture? By repetition! That simple it is.

Most traders out there, they don't give a crap about the underlying factors behind their failures. All they want to do is to trade. They want their candy, the gratification. But they miss this one tiny little aspect. By repetition we become masters.

So stop looking for the what's wrong with me?! Understand that you have (depending on your knowledge and experience) luggage that you're carrying around, and that you'll never be able to get rid of that. Make peace with it, and go and invest in a new picture. The one that you desire to become. I admit, it's a living hell in the beginning because we're not masters of new stuff, but keep on working on it, first on the mental basis and eventually it will start to fall into place!


Postum Script: Just think of all those moments when you are caught by fear and pain while you're in a bad trade. What makes you throw in the towel eventually is when your threshold of maximum pain is being reached. Almost a 100% after that, you're looking at the chart and you blame yourself for not seeing the right direction of that move. In other words your vision is clear now and you can see that you very did misjudge the direction of that trade. What really happened was very simple. Your inner picture in that particular moment (before the trade) told you that you should take the trade because it looks like a trade you can benefit from. So based on your -knowledge- and -experience- you identified the entry signal. While you were in the trade your mind did everything in its power to turn off every evidence that would interfere with your predefined picture. Trust me it does that! Remember your reality is a reflection of your inner picture. Now, because money is built into our mind through its own -survival- value and it got there through -knowledge- and -experience-, losing them activates pain.
Pain's function is to indicate that we ought to deviate from that action in order to honor survival. When one's threshold of pain is reached we throw in the towel. Without the clutter of pain and the previous picture in our minds anymore we start to see the light. In other words our perception is not influenced by our predetermined picture anymore, hence we can see the real direction.

We go on from there blaming ourselves for not being able to see what was right, we keep on losing mental capital. That leads to over trading and the rest is history....

Why does all this happen? What is to blame here? Is it the picture in our minds? Is it our edge? Or what else could it be?

Let's dissect them into pieces to see where we end up. First let's start with the edge. What is an edge? An edge is a probable outcome of one thing happening more often than another. That is the raw explanation of an edge. But if everything out there is determined by our inner pictures, could that then mean that the edge is in our minds and could that also tell us why there's a whole billion industry out there profiting from that? An edge is based upon a system. A system is mostly based upon Technical Analysis. Technical Analysis is based upon past pattern that will "probably" repeat in the future. Do you guys start to feel the bad taste yet?

As Mark Douglas puts it, it is impossible for a pattern to repeat itself and to have the same identical outcome as it had in the past. Is he right or is he wrong? And in case he's wrong how come we have this huge industry feeding off of that?

I believe he's right! Why? Because in order for us to have a pattern repeating itself with the same outcome as in the past, we'd be needing the same individuals taking the same decision with the same state of mind in the future. In case we'd had a mathematician here, I'm sure he or she would give a very high number in terms of non probable.
So, an edge is actually not more than an edge in our own minds! Because it sure isn't out there. It doesn't work. Now if the edge only exist in our own minds, and if the probability for the edge to repeat itself is not high we'd have to get back to the inner picture we posses.

Remember what the inner picture was the product of? -Knowledge- and -Experience-. Now, because no one is born a trader, we all have to learn trading from scratch. Learning trading from scratch with the above written in mind is not an easy thing to do. We have to get ourselves through the swamp, and only few of us survives. And those that survives are full of bruises. Indeed we can say that they're masters through repetition. How does the inner picture of an experienced trader look like? I'm sure it's not a pleasant one. Because of all those failures, that picture keeps on doing its thing in the background, and it's doing a pretty good job.

Now, let's put the two together. We have the edge in our minds, and we have the inner picture described above. Where does that take us? Into more failure right?

But how about if we change the inner picture? What would happen to the edge then? Remember the edge is not 100% and it's not probable. See the edge as something plastic that can be molded because of it's outcome. All you have to do in terms of edge is to trust it. Why? Because it will make your decision process easier.
So back to the picture, what happens if we change the picture into a good one. I'm a consistent winner picture? Let's see!

Remember taking the bad trade and the mind filtering out every price action being invalid to the inner picture outcome? Wouldn't changing the picture to a consistent winner one lead to the same thing but the other way around? I believe that this is exactly what happens, and that's how all the successful traders as well as all elite athletes does it. With the right picture in our minds, our mind is gone start to filter out all those situations when the edge will not work and it will invite you to take the good trades, and if those trades that you're taking are not good it sure will keep you out of trouble by helping you to administrate them correctly.

Become a master through repetition of the right picture, and it will do wonders to your trading!



adrianjm View Post
Thanks George, for these threads. It takes the concept of successful trading to a whole new level, at least for me.

I'd like to comment on the recommendation of the Sedona method. The method has been very successful for alot of people, but I could not persist with it for a number of reasons. Firstly is the repetition, it seems their is a core principle here that can be described in less than a page or two, but continues to get rehashed over and over again. If Sedona is so easy, why does it take an incredible amount of books and CD's to accomplish the skills transfer?

Secondly, its not very analytical, and I like getting into the details of stuff and wondering why something does not work. Sedona asks us to believe a competing narrative, and then 'simply release' on those ideas.

A reviewer on Amazon had very similar views to these, and recommended "CBT for Dummies" (Cognitive Behavioural Therapy), and as a result I am working my way through this book and finding alot more depth and reasoning into the techniques and exercises. Highly Recommended.

Cheers,

Adrian


We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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  #66 (permalink)
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George,

I very much agree with your views, so much so I started a small trial a few weeks ago but didn't get very far for the reasons discussed below. I have been trading for more years than I can remember, and to date still not consistently profitable. My trading has mostly been through 'discovering' edges through backtesting and then trading those strategies until I lose enough money to realise that either they no longer work, or I can't psychologically handle the current drawdown.

Lately I have been discretionary trading, small position size, no predetermined 'edge' or mechanical trading. I have not been doing too badly, keeping my stops small, and my targets larger than my stops.

A couple of weeks ago I felt that part of my issue might be just that I am not taking enough trades to gain enough experience. I have fears of entering percieved good opportunities, especially after a couple of winning trades, although I 'know' that one should press when the going is good.

So I decided to conduct an experiment of taking 10 trades per day. I'm trading equities - volatile stocks in the S&P500. Al Brooks talks about markets being mostly in balance, such that a stop the same size as your target, each trade should have a 50% chance of success. So my thinking is that at the end of every day, my bottom line will identify how well I spotted an "out of balance" market - the trades where I had a 60% chance of success.

My initial reasons for doing this was the idea that learning to trade is a Catch-22. Successful traders know that their actions will prove successful, and can execute without issues, but new traders lack the confidence. They can only gain confidence by repeating actions that will lead to success, but without the confidence that they will be successful, they fail to execute. Hence catch-22.

Needless to say I did not persist for very long. Something got in the way that made it easy for me to give up on the process. Then my mind had me trawling some threads about 'edges', and that had me thinking that without this 'edge' initially determined and hard coded, I'm just throwing darts at a board, and not making progress.

Now that I see your post, that speaks at length about the 'edge' actually not existing 'out there', has me thinking again whether or not I should go back to my exercises of 10 trades per day, just to get me in the market, and paying attention to the right things, rather than looking for an 'edge' via backtesting or whatever.

I also have been reading Mike's thread on Trading method and Advice, where he talks about his 'edge' simply being the ability to trade better than others. I have also read from another experienced trader that he believes an 'edge' as its traditionally known by unsuccessful traders to be as imaginary as the holy grail of indicators - non existent. His 'edge' is "knowing how to trade" (ie execute), and when you can determine the market is out of balance and the trade is in your favour. Nothing more mechanical than that.

I have traded in Simulators long enough to know that without real money on the line, I don't learn anything. I believe my path to successful trading is about knowing myself, and that without the potential risk of losing real money, I get no mental training whatsoever.

My question is, do you think the exercise of just 'trading' on a regular basis, without the prior knowledge of a perceived 'edge' will help in providing the positive repetition you talk about in your post? I felt that I was making some progress with my plan - learning not to take breakouts at the open, attempting to understand my inner dialogue when I entered a trade etc. But its tough. Really tough. Like diving into a black pool. It was so easy to give up last week, that now I am thinking that it must have been worthwhile, if only for the very reason I found it so tough and gave up on it so easily?

Adrian

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  #67 (permalink)
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adrianjm View Post
George,

I very much agree with your views, so much so I started a small trial a few weeks ago but didn't get very far for the reasons discussed below. I have been trading for more years than I can remember, and to date still not consistently profitable. My trading has mostly been through 'discovering' edges through backtesting and then trading those strategies until I lose enough money to realise that either they no longer work, or I can't psychologically handle the current drawdown.

Lately I have been discretionary trading, small position size, no predetermined 'edge' or mechanical trading. I have not been doing too badly, keeping my stops small, and my targets larger than my stops.

A couple of weeks ago I felt that part of my issue might be just that I am not taking enough trades to gain enough experience. I have fears of entering percieved good opportunities, especially after a couple of winning trades, although I 'know' that one should press when the going is good.

So I decided to conduct an experiment of taking 10 trades per day. I'm trading equities - volatile stocks in the S&P500. Al Brooks talks about markets being mostly in balance, such that a stop the same size as your target, each trade should have a 50% chance of success. So my thinking is that at the end of every day, my bottom line will identify how well I spotted an "out of balance" market - the trades where I had a 60% chance of success.

My initial reasons for doing this was the idea that learning to trade is a Catch-22. Successful traders know that their actions will prove successful, and can execute without issues, but new traders lack the confidence. They can only gain confidence by repeating actions that will lead to success, but without the confidence that they will be successful, they fail to execute. Hence catch-22.

Needless to say I did not persist for very long. Something got in the way that made it easy for me to give up on the process. Then my mind had me trawling some threads about 'edges', and that had me thinking that without this 'edge' initially determined and hard coded, I'm just throwing darts at a board, and not making progress.

Now that I see your post, that speaks at length about the 'edge' actually not existing 'out there', has me thinking again whether or not I should go back to my exercises of 10 trades per day, just to get me in the market, and paying attention to the right things, rather than looking for an 'edge' via backtesting or whatever.

I also have been reading Mike's thread on Trading method and Advice, where he talks about his 'edge' simply being the ability to trade better than others. I have also read from another experienced trader that he believes an 'edge' as its traditionally known by unsuccessful traders to be as imaginary as the holy grail of indicators - non existent. His 'edge' is "knowing how to trade" (ie execute), and when you can determine the market is out of balance and the trade is in your favour. Nothing more mechanical than that.

I have traded in Simulators long enough to know that without real money on the line, I don't learn anything. I believe my path to successful trading is about knowing myself, and that without the potential risk of losing real money, I get no mental training whatsoever.

My question is, do you think the exercise of just 'trading' on a regular basis, without the prior knowledge of a perceived 'edge' will help in providing the positive repetition you talk about in your post? I felt that I was making some progress with my plan - learning not to take breakouts at the open, attempting to understand my inner dialogue when I entered a trade etc. But its tough. Really tough. Like diving into a black pool. It was so easy to give up last week, that now I am thinking that it must have been worthwhile, if only for the very reason I found it so tough and gave up on it so easily?

Adrian



An edge, well what is an edge? And I'm going to answer to this question strictly from my point of view and in terms of my own experience with that little big essence in trading.

If I'm to jump directly to the end of my story, I'd say that an edge has to equal YOU. You'll be finding your edge when you'll find that one thing that truly works for you. And by you I mean YOU and no one else, even if it's a copied edge built by someone else from the beginning.

You see most of us don't have that inherited genius of building systems and come up with things that really get us a unique edge in the markets. So we have to rely on books, webinars, masters, and so on. The problem with all of that is that often most masters out there are really not masters, but merely parasites feeding off of us, because of our eager to make things work. Now, with that being said we do have some of them that are indeed true and masterful, but they are few and the secrets are well kept.
But let’s return to our edge! Why would you need to make an edge to be your own? Because what you’ll need in terms of executing and administration of an edge is smoothness and ease. Too much resistance and it will break you instead. Just have a look at all those things you’re forcing yourself to do by discipline. On the other hand if you think of all the things you’re doing with pleasure then there’s a different story shaping.
So you’ll need to make the edge your own and to mold it into your character in order to get rid of the resistance and to integrate relaxation and smoothness into your executing and administration of an edge. How to do that is up to you because you’re the only one knowing yourself well enough in order to know what’s fine for you.
The second part of all this is that you’d have to get yourself an edge that you’ll be trusting. And by trust I mean that its reward has to be convincing enough for you in order to make you want to execute it again, and again and again!
When you back test things, it’s not really you growing into trusting your edge, it’s more kind of like watching TV and asking yourself to believe in a commercial, or it’s like reading a science script and believing the research. You do create a trust in the message, but it is not really that trustworthy as that tree in front of your house, of which existence you will not doubt at all. Do you understand where I’m trying to get here? I’m speaking about beliefs that can be and are being changed and I’m talking about trust without a doubt.
In terms of trusting your edge, and in order to make it work for you you’d have to make it to the latter part. You’d have to trust your edge without the slightest ounce of doubt.

With that being said, I will give you some tips of how I’ve done it. First and foremost you have to pick something that fits you, and by that you’d have to look at level of tolerance in terms of stops. Where is your pain threshold? How many minutes do you tolerate a trade going against you? How would you best take your gains? A fix target or a target based upon various factors? What fits you there? When are you most fitted to be trading? Morning, afternoon all day? How much do tolerate in terms of concentration? What do you have to do in order to get back your concentration? And so on!

When you’ve answered to all those questions, pick a system that can be implemented into the frame you got from your answers. Remember to keep it simple, there are people making a living by trading moving averages and nothing else. I’m not saying you should do that, I’m just emphasizing to keep it simple or go advanced if that fits you, but keep it simple in terms of the equation that I keep talking about Edge=You!

When you’re done doing that, you’d have to get to the part of learning to trust your system without the slightest ounce of doubt. In this case there are two paths you can take and both require time and repetition. The first paths is strictly by executing and keep on executing till you’ve grown into trusting it without any doubt at all. The second path, and that’s the one I’m recommending you is to start scrolling back your charts and to back test by hand. Look for relations on the chart where your criteria are met. Do your stats by hand. By doing that you’ll be seeing how your criteria behaves on the chart and you’ll know what to expect, plus that it will create an internal picture in your mind of what to expect by your system/criteria. Make sure you gather enough samples in order to make it valid.

Do the work, have the right intention, use your stubbornness to stay on the right path and you’ll see that soon enough you’ll be leaving less and less space for failure and eventually failure will be replaced with constant winning instead!

Good Luck my friend!


PS: The answer to your question in simple terms is No. The problem with not having a perceived edge and to get rid of the negativity by executing on “fresh” ground will not work at all because your mind is always trying to create order out of the chaos, and it is doing that by relying on its –knowledge- and –experience-. So I’m sorry to say this, but you have to get the right –experience- and the only aid/shortcut that there is out there is by creating a mental picture where you’re executing and administrating correctly your trades. By repeating that you’ll be creating the right experience. Remember that repetition makes us masters of what lies behind the repetition, so by repeating the “something is wrong with me” will only get you better at that. And even if you find the “what’s wrong with you” -(Don’t get me wrong please, every one of us has that picture in their heads and if enough people will get to raise their awareness on this whole topic, I believe we’ll be getting a better world)- background and you manage to neutralize that, you’d still be needing the right –experience- in trading in order to make it!

We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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  #68 (permalink)
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The Fear of success.

The fear of success is a funny concept but I totally get it. When you succeed at something there are expectations internally or externally, real or imagined that you have to live up to. In my experience targeting a poorly defined and vague goal like "continued success" is always doomed as internally we all tend to move the goals posts on ourselves and there is the little voice inside telling us we must do better. Enough is the key.x

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Thank you George, I like your analogies. To be brutally honest, After having been at this game for many years, and hearing people tell me to 'print out charts and analyse' or backtest manually - noting ever entry/exit etc, I have never done it. Laziness I guess, which could point directly to the reason why I have not been successful.

I think I need to clear up my charts - lose some lines and squiggles and do as you say. Perhaps my 'Journaling', as Mike so often extols, should begin with the plan and execution of Analysis. Start at the beginning, as they say.

Thanks again for the excellend insights.

Adrian

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George View Post
First and foremost you have to pick something that fits you, and by that you’d have to look at level of tolerance in terms of stops. Where is your pain threshold? How many minutes do you tolerate a trade going against you? How would you best take your gains? A fix target or a target based upon various factors? What fits you there? When are you most fitted to be trading? Morning, afternoon all day? How much do tolerate in terms of concentration? What do you have to do in order to get back your concentration?

This is a great list. But each question needs to be evaluated and tested before implimentation in a live setting. This could take quite a long time, and even at that, one may not be successful.

Anyway to shorten the process?

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FIO Video Journal Challenge featuring NinjaTrader ($2,000+ of prizes)

April

Process above all else w/Anthony Crudele @ Futures Radio Show

Elite only

Machine Learning - Quantitative Trading w/Martin Froehler @ Quantiacs

Elite only

Market Dynamics w/Peter Davies @ Jigsaw Trading

Elite only

Ask Me Anything w/Patrick Rooney @ Trading Technologies

Apr 18

Ask Me Anything w/FuturesTrader71

Apr 19

Machine Learning w/Kris Longmore

Elite only

Market Analysis w/Dave Forss

Apr 25

Introducing iSystems with Stage 5 Trading

Apr 27
     

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