Posted on: 07 May, 2019
The revelations that this article contains, especially if you are at an early or just about to get to a stage of break-even on a consistent basis, should be an absolute gold mine. Even traders making money on a consistent basis should be able to relate and reflect back to similar struggles as part of their trading journey before they got to a point of consistent actions and results as a byproduct.
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Article authored by Ivan Delgado, Market Insights Commentator at Global Prime. Feel free to follow me on Twitter & Youtube.
The compilation of lessons this article contains, especially if you are at an early or just about to get to a stage of break-even on a consistent basis, should be an absolute gold mine. Even traders making money on a consistent basis should be able to relate and reflect back to similar struggles as part of their trading journey before they got to a point of consistent actions and results as a byproduct.
Building my account consistently over months, up more than 20%, only to lose it all and some more in one single long GBP trade, I’ve been there. Trading a currency just minutes away of a data release? Yep, I’ve experienced that too. Entering a trade, only to start doubting myself, fear of losing kicking in, which leads to close the trade and leave that sense of… what am I doing? I’ve sadly done that. Hopping from system to system over the years in a pattern that feels eternal? I’ve been stuck in that cycle. The list goes on and on. This article is a summary of the main mistakes I’ve made and most importantly, what I did to correct them so that I can continue working on perfecting my craft.
Getting into the right physiological state of mind before day trading the markets is absolutely essential. However, that was not how I would approach the markets when I first got started. I will give you a few examples of how it compares the type of discipline I apply these days to trade the markets as opposed to what I used to do back when I first started trading. Today, an integral part of my trading orbits around absolute and utter concentration as much of my performance hinges on my ability to spot and exploit low timeframe setups in line with my rules-based methodology. So, instead of simply coming to my desk 5-10m ahead of the US session, randomly checking my charts to spot any potential setups with no routine at all, my process has become much more mechanical and boring; remember this last adjective, as there is a strong correlation between seeking excitement that tends to lead to poor results vs setting up a routinary yet boring process at times, but achieving much better results. These days, when I first come to my desk, I do it with a buffer of 30m ahead of my official trading. First up, before anything else, is to always read my trading plan, where I stipulate all the actions I must perform in detail, from drinking tea, writing my direct affirmation, disconnect my phone and other potential distractions, perform a visualization of successful trades I’ve had to reinforce the neuro pathways about these particular setups, analyzing religiously each and every chart I am trading to understand the type of conditions I am facing today, check the news. I must then remind myself that on every candle print, I need to constantly ask myself, is there a trade available in the next print? Additionally, I am also reminded that I need to actively engage in self-talk when trading. This preparation sets me up to tackle the market at an optimal state to maintain a fully focused process.
As part of my daily routine before I trade the markets is to complete the reading of my compressed trading plan, which includes the rules of engagement, risk management, and certain nuances. It is only 1 page long, which facilitates the routine of being able to re-read it every single day without exception. If it was 3 or 4 pages long, sooner or later, it would feel too heavy going through it every single day. So, here is where another mistake lies, which has to do with a trader’s inability to gradually synthesize and shift from a complex trading plan with an excessive number of rules to a shorter yet more comprehensive and relevant 1-page document where only what really matters is written. If you don’t summarize your plan, the risk is high that ultimately it won’t be read ahead of each trading day. Also, as part of your journey as a trader, the moment you notice that some of your trading rules are so ingrained in your mind that becomes 2nd nature (you can tell when that happens), you can simply start removing some of these observations from your plan. Another tip I recommend is to shorten the words, let’s say writing ‘vol’ instead of ‘volume’ as it helps to piece it all together in 1 page. If one aims to be a professional trader, there can be no deviation between how you perform your trading and how you are supposed to behave based on all the rules you’ve written. If there are incongruences, that’s a sign that you need to keep working on your behavior to reflect your rules, or alternatively, it can also mean that your rules should take into account your behavior. Either way, you must correct that.
There is a very fine line that separates a gradual fine-tuning of one’s strategy without altering its core edge, and the risk of over-refinement, which sooner or later, leads to the dreadful path we’ve probably all faced. I am referring to completely moving away from the strategy you were using in the first place. Whenever that happens, what’s important is not as much that you changed your strategy, but why you keep repeating this cycle? Getting to the bottom of this question yields the best revelations. What led you to decide the former system is no longer valid assuming you back tested it and proved profitable? Were your expectations to get positive results unrealistic? Did you lose faith after experiencing a bad losing streak? Did you feel you couldn’t adapt to the strategy based on your personality as a trader? Coming up with a congruent answer to these questions will reveal what’s the actual driving force leading to make these decisions. There is nothing wrong with changing the way you trade the markets a few times during your journey as a trader, just realize that sooner or later, you cannot be stuck in this vicious cycle of constantly jumping around how you approach the markets. That’s why understanding yourself and why you make certain decisions is the number 1 question you must always ask yourself. If the strategy was performing alright but you are the type of trader who doesn’t like to sit on your butt waiting for hours for the right setup to pop up but rather you are more the kind of active ‘scalper-like’ trader in and out, sooner or later, that’s going to manifest in how you perform by making an unnecessary amount of mistakes. The opposite can also be true. If you like to be very patient, only waiting for the right setups to occur in higher timeframes, an intraday strategy that gets you in and out of the market for quick profits won’t seat well with you. Are you the type of trader who likes to just specialize on one single setup on multiple markets? Do you like to focus in just one market? Do you have the capacity to be actively engage in multiple markets while also deploying multiple setups with an edge? Be aware, if that’s the case, a huge amount of concentration is going to be required. Know thyself must always come first before you choose your strategy. The moment I got to really know the type of trader I like to be, that’s when the search for the holy grail was over, as I started to look from inside out vs stimulated from outside factors from which to adapt.
I can tell you from experience that if you are not tapping into the insights that a trading journal can provide, the extent in which you can improve as a trader by identifying what you are doing well and what are the toxic trading mistakes that you must gradually remove is going to be quite limiting. In any endeavor that involves entering a highly competitive field, be it football, basketball, golf, etc. the power of constantly being engaged in feedback-loop cannot be sufficiently emphasized. The repetition of common mistakes is a very costly business that you must address, which is only going to be possible if you work with the tools that allow you to quantify how much of an impact your mistakes are having in your bottom line. Similarly, wouldn’t you find it tremendously valuable to identify under what set of circumstances you tend to make the most returns? A trading journal, at the end of the day, should be seen as a filtering mechanism that provides the necessary insights on what’s working and what isn’t as part of your strategy, while identifying behavioral patterns that you must remove and/or reinforce. You must continue to constantly tilt the balance towards actions that are going to be conducive in eliminating unnecessary losses while working on those that bring the most reward. A trading journal is an excellent tool to know yourself as it becomes the mirror to refer to, one that reveals a huge amount of valuable information when committed to keeping it up to date. Personally, the one I’ve used since its inception is called www.edgewonk.com. Check it out as I personally find it to be the most intuitive and rich in analytical tools. A great investment in yourself.
Working out has undeniably huge benefits for the stimulation of your brain. If one exercises systematically, the parts of your brain responsible for improved memory retention, intellectual capabilities, and thinking activate. Additionally, sweating it out releases specific chemicals inside your brain, which leads to improved sleeping patterns, mood and stress. Besides, regular exercise also increases the level of endorphins in your blood, hence reinforcing the good habits of happiness, calmness and confidence, all critical when trading the markets. When these attributes improve, so does the ability to control your emotions, which makes you less impulsive. On top of that, being fitter means you build a greater immune system as a defense wall against diseases, which means your improved health leads to fewer days at risk of being sick. What’s more, by working out regularly, you become more disciplined and organized in the task at hand, which translate in how organized and committed you are in other areas of your life like trading. In my own case, I do CrossFit 5 days a week from Monday to Friday, sometimes even Saturdays as a bonus. Not only I love how it’s helping me to stimulate my brain and take a much needed cognitive break outside the screens, but it’s a great personal challenge knowing that every day I look to push myself into new limits in terms of weight-lifting, cardio, range of body movements, etc. Not to mention the great sense of community that exists, something that tends to lack when trading. To sum up, doing regular exercise allows you to enter the optimal state of mind for consistent peak performance in trading.
In hindsight, I now feel like this is such a novice mistake, one that originates from either lack of concentration, which means no preparation, or simply approaching trading from a gambling mindset, which is not going to take you very far in an arena where it’s all about exploiting one’s edge. Even if it sounds as though it is intuitively easy to avoid this mistake, I have been the victim of trading around news way too often in the past. Fortunately, the moment that I understood that the reason I was behaving in such an irresponsible manner had to do with my need to get a high stimulant while trading, which is probably why many still risk capital in hopes of a runner out of an economic release. You need to realize that such an approach will, more often than not, result in unnecessary losses that could be avoided if you were to just simply stay away. There is just too many factors against taking this leap of faith. Firstly, why do you think brokers will widen the spreads? Because there is a sudden removal of most of the liquidity available in the markets right ahead of the data release. Why do you think that happens? Because the majority of market participants with an intent to make money are not in the business of playing the lottery, which is what an economic data release is. Besides, right ahead of an event, algorithmic activity tends to regularly clean up the book by taking out nearby stops. Whenever there is an event that I know has the potential to move the market more than my stop loss size, I have a rule that doesn’t allow me to have risk exposure until after the data or event is out of the way.
A theory that has always resonated with me is to stay away from the majority of MT4-free indicators. In my view, and I know that’s how institutions operate, it’s all about volume, levels, liquidity, price action, fundamentals, and whether or not value exists. There is definitely a slight degree of discretion that can be applied, as some of the so-called lagging indicators can act as a complement to one’s strategy, but the over-reliance of the retail-type trader on these indicators is one of the main reasons why it is so hard to be a consistently profitable trader in the forex market. It’s not impossible, as some traders replace the deficiency of lagging indicators with excellent risk management, so they end up cutting losses short and letting winners run. Nonetheless, MT4 default indicators will make calculations that are based on past data as opposed to using tools derived from real-time activity, which is why I tend to emphasize that the blending of correlations, volumes, cycles, or the interpretation of price action, can be a major booster to your existing strategy. These days, I still use the Bollinger band as a handy tool to spot when the market conditions start to enter a consolidation phase, an indicator that highlights the round numbers on my chart, or plotting a number of different moving averages, which again, it’s just a visual aid, nothing more. Other factors that I use to assess potential trading opportunities involve the measurement of market symmetries via the fibonacci retracement tool, volume analysis or correlation studies. Bottom line, indicators still play a role, but they should not be treated as an overly reliant factor on its own right. If you still take this venue, make sure your risk management is excellent and you are finding congruence with higher timeframes.
The moment I came to terms in adopting a style that not only resonates with my personality but that I could single-handedly determine what is it that constitutes the edge, based on my thousands and thousands of hours observing the market, that’s when another step in the right direction was taken. By that, I am not endorsing the idea that you should not consider mentorships in trading, what I am saying is that you should be the ultimate responsible, through your own experience, to decide if a specific strategy you are taught should be religiously followed, or alternatively, you continuously develop as a trader, and become selective on how you’d like to mold it to your own style, provided that you can gather sufficient evidence that the approach carries an edge to exploit. I’ve been taught all types of indicators and styles, with the peculiarity that none was designed by myself. It was not until I had gone through multiple courses over many years that I started to put together a methodology of trading that originated from my own discretion by combining different tools I learned. What made the difference was the fact that I was finally taking responsibility to follow my own idiosyncratic way of trading the markets rather than being told how I should trade a particular system. Being the owner of your destiny starts by making your own decisions, hence, why you must take ownership of how you are going to be trading the markets with purpose and authenticity.
This one falls under the same category as ‘trading around news’ in my opinion, as I think the main problem here has to do with complacency and lack of responsibility to properly define your rules. In hindsight, it probably sounds like something that may be easier to avoid, but whenever you at in the heat of the moment and adrenaline-driven stimulus take over, these mistakes can easily happen. Let’s say the USD is sold across the board and you spot what in your view looks like 2 trades on the AUD/USD and NZD/USD. Your greediness, under this situation, may take over, and before you know it, you enter the position in both pairs in the expectation that you could make twice as much, leaving the responsible thought of how much you are risking on the backburner. Long and behold, before you know it, you find yourself underwater in both positions as the USD sell-side continuation doesn’t play out and as you should know by now, the AUD/USD and NZD/USD tend to be highly correlated. You could trade both positions as long as that’s part of your plan of engagement, which may include whenever you are faced with this situation, you split the risk between the 2 pairs, ½ each. Until you read your trading plan every single day and make a conscious effort to respect what it’s been written no matter what, you will not be true to yourself. And let me tell you, one of the key components to be successful in any endeavor is to never lie to yourself. Authenticity runs very high on the list of attributes one must possess to accomplish high performance in any field.
I’ve written and talked about this subject quite extensively as of late. In a nutshell, the moment that I started to act as the commentator of my trades, a whole new universe of awareness and presence in the moment transpired. I felt that my level of engagement and concentration went up considerably. As I mention in my latest write up on this subject, “the art of controlling emotions, gaining clarity when trading, reinforcing an idea, strengthening one’s profile, starts from being true to ourselves, hence having a constant self-interaction out loud is immensely valuable..” If you start practicing this self-talk exercise, you will gradually see the speed and quality of your decision increase as your distractions and poor judgments decrease. Isn’t that the point of running a trading journal? The advantage of self-talk, in many ways, is that it acts as a form of a all-time circuit breaker, allowing us to anticipate unnecessary mistakes that would otherwise get registered in our journal. That’s huge!
Lack of concentration when trading the markets intraday does originate from multiple sources. It can be social media platforms the likes of facebook or twitter, your chat on discord running, attending calls or messages during your trading, etc. Whatever activity it is that you engage on, that has the potential to take your focus away from the screen, that’s unacceptable behavior if you are serious about trading. I will confess that every now and then, I still fall, the im of my own distractions, when markets go really quiet by checking Global Prime’s discord room or a quick glimpse at my phone, but it’s miles apart from where I was years ago. To me, even if the markets go quiet, I nowadays know that nothing must overlay the priority I place to my trading, hence, even if the market stagnates, I can always use this time to run further trade simulations on my strategy for example. This type of smart approach, when done consistently enough, would reduce whatever urge I have to engage in any sort of distraction while at my trading desk, which in turn, I know serve my goals as a trader, and that’s precisely what your actions should be aimed towards, leading by example.
This is a big one. If you are still not entering a trade when your system gives you a signal, get paralyzed after a series of losses, or your judgment to call a trade is impaired by the memory of the last losses, then a component of fear is affecting the way you trade and that must be addressed. Because of the way our brains have been wired over history, we tend to seek security over risk. We tend to magnify the number of negative thoughts over positive ones. That’s just the way it is, unless, you train to think and act differently to avoid the constant activation of your primitive portion of the brain. Fear can take many forms in trading, it can originate from the anticipation of thinking you will lose money, of disappointing someone if you don’t perform as expected, trading too large sizes, fear of not being good enough, fear of making a mistake, etc. Firstly, you need to pinpoint what exactly you are afraid of and how bad that’s affecting your bottom line results. The practice of any activity that helps to calm and relax your brain such as yoga or meditation, coupled with self-talk, will make a tremendous difference in your ability to detect when an element of fear is hindering your trading. In my case, I was able to build new neural pathways in my brain through the repetition of a direct affirmation that I write down 2 times per day. It reads: “it is like me to trade the markets without fear or tension. By trading without fear or tensions, I allow myself to participate in a statistically-backed winning strategy.” What this does, is to reinforce my self-image about who I am when trading the markets. Besides, I’ve worked for some time now to identify and channel the negative connotations of fear as an energy so that it can permute to help me. How do I achieve this? By transforming it into a vehicle that will help me push beyond my boundaries, working extra hard, building more skills, which leads to my fear of inaction far exceeding my fear of failure, hence taking more action to avoid inaction. If you are certain that you don’t want to be a victim of your own weaknesses, fear feelings or confusions, the only way forward is to get your act together and be ready to do whatever it takes to live a bolder life. I’ve always loved the quote in trading that “fortune favors the bold”, which in the case of those suffering from fear, it’s a great reminder that in life, risk is an inherent part of living, especially when trading.
If your aim is to build confidence in a specific strategy that will act as your trigger mechanism to enter the market, you should definitely go through a rigorous process of backtesting it to determine if it has proven to be profitable over a large enough sample of trades. If you are serious about trading, this process should take weeks or months of repetition, where you include in-sample results, out of sample, and forward-testing. The longer the in-sample, the more robust your statistical edge can be, which leads to increased conviction upon its expectancy. By backtesting a strategy, you also avoid the common pitfall of letting the short-term results determine your level of commitment towards your strategy. You will sooner or later face a rough patch of losing streaks, which is where it will test your conviction towards the strategy deployed. Way too often, I have made the mistake of letting these results justify that it was time for me to seek out yet another way of trading with the elusive thinking that losing streaks could be avoided. The way I overcame this seemingly vicious cycle with no end in sight for many aspiring traders, involved the combination of finding a strategy that resonates with my personality, and running result simulations as far back as I possibly could via tradingview. After I completed months of obsessive testing, the next phase was to trade the strategy live with minimal capital on the line starting from as little as 0.1%, and only increase the risk/week if the results had proven profitable over this period. Note, I did that because I already had years of experience chasing my own tail in the market. For newbies, it is always recommendable to start on a demo forward-testing to know what’s like trading the strategy with real-time data yet no risk of unnecessary money lost due to lack of experience. Yo should do that for as long as necessary until your results start being more consistent and learn to control your risk adequately. The more you forward test it, the more room to further optimize the strategy while still gaining further exposure and experience.
The action of wanting to guarantee the taking of profits ahead of a predetermined target, over thousands of trades, I found it to be quite detrimental in optimizing the trading results. I’ve repeatedly stated that your trading account is a reflection of where you are in your development as a trader. When it comes to taking profits, an important trait that is manifested is your ability to be patient for your projected target to be hit. In retrospect, the hasty action of taking profits before you let the market hit your profit also carries psychological benefits, as it reinforces your self-belief that you just simply let the market dictate the outcome of the trade, without you intervening to alter the results. That said, there is nothing wrong in adjusting your target a few pips as you realize that you just placed the profit line right after a round number that may be acting as a barrier, that’s fine, what sets out the wrong habit is to be monitoring the trade live and just as the target is about to be reached, you cut the trade short say 5 or 6 pips, reducing your risk-reward from 2:1 to 1:1 just because that double reward looks too attractive, just as the fear of your trade turning against you for a break even trade grow. The key here is to accept about the randomness and unpredictability of each single outcome, while having blind trust, one that is supported through your backtesting, that over a large sample of trades, these targets will be reached, and that by you altering the results, you are also disrupting the potential maximization of your trading results. The more you detach yourself from the outcome of your next trade as the make-or-break in your level of confidence, the more relaxed and easier you will find it to accept as a random event where the price will be headed, yet each time your target is hit, you will gain a deeper and deeper sense of satisfaction as you remain true to yourself and your strategy.
The moment that you start going down this rabbit hole of not placing stop losses, hence defining your risk per trade, to instead apply some type of grid system or even a martingale strategy by which you multiply your risk after each loss, that’s the clearest recipe for disaster for the majority of traders. I won’t say for ‘all’ as I am sure there are some accomplished traders able to exploit these strategies, with the correct amount of minimal risk, for an eventual positive expectancy, if they know what they are doing. However, for the vast majority of retail traders, not setting a stop loss or taking too big of a hit every time you lose vs what you make when you put on a winner, is unacceptable. You are, plain and simple, not placing the mathematical odds in your favor to have a positive expectancy unless you are able to adjust your winning percentage to the degree necessary to offset your large losses. If you would like to find out what combination of winning percentage and risk reward you need to make sure that your account runs a 0% chance of blowing up, I recommend to check this risk of ruin table. The moment that I came to understand the maths behind trading and the combinations I had to respect, that’s when I could safely state that I’d no longer treat this business without the mathematically-oriented rigor that is required to generate positive expectations.
Sooner or later, as your account hopefully grows in size - sadly it applies to only a minority - you need to start making conscious decisions about picking the right broker that is going to be able to cater their services to your needs. You may consider commissions irrelevant when you trading with a broker in small sizes, but if your account grows, you quickly realize that paying the lowest possible commissions is vitally important to maximize the hard-earned money you can make in the markets. At Global Prime, not only the transparency and caring for the retail customers is second to none, but as a company, we are constantly looking for new innovative ways of making the life of a trader easier. The latest initiative that I personally find of great value is to lower traders’ commissions by participating in our Discord room. The more you interact, the more discount you can get. Pretty cool. Find an invite to our Discord room here: discord.gg/A22EB5y
I’ve fallen in the trap of trading out of impulsivity due to boredom or by the selection of sub-optimal trades way too often over the years. In retrospect, I find that the need for trading action, which in a way, reflects treating trading as an adrenaline booster, which is the worst possible approach. The more I thought about it, the more I realized that part of the reason has to do because traders tend to find excitement and exhilaration from trading. If you are the type of trader that associates trading with a source of adrenaline by observing your account go up and down, that’s another trait that you must get rid off at the earliest possible time. Trading should be seen as an exercise of self-control, constrained emotions, patience, authenticity, commitment, which results in letting the market dictate when a setup in line with your edge is in the making as opposed to forcing it. The more you can detach trading as a source of excitement to instead perceive it as a simple intellectual activity that provides, as a by-product of your consistent actions, potential unlimited rewards, the easier it will become for any trader to apply the necessary patience. If along the way you find that you are left waiting on the sidelines without any trigger longer than you can bear, you should then start considering slight adjustments such as adding markets or lower the timeframe you trade, so that you can hopefully find a remedy to an easily addressable issue before it leads you to over-trading.
You have no idea how many times the passing thought of making millions of dollars in trading crossed my mind. Let me tell you, that’s a double-edged sword. While you should be ambitious and have dreams, the more disconnect that exists between your current state, where you are in your trading development, and where you want to be, the more disparity exists in your expectations. The best way I found to reconcile with this apparent clash of reality vs goal, is to not set any expectations but instead to focus all my resources in the art of following a process to the best of my ability. For that, a book that has been pivotal to my change of mentality is “The Power of Habit” by Charles Duhigg. The more you respect your process while gradually detaching from monetary goals, the more you can concentrate on the task at hand without being influenced by external factors, What eventually you realize is that building an account becomes a by-product of your consistent actions and routines. By dedicating all your energy to all the steps necessary to perform the process flawlessly, without trying to alter what’s uncontrollable and randomly-dictated, such as the distributions of trading outcomes, you are giving yourself the absolute best chance to reach those distant dreams, one brick at a time.
One of the best weapons I have come to learn over many years of trading is the power of meditation as a vehicle that has helped me to rewire my brain for success, build emotional IQ and other elements all essentials for trading success such as enhance the ability to be present in the moment, develop improved pattern recognition skills, retention of memory, etc. A major challenge of mine before meditation used to be the activation of my fight or flight response to certain tense situations, if If I knew as an aspiring professional trader my attitude should be to stay calm, relaxed. The more I’ve meditated by just spending 10m/day, the more I’ve contributed for my brain to also stay in a state of internal peace and happiness, while I feel more in charge of my emotions and dialogue. I also fell that has translated in my determination to make tough decisions in life in general. The practice I’ve performed over many years is called Shamatha, I tend to do it right before trading for 10m, as a practice aimed to strengthen the mind's stability and to counterbalance the symptoms of an agitated mind. Shamatha meditation—mindfulness or concentration—is the foundation of Buddhist practice. My mentor on this field has been Chris Capre of 2ndSkies.
If you think that by making money for a certain period of time automatically means to stop improving your craft, to not put the same amount of effort as you used to, to let the focus slip away, let me tell you, if you are not doing all those things, someone else is, and sooner or later, your skill level will pay the consequences. I’ve fortunately always had a high ethical approach to trading, never sleeping in the laurels. Just because you get to a level of trading that seems effortlessly, it doesn’t mean you stop. You need to develop a growth mentality, one that perceives not learning something new as a lost day. If you are in a ‘growth mindset’ mentality, that is reflected in every area of your trading, in your desire to improve and engineer your trading plan with constant observations to keep the edge, in your motivation to tackle new learnings, add another book to your collection, watch hours of video related content. The learning never stops. Never underestimate the amount of high-quality free content that is available these days via selected sources in Youtube or in sites like Twitter.
I hope this summary can provide a framework of reference for the aspiring trader to refer to as a collection of tips that can make you save both time and money. It’s always easier to look back in hindsight and think I wish I knew all these pitfalls before I started trading, but let me tell you, as part of your own journey, it pays off to experience these mistakes first hand. Until you taste it by yourself, I believe is human nature not to treat that department with the relevance it deserves. If as part of your progress as a trader, you can come to introspectively realize, through your own imperfections, how toxic these mistakes can be, that’s a lot you’ve already won to then start polishing things off.
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