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The most effective manner to illustrate the "unlimitedness" of the market environment is to compare it to gambling. With any gambling game you will always know exactly how much you can win or lose each time you play. You decide exactly how much you want to wager, you know exactly how much you can win as well as lose, and you may even know the mathematical odds of either possibility.

This is not the case in market environment. In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade.

From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants (ratio between buyers and sellers) and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does,

There Is Unlimited Potential for Profit and Loss

The Nature of the Trading Environment

then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity is in the opposite direction.

If you are in a losing trade, the market could be moving farther and farther away from your entry point, increasing your potential loss by the moment. While this is happening, however, you may only be able to imagine it coming back in your favor, instead of confronting the possibility of the market continuing against your position. This type of thought process will continue until the sheer magnitude of the loss overwhelms you, and the possibility of the loss increasing is suddenly more pertinent than the possibility of the market coming back. You finally exit the trade never intending or ever imagining you could have allowed yourself to take such a large loss.

From a psychological perspective, the possibility for unlimited profits, happiness, power, and so on, whatever it means to you when you imagine making all the money you ever wanted to make, can be extremely dangerous. The possibility may in fact exist, but how realistic it is in any given trade is another matter.

There are several psychological factors that go into being able to assess accurately the markets potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective wont be a concern because you probably wont have any money left to trade with.

The markets are always in motion; they never stop, only pause. As long as there are traders who, for whatever reasons, are willing to buy higher than the last price and, as a result, bid the price up, or traders willing to sell for less than the last price and offer the market lower, prices will remain in perpetual motion. Even when the markets are closed, prices are theoretically in motion. For example, what price traders may be willing to buy or sell at on the opening the next day does not have to be at the price level the market closed at the previous day.

What are usually thought of as three simple decisions of enter, hold, or liquidate a trade become a perpetual process of deciding how much is enough from both a profit and a loss perspective. If you are in a profitable trade, is there ever enough? Greed stems from a belief that there is never enough or there wont be enough. In an unlimited environment that is in perpetual motion, isnt there always the possibility of getting more? The appetite of true greed can never be satisfied; it will always leave the greedy ones with a feeling of lacking regardless of how much they have acquired. If you are in a

Prices Are in Perpetual Motion with No Defined Beginning or Ending

losing trade, you wont want it to exist because it represents failure, so you can just act as if it doesnt, by convincing yourself that you are in a winning trade that hasnt gone in your favor yet.

The "how much is enough" question can be answered in an infinite number of ways relative to your beliefs on the value of money, what you need it for, how important it is, can you really risk it, how secure do you feel, and what is enough today may not be enough tomorrow because of other factors in your life-all relative questions that have no definitive answers and change with the changing environmental conditions. Having to confront these personal issues as a trader will only contaminate your observations of market movement because they have nothing to do with market direction and the potential or lack of potential of any particular market move. This is why successful traders have always stated emphatically, "Only trade with money you can afford to lose," meaning money that has little or no value in your life. The less meaning the money has, the less potential there is for your personal "how much is enough" issues to contaminate your perception of market movement.

Thus, if you allow it, the market can always tempt you into thinking there may be more to be had in a winning trade and always give you something to hang on to in order to justify your hope that it will come back and make you whole, if you are in a losing trade. Succumbing to either one of these temptations subjects you to the possibility of some very negative and painful consequences.

The market environment is also unstructured in such a way that, from a psychological perspective, there is no beginning and there is no ending. What I mean by this statement (before you think that its not true, the market opens and closes at a specified time every day) is that from the perspective of the individual trader, the game only begins when you decide to enter and ends only when you decide to exit irrespective of market openings and closings.

You have the freedom to structure the game inside your mind in any particular way you please. You can get in whenever you want for whatever reasons are good enough to justify your actions. You can get out whenever you want. In fact the game only ends when you have decided that youve had enough and take the appropriate action to end it. The psychological implications to the individual confronting these conditions are staggering.

Entering a trade will involve all your beliefs about opportunity in relationship to risk, missing out, needing a sure thing, and not being

wrong. Exiting a trade will involve all your beliefs about loss, greed, failure, and control

Considering the unlimited potential for profit, entering the market will be much easier for most traders than will be getting out. This is because exiting the trade will require that you confront your beliefs about greed, loss, and failure in relationship to the constant temptation of the possibility for unlimited profits.

These individual psychological issues are completely independent of objective market action. And even more significant, as I will explain in Part III, your beliefs about loss, being wrong, failure, and control will operate independently of your conscious intent. For example, think of the last time you perceived an opportunity to profit and the fear of being wrong, or losing, and so on, immobilized you, keeping you from putting on the trade.

To the extent that these issues exist as a component of your mental environment, they will determine the effect they have on your perception of market activity, the decisions you make, and your ability to act on what you decide.

However, one of the most significant and potentially damaging factors related to this no beginning and no ending characteristic of the market environment is that it allows you to be a passive loser. The best way to illustrate this concept is to compare the markets with any form of gambling games. For example, with blackjack, horse racing, or craps the player has to make a conscious choice to play and decide before the event exactly how much he will wager. The event begins and ends according to the rules of the game, and the risk of loss is limited to the size of the wager.

Each new event is a fresh start, where the odds of winning may be determined by mathematical probabilities and the rules of the game automatically take the player out after each event. When the game ends, the player knows exactly what the outcome is and then must make a conscious decision to participate again. Therefore, the structure of the game forces the player to be an active loser. To subject himself to the possibility of losing any more money than he has already lost requires that he place a wager for a specified amount. He has to actively participate to lose and do nothing to stop losing. Obviously, if the player does nothing, he will not be subjecting his assets to the possibility of loss.

If the player is losing consistently, he will need to confront his beliefs about loss and failure to quit playing altogether. This could

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