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be difficult because he can always rationalize that, based on the odds, he is bound to win eventually and that he can always quit after the next game. But he does not need his own mental structure to end any particular game because its automatic.

This is very much different from the market environment where you can be a passive loser. Once you put on a trade, you have to actively participate to end your losses. You dont need to do anything to continue to lose, and the market could go against your position indefinitely. If for any reason you choose not to act or cant act, you could lose everything you own and more. Depending on the size of your position and the volatility of the market, this could happen very quickly. The only way out is to confront your personal issues about greed, loss, and failure. What specific issues or combination of them come into play in each trade will depend on whether you are in a winning or losing position.

Since, all of us seem instinctively to avoid confronting any issue that could cause pain, such as getting out of a winning trade too soon or having to admit we were wrong to get out of a loser, the easiest way out of a situation like this is to convince ourselves (indulge ourselves in the illusion) we are in a winning trade that will never end or gather all the evidence possible to suggest that we really arent in a losing trade. Therefore, in either case we will have no reason to confront the forces inside of us that keep us from objectively perceiving what the market is telling us about the possibilities and potential for profit in any given moment.

The markets make it extremely easy for you not to have to confront these very tough psychological issues. For example, if you focus your attention on price movement at the tick-by-tick level, the market can graphically display billions of combinations of behavior characteristics and price patterns to get from one point to the next. It is very easy to use this type of information to support any belief, rationalization, justification, distortion, or illusion you need to want to have about where it is going in the future.

Most traders will attempt to simplify price movement by thinking the price can only do three things. Go up, go down, or stay basically the same. Some traders may even carry this distorted logic to the point where they believe there is a 50/50 probability for success in any give trade. This of course couldnt be further from the truth. For example, lets say that prices stayed within a 10-tick trading

range for an entire trading session, if you take into account each tick, how many price patterns is it possible for the market to display going from the top to bottom of the range and then back again? Im not a statistician, but Im sure its at least millions. To illustrate this a little further, if point A is the bottom of the range, prices could have changed up one tick, down two, up one, down three, up two, down one, up one, down two, up three, down one, up two, down one, up one, down one, up two, down one, up three, down one, up two, down one, up three, down one, up one, down one, up two, down one, up three to point B, ten ticks up from point A. This is obviously a very shortened version of the way prices usually move, but it does represent one pattern out of millions of possible pattern combinations, and each pattern you identify can repeat itself at some point in the future.

If you are a buyer at point A, what are the odds the price will stay above your entry point? What are the odds that the price will be above or significantly above your entry point tomorrow or the next day without having gone below your entry point first, by two ticks, five ticks, or ten ticks, before it goes back up again above your entry point? Once prices go below your entry point, what are the odds they never go above your entry point? What are the odds they never go below? To answer these questions, you would have to know a great deal about the consistency of the market and its potential to behave in certain ways. In any case, relative to most traders emotional disposition to deal with this kind of movement and within the context that most people think of as 50/50 odds, it definitely doesnt apply in the markets.

To illustrate another point, if you got short halfway between points A and B, which ticks would you have the tendency to place greater weight on in terms of market information? The down ticks naturally. They confirm what you believe and the up ticks dont Yet each in relationship to one another can tell you something about the consistency of the market and its potential to move in any given direction. How can you begin to assess that potential accurately if you place a greater significance specifically on the information that confirms what you want or believe? In effect, you would be using the information to suit your hopes, dreams, wishes, and desires instead of perceiving it in a manner to assess the markets actual potential to do any of the foregoing.

Thus, what you have in the market environment is a deadly combination of the market forcing you to confront difficult personal issues to survive, an event that produces information in a wide variety of forms that can be used to support any illusion, distortion, or expectation, therefore, making it easy to avoid confronting these potentially painful issues. Furthermore the event continues on until you come to terms with whatever is inside of you to end it. Unless your brokerage firm liquidates your position, you are the only one who can make it stop.

Among many other factors, to become a consistently successful trader your objective has to be to learn how to let the market tell you what it may do next and how much is enough. This is extremely difficult when you consider there is absolutely no relationship between what the market may do next and your personal belief system on what it means to lose, what it means to be wrong, greed (fear founded in a belief there will never be enough), and revenge.

I can anticipate a lot of readers saying to themselves "I can understand the loss, being wrong, and greed issues, but where does revenge come into this?" This can best be illustrated by going back to the gambling game example In a gambling game you can only lose what you decide to risk. You bet the money and its difficult not to accept the responsibility for any losses. As a trader, however, you could easily lose far more than you intended to risk, based on your inability to perceive the possible or your inability to execute a trade to get out of your position, or a combination of both.

You may have been willing to take responsibility for what you originally intended to risk on a trade (although most traders are not willing to take this responsibility, which I will demonstrate further on); however, it might not be so easy to take responsibility for losing more than what you intended to risk This is where the revenge factor comes into play. If you dont take responsibility for what you lost, then who or what can you blame-the markets, of course. The markets took your money. If the markets took from you more than you originally intended to risk, then you will likely feel compelled to get it back.

For example, is a 10-tick profit enough in the trade you are currently in if you lost 20 in the last trade? The market may be giving the objective observer a very clear indication that where the price is now is all that is left in the move and the highest

probability for success is to take profits now. If you lost 20 ticks in the last trade and you only intended to risk 5 and the market is now offering you 10, are you going to take it. If you believe in "getting back," 10 wont be enough regardless of what the market is doing or telling you. You will need at least 15 and preferably 20 to make you whole.

Your last trade obviously has nothing to do with the potential that exists in the market at any given moment. When you feel compelled to get back, it puts you in an adversary relationship with the market. The market becomes your opponent, it is you against it, instead of being in harmony with it. The market cant take anything away from you that you dont allow; if you lost money or lost more than you intended to risk, you gave your money to other traders. Ultimately, however, revenge creates an adversary relationship with yourself. If youre the one who gives your money to the market, you are also the one who gives yourself money out of the market. If you are angry with yourself for letting the last trade get so out of hand, whatever the market is offering you "now" in terms of an opportunity wont be enough. From a psychological perspective, you wont take the opportunity for a profit or otherwise because you havent accepted the last trade as being all right. In effect, you will be denying yourself the current or next opportunity to punish yourself for the past mistake. In reality you cant get back at the market, and a belief in revenge only allows you to get back at yourself.

There is a direct correlation between your ability to let the market tell you what it is likely to do next and the degree to which you have released yourself from the negative effects of any beliefs about losing, being wrong, and revenge on the markets. Not being aware of this relationship, most traders will continue to observe the market from a contaminated perspective until they either make the association through trial and error or become aware of this relationship through a book such as this. In any case, by the time those who figure it out do so, they have usually subjected themselves to so much psychological damage that it adds a much more difficult dimension to the process of becoming successful.

This is the principal reason why this book had to address the areas of personal transformation in such depth: you need to know if there is any damage, how to identify it, and most important, how to release yourself from it.

Unlike structured social activities that have defined beginnings and endings and rigid rules to guide your behavior, the market environment is more like a river constantly flowing, with no beginning or ending with almost no structure. Once you jump in the river, it can change directions at any moment. It may have been flowing north when you jumped in; however, without any notice, it can start flowing south. Its unstructured to the point where you make up all your own rules to play by, with a great deal of latitude to do so.

You will have to decide if and when youre going to jump in and with how much force. If you are already in, you have the option of increasing the force you apply at any time or of decreasing it. There are no rules preventing you from jumping out at any moment to change your intended direction to flow with the market, or you can jump out and stay out, and the market just keeps on flowing.

In an unstructured and unlimited environment, it is essential that you establish rules to guide your behavior. You will need to create definition and give yourself direction. Otherwise, you will feel overwhelmed with too many possibilities. Without these rules one of the

The Market Is an Unstructured Environment

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