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market mvironment, all of us take it completely for granted that the buildings, trees, traffic lights, and streets we all know are completely stationary and will be there from one moment to the next. You didnt walk out of your front door this morning to discover the street you live on doesnt look just as it did the previous evening when you walked inside your home. If getting to the office or your place of employment represents an opportunity to make money, you would take it completely for granted that it would be possible to get there in familiar ways.

However, as a potential opportunity to make money comparable to that afforded in the markets, what if the location changed on a moment-to-moment basis, what if the streets also changed their location in relationship to each other, and, furthermore, what if no one cared if you ever found your way there, making you and you alone completely responsible for where you end up?

It just makes sense that to function in the market environment effectively you will need to make yourself accountable. Otherwise, how could you ever learn how to trade, if you allow yourself to be swept into or out of something by forces outside of you and inside of you that you cant identify and dont want to? The markets behavior will seem mysterious because your own behavior is mysterious. You will be in a constant state of confusion, anxiety, and fear because you dont know what to do next-the kind of state of mind that breeds superstition.

Understanding yourself is synonymous with understanding the markets because as a trader you are part of the collective force that moves prices. How could you begin to understand the dynamics of group behavior well enough to extract money from the group, as a result of their behavior, if you dont understand the inner forces that affect your own? When you do understand the inner forces that affect your behavior and take responsibility for what you do and dont do, and what you can or cant do, you will begin to perceive how and why other traders comprising the group behave the way they do.

When you attain some degree of control over yourself, you can then see how other traders are not in control of what happens to them, like blades of grass, all bending to the force of the prevailing wind and constantly being stepped on. You wont be able to see this until you are no longer a blade of grass yourself by evolving beyond

the group mentality. Then it becomes much easier to understand the groups behavior, anticipate what they will likely do next, and take advantage of it to the best of your ability. You will understand the group, certainly, to no greater degree than you understand yourself Creating definition and rules to make yourself accountable is but a first step on the road to lasting success. You could acknowledge their necessity and establish them, but then find to your dismay, it is extremely difficult to abide by them. In Part III we will examine the interacting mental forces that make it difficult to follow your own rules.

I have titled this chapter "In the Market Environment Reasons Are Irrelevant" in recognition of the traders who believe that if they can ascertain the reasons why the market did what it did, these reasons will help them to determine what the market will do next. To believe this assumes that traders know why they behaved as they did and that the reasons they give for their actions will aid in determining their future behavior

The reasons traders would give for their actions are irrelevant. Most traders dont know why they did what they did because most traders dont plan their trades, thus eliminating any connection between themselves and the results of their trades. Most traders act spontaneously and impulsively and then ascribe the rationale for their behavior after the fact. Most of these after-the fact reasons are either justifications for what traders did or excuses for what traders didnt do.

Fundamentally people trade to make money. And to make money, traders have to take positions, hold their positions for some length of time, and then exit their positions. When traders enter and exit

In the Market Environment, Reasons Are Irrelevant

positions, they act as a force on prices, making them move. When they are observing the market, waiting to enter or holding a position, traders are a potential force that can act on prices at any given moment. If traders planned what they were going to do before they did it, then the reasons they would give for why they act as they do could definitely help other traders to anticipate how prices will be affected by their actions. This, of course, assumes that they will reveal their plans and that they will be telling the truth. There are only a few traders who make money on a consistent basis, and rarely will they reveal their reasons unless it suits their purposes.

In fact, traders who are confident in their ability and know they can have a significant impact on price movement go to great lengths to keep information about their plans away from other traders because that would diminish the possibility of executing these plans. However, this is not to say that after they have taken their positions they wont purposely reveal what they have done to then draw other traders into the same position, forcing them to compete among each other to create price movement in their direction. On the other hand, traders who are not confident about what they want to do will gladly share their trading ideas with anyone who will listen, hoping to get some sort of confirmation that what they are about to do will work. So the after-the-fact reasons they offer for why they acted as they did usually just serve the purpose of easing the pain of what they perceive as their mistakes, which isnt particularly useful information.

What is useful is understanding that traders typically act as a group, very similar to a school of fish or herd of cattle. Individual traders fall into specific groups that tend to perceive the same kind of market conditions as opportunities or disappointments. As a result, they will act in unison to upset the balance of the market, causing the prices to move in predominately one direction. The various groups take positions because they believe they can make money, and they get out because they are either losing money or perceive the possibility of making any more money as diminished in relationship to the perceived risk of losing money. For example, the locals on the floor of the exchanges have the least amount of patience, are the most impulsive, are the most easily disappointed, and consequently have the smallest price objectives and shortest time frame perspectives. As a result, they are the most active and will all be trying to do the same thing at the same time.

Commercials and off-the-floor retail traders are two other groups that have different price objectives and time frame perspectives from each other. Individuals within these groups will also tend to act in unison, upsetting the balance in the market by their degree of participation or lack of participation at any given moment. You can determine what market conditions in which they are most likely to participate, what conditions will confirm their beliefs about the future, and what will disappoint them. Once you learn their unique characteristics, you can anticipate how one or more groups are likely to act and determine how their activity will affect the balance of the market and the potential for price movement.


Every moment we exist we are interacting with the environment, expressing ourselves in our own unique way, and thus creating our lives by the way we live it. Everything we do in every moment is some form of the way we express ourselves. We express ourselves to fulfill our needs, wants, desires, and goals. Today most individuals can channel their energies to fulfill needs beyond the requirements of food and shelter, but to do so requires money.

Money allows for a system of exchange where we can trade the goods and services created from individuals expressing themselves in highly specialized ways. Money has evolved to become the object of our needs because it represents the means or path by which we can express ourselves as individuals. All behavior is a form of self-expression, and almost any way in which an individual wants to express himself in our society requires money. So at the most fundamental level of cultural existence, money represents freedom of expression.

Individuals expressing themselves in specialized ways create a highly complex system of interdependence To exchange goods and services, individuals have to agree on the value of those goods and services to make an exchange. I am defining "value" as the relative degree of importance or potential something has in fulfilling a need. The actual price at which goods and services are then exchanged will be determined by the fundamental economic law of supply and demand. In psychological terms, the law of supply and demand is

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