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attempt at trading completely underestimate the difficulty and con-sequently overestimate their ability to fulfill their inflated expectations. Therefore, most, if not all, people who trade inflict some degree of psychological damage upon themselves. I am defining "psychological damage" as any mental framework that has potential for generating fear.

Fear results from any belief about environmental conditions that has the potential to cause either physical or emotional pain such as stress, anxiety, confusion, disappointment, or betrayal. Painful emotional conditions are basically the result of unfulfilled expectations. Unfulfilled expectations create a conflict between a persons beliefs about the way things should be and the actual environmental conditions that dont match those beliefs. This conflict Is expressed through our emotions in the form of pain that we generally label as stress, anxiety, confusion, and so on.

People seem to avoid pain instinctively by building up mental defenses against the intrusion of environmental information that would confirm the existence of any conflict. These defenses consist of denials, rationalizations, and justifications-all of which will result in perceptual distortion.

"Perceptual distortion" occurs when our mental system automatically distorts environmental information by shaping and selectively excluding certain information to compensate for the conflict between what we expect and what the environment is offering us. This will be done in such a way that we will believe a shared reality exists between ourselves and the outside environment, thus avoiding any pain. I am defining a "shared reality as a correspondence between ones beliefs about the environment and the actual environmental conditions that exist.

If you are distorting market information, you are not sharing a reality with the markets, and you are also indulging yourself in an illusion, to the extent that you hide from the possibility of disappointment. At this point, you would be setting yourself up for what could be called a "forced awareness." Obviously, if the markets are doing something other than what you are allowing yourself to perceive (because some, if not most, of the information the markets have to offer wont validate what you want or hope), then something has to give. These distortions will continue until there is such a disparity between your acquired mindset and the conflicting market

information that the mental defenses (illusions) will break down. This usually creates a state of shock, where you may wonder how things could get so bad so quickly.

In such a situation, the market forces you to confront your illusions of a shared reality, creating a painful forced awareness. At some point in your trading career you will need to understand how all of us, because of our common upbringing, try to control market events through our perception of what we think will happen next and then rigidly hold on to these expectations. This is where you need to learn how to gain the kind of mental flexibility that allows you to shift your perspective to be aware of other alternatives and possibilities. You may not be able to control the markets, but you can control your perception of them in order to achieve a higher degree of objectivity, resulting in a higher degree of shared reality with the markets.

As painful as these forced awarenesses may be, they are not likely to deter you from being attracted to the opportunities the markets have to offer. However, the cumulative psychological effect on you will be very negative. If you have suffered through several forced awarenesses, your perception of market activity will eventually become heavily weighted towards avoiding pain instead of seeking opportunity. Your fear of losing money, being wrong, or missing an opportunity will become your primary motivation to act or not act.

Now, there are several major problems that result when fear becomes a motivation to do or not do something. First, it will limit your range of perceived opportunities by narrowing your focus of attention, keeping it on the object of your fear. This means that out of all available market information, you will only perceive information that will, in effect, validate what you fear the most. Your fear will systematically exclude from your awareness market information that would indicate the existence of other alternatives and opportunities.

As you begin to understand the negative relationship between fear and perception, you might be surprised to learn that in your attempts to avoid losses, you actually create them. Fear will also limit your range of responses to any given situation. Many traders suffer considerably when they know exactly what they want to do but, when the moment to execute arrives, find themselves completely immobilized.

Before anyone can become successful in an environment with the unstructured character of the trading environment, one needs to develop a supreme sense of self-confidence and self-trust. I am

defining self-confidence as an absence of fear and self-trust; knowing what to do at the moment it needs to be done, and then doing it without hesitation. Any hesitation will only create self-doubt and fear. To whatever degree self-doubt exists as a state of mind, to that same degree you will feel fear, anxiety, and confusion

The negative experiences that result from trading in a state of fear, anxiety, and confusion, will create or add to an already-existing belief of inadequacy and powerlessness. Regardless of how hard any of us may try to hide from others what is going on, we obviously cant hide our results from ourselves If the markets behavior seems mysterious to you, its because your own behavior is mysterious and unmanageable. You cant really determine what the market is likely to do next when you dont even know what you will do next, regardless of what you may perceive or want.

The few successful traders who have, in some way, transcended these psychological obstacles have been generous with their one-line gems of trading wisdom: "Learn to take a loss," "Go with the flow," "The trend is your friend," "Cut your losses and let your profits run," "To know the markets you need to know yourself," and on and on. The Disciplined Trader fully explores, breaks down, and then organizes the psychological components of this advice into a step-by-step learning process, a process that takes you through the various stages necessary to orient yourself successfully to the trading environment. This book will explain to you what skills are necessary, why you need to understand them, and most important, how to go about learning them.

This book is organized in four sections. The first consists of the first two chapters and serves as an introduction. The second consists of Chapters 3 through 8 and defines the problems or challenges of becoming a successful trader. The third section consists of six chapters that will give you the basic insight you will need to identify what has to be changed in your mental environment and what you can do to change it. The fourth section consists of Chapters 15 and 16 which put everything together into a unified framework to develop specific trading skills. You will learn how to observe market action from an objective perspective, determine where you need to limit yourself, and establish the steps you will need to take to expand those limitations in a productive and psychologically healthy way.


Most people are probably well aware that writing a book is a very difficult task, one that often requires the help and support of a number of people in the authors life. There are a number of people I want to acknowledge as being instrumental in helping me make this book a reality including my parents, John and Helen Yosin; my brothers and sister-Craig, Dean, and Sandy Yosin-for all their love and support; Brad Johnson, my partner in Trading Behavior Dynamics, for all of his patience and kindness; Jim Sutton, Bonnie Marlowe, Jake Bernstein, Elizabeth McKinsey, Michael Headley, Steve Sukenik, and Jack Carl for helping me get started; all of the traders that I have worked with over the last six years, especially Jim Griswold, Jerry Stahlnecker, Jack Brassuel, Steve Bianucci, Mike Gamble, and Chuck Pettet for their friendship and support; Tim Slater for giving me the opportunity to express myself as a speaker and a writer; Rich Miller for his support and being a good friend; Lori and Nikki Marlowe for the happiness they brought into my life; and most of all, my friend and fellow author Kurt Leland for everything he has taught me and for showing me the way.




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