back start next

[start] [1] [2] [3] [ 4 ] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43]


Since I started working on this book-in the summer of 1982- nearly every dimension of futures trading has exploded in growth. There are brand new exchanges, new contracts, more advisory and news services, an increasing variety of books and publications, and ever more sophisticated technical trading systems, most all of them with computer applications to make it easy to track the markets. However, even with this tremendous growth in services related to trading, one inescapable fact remains: there is still a very small group of sophisticated traders who take the greatest percentage of profits out of the markets, making well over 90 percent of all the other traders net losers year-in and year-out.

In futures trading for every dollar of profit gained by one trader, there has to be an equivalent dollar lost by another trader. If a few traders are consistently making money on a grand scale, then their profits have to be coming directly out of the pockets of the thousands of other traders who very faithfully contribute to their daily winnings. Some of these very successful traders are public figures, but most are only known in the Chicago or New York areas. Needless to say, everyone wants to know what they do and how they do it.

Why I Wrote This Book

There must be a difference between these two groups of traders- the small minority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline. When asked for their secrets of success, they categorically state that they didnt achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.

First, I want to point out that self-discipline, emotional control, and learning to change ones mind after making a commitment are all psychological issues that have nothing to do with news services, advisory services, new exchanges, or technical or fundamental trading systems-computerized or not.

Second, from my trading experiences, observations, and research, I have discovered that all traders-both winners and losers-seem to share some very common experiences. Either in the beginning or at some point early in their trading career, all traders experience confusion, frustration, anxiety, and the pain of failure. The few traders who pass through this phase to accumulate wealth are those who eventually confront and work through some very difficult psychological issues about what it means to be a trader, and this process of realization and change normally takes several years, even for the best of them.

If self-discipline and emotional control are the keys to success, they are also not necessarily traits any of us are born with. On the contrary, they are characteristics we acquire by learning certain mental skills. Acquiring these mental skills is often the result of a trial-and-error learning process that can be very costly financially and usually filled with emotional pain and suffering. The biggest problem with a trial and error approach in trading is that most people lose all their money before they get through the process. And other traders who have enough money to keep on trading never fully recover from the effects of the psychological trauma they have inflicted on themselves to ever leam how to trade successfully on a consistent basis. This leaves only a relatively small number of people who make it.

All the great traders, both past and present, have found it very difficult to explain what it is they do, how they do it, and more

important, the progression of steps they took to get where they got. Many would gladly share with others what they know about the market and its behavior but not necessarily about their behavior as individuals. They would, however, often caution those who sought their wisdom to understand that all the market knowledge in the world wont do them any good until they learned what can be called self-discipline and emotional control, without necessarily being able to explain what they were.

For instance, "Cut your losses short" is great advice that is often given as an axiom of trading wisdom. But how do you explain to someone the steps needed to learn how to do that? Especially when he is interacting with an environment that is in perpetual motion and will always offer him the possibility that the market can come back and make him whole, if he is in a losing trade. If you take into consideration that his money and self-esteem are at stake and the market coming back is always a viable possibility, regardless of how remote it may be, then you can see how difficult it is to explain why he needs to "cut his losses." It is even more difficult to explain how he can do it in a way that suits his unique psychological makeup.

The easiest way to explain how to apply this type of wisdom, without actually explaining it at all, is to say, "Well, if you want to be a successful trader, you need to leam self-discipline and emotional control." I dont believe this type of vague advice was intentional, however, for principally two reasons. First, self-discipline and emotional control are abstract concepts that are not easily explained or understood. We all hear or read the words a lot, but ask anyone you know to define either of these concepts, and youll probably get a blank stare.

Second, todays successful traders started out their journey without maps, signposts, or guidelines or the benefit of knowing exactly where they had to end up, from a psychological perspective, to accumulate their fortune. They had to explore the trading world through a means of self-reflection and readjustment that was very demanding and time consuming. One could say they more or less stumbled through it learning from each mistake, many small and others that were devastating both financially and emotionally.

At some point, they probably realized that something about themselves had changed because the normal kind of market activity that once had a very negative emotional impact on them, like anger,

stress, anxiety, and fear, just didnt have that same effect any longer. They must have gained some measure of confidence in themselves to respond appropriately to all possible market conditions because there is a direct correlation between a persons level of confidence and the negative emotions mentioned. Confidence and fear are states of mind that are similar in nature, only separated by degree. As a persons level of confidence increases, his or her degree of confusion, anxiety, and fear dissipates proportionately.

This confidence would naturally develop as people learned to trust themselves to do whatever needed to be done, without hesitation. As a result of this kind of self-trust, they would no longer need to fear the seemingly unpredictable and erratic behavior of the markets. However, the main point I am making here is that the process of change that took place was in the mental environment and psychological makeup of each individual trader; the markets didnt change, the tools that were used didnt change, the trader did.

Now, when traders go through a transition in their personal development and learn a new skill on a trial-and- basis, it is unlikely that they would keep a detailed record of the steps to that learning process, especially if that process was characterized by pain, anxiety, and frustration. Obviously, if someone doesnt know exactly how they acquired the skills they now have, then, naturally, it would be extremely difficult for them to explain to someone else how they got them.

Besides, when it comes to trading, once someone is making the kind of money he had always dreamed of, there isnt much incentive to spend the time and energy necessary to break down these abstract skills into an effective learning process from which others can derive some benefit. Developing educational programs to explain how to become a successful trader requires a completely different set of skills from the skills necessary to be a trader. As will be explained in a moment, the learning process and the kind of personal transformation that was necessary to enable me to write this book was distinctly different from the kind of learning process I experienced as a trader to realize why a book like this needed to be written. One learning process was chosen and the other was forced.

What I mean by forced is, I had to lose my house, my car, and practically everything else I owned to learn some of the ways in which I needed to change my perspective to operate in the trading

environment effectively. Losing all my possessions was a complete life-altering experience, an experience that taught me a lot about the nature of fear and the debilitating effects it has on a persons ability to trade effectively.

The kind of insight I gained as a result of this experience is the type of learning process I call a forced awareness. This is where the nature and characteristics of the environment I was operating in were much different from what I believed they were, first out of ignorance, and because I put up mental defenses to block my perception of certain information. Eventually I was forced by the markets to acknowledge many things about myself that I otherwise wouldnt consider. When all the external symbols that represented a major part of my identity were gone, I didnt have any other choice and was forced to perceive myself in new and different ways.

These events occurred in March 1982. At the time, I was an account executive with Merrill Lynch Commodities at its Chicago Board of Trade office. Less than a year before, in June 1981,1 moved from the suburbs of Detroit where I was enjoying, at least financially, a very successful career in commercial property and casualty insurance. I left Michigan and success to move to Chicago and be a trader. I went to work for Merrill Lynch because I didnt have enough money to buy a seat at the Board of Trade or the Chicago Mercantile Exchange and didnt know that you could lease seats at that time.

I had an expensive apartment on the gold coast of Chicago and a Porsche; I was maintaining a house in an affluent suburb of Detroit that my girlfriend and her two daughters were living in; and I was driving or flying back and forth between the two cities almost every weekend to visit them. I was under extreme financial pressure to succeed because my life-style expenditures were far and away in excess of what I could afford. Unless I made it big as a trader, it would be very hard to reconcile some of the decisions I made to put myself in that kind of a situation.

By the time I moved to Chicago I had already been trading for over two years. Twice, before moving, I lost all my trading capital. Of course, I would quickly save up and start again. My brief periods of success and few winning trades were enough to justify that I continue trying. Once I was very close to making over a quarter of a million dollars on a trade, but I pulled out of it just before the big

[start] [1] [2] [3] [ 4 ] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43]