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]


Why a New Thinking Methodology?

It is my intention in this chapter to demonstrate clearly how a typical social upbringing that instills in the individual certain values and beliefs that make up a thought methodology used for being successful is not practical or functional and is inconsistent with the methods necessary to be successful in the trading environment. Someone attempting to operate in the trading environment in all the familiar ways that would assure getting what they want will likely find themselves in a constant state of frustration, anxiety, and fear, wondering what is wrong or thinking something must be wrong with them.

The irony is, of course, that, on the surface, trading looks so simple, when in fact most people will find it to be the most difficult endeavor they ever undertake- Success will always seem so close, and yet always so elusive. And this frustration will continue until the trader adapts to the conditions that exist in the trading environment by learning a new thinking methodology, one that works most effectively in that environment and not what he thinks will work based on his cultural and social upbringing.

Perhaps many of you reading this book have heard about a seminar being offered where you can learn how to walk barefoot over a 20-foot bed of red-hot coals. The people who developed the method to make it possible did so on the assumption that the achievements of people who do things very well and excel beyond what other members of the same culture of society would consider possible do so as the result of a specific way they think-a methodology in which their beliefs are in some way different from everyone elses. This methodology can be broken down into a system that can be learned and subsequently taught to others. The only difference between those who excel and those of mediocre achievement is that one group has learned a thinking methodology that has not occurred to the other.

With this hypothesis, it is my understanding that the people who developed the program went to the South Pacific and sought out those who demonstrated an ability to walk over hot coals with their bare feet-without any physical damage whatsoever. Upon finding a few of these South Pacific "fire-walkers," the program developers proceeded to analyze their beliefs and attitudes so as to arrive at a thinking methodology they could teach in the United States.

Im sure I dont have to point out the physical and emotional implications of attempting to walk over a red-hot bed of coals with your bare feet. The fear generated over just the thought of doing it would normally be overwhelming. The potential physical damage to your feet-with the possibility of being crippled for the rest of your life-is quite real. And yet, as presented by several news organizations, both television and print, people from all walks of life involved in the seminar accomplished what we would universally agree to be a tremendous feat. They overcame their fear and walked 20 feet over a bed of hot coals.

Now, Im not going to have you fire-walking the futures pit, but habits of thought die hard. And to make way for the new thinking methodology I offer as a means of excelling as a trader, you will have to question some of your beliefs and probe deeply rooted concepts of what is possible. Sometimes only a thorough mental "house cleaning" can help you throw away failure to make room for success. And exposing yourself to information that may cause you to ask yourself "what if it were true" is the first step to any mental cleansing process.

For many reasons, which will be explored in greater depth in Part II, it rarely, if ever, occurs to the beginning trader that the markets

confront him with an environment that is categorically different from anything he is accustomed to or trained to deal with effectively by society. For example, the markets can be looked at as a never-ending event, always changing, virtually without structure, in perpetual motion, with an unlimited potential for profit as well as loss in every trade.

The psychological impact on the individual interacting with such an environment is formidable-especially when you consider the many ways in which all of us typically go about structuring our lives with highly defined boundaries, limits, and rules, so things stay basically the same. For most people, a static environment is a fundamental component of their sense of security and well-being.

Not only can the markets destroy a persons sense of security by forcing the trader to confront, on a moment-to-moment basis, his lack of acceptance of change, but they also produce an emotional environment of considerable competitiveness and stress. Theres the compulsive need to win millions, with the simultaneous fear of financial devastation. The markets tease a trader with the very real possibility of fulfilling his grandest dreams of financial independence and at the same time stand ready and willing to take away everything he owns-and more

Furthermore, the principles of time, effort, and reward associated with most job situations simply do not apply with the markets. For example, many jobs offer an unchanging reward, regardless of effort, because of hourly wages or yearly salaries. For a trader, effort can be irrelevant, and there is virtually no relationship between time and reward. A trader can be stunned with a windfall profit in a matter of seconds for making one simple decision and the only energy expended was mental.

Initially, you may think what could be wrong with making a lot of money in minutes or seconds. A lot! Whether youre aware of it or not, most if not all of us grow up with highly structured belief systems about the conditions under which we deserve to receive money. In fact, many people because of their childhood conditioning and religious training believe they dont deserve any money they didnt work for.

Certainly, making a lot of money in a very short period of time with no effort expended does not fall within the definition most people have about working for their money. So how does someone reconcile windfall profits against these structured work beliefs, especially when

theyre probably not even aware of them or would not take them into consideration if they were? This kind of mental conflict usually gets reconciled by the trader finding some clever, ingenious, or mundane way of giving his money back to the markets.

Not adjusting to the differences between the cultural and trading environments or just being unaware that differences exist can certainly account for many of the trading errors committed by the majority of traders. Yet, a thinking methodology can not only redefine the markets behavior in understandable terms to avert such mistakes, it can also manage most, if not all, typical undisciplined, emotional reactions to that behavior.


In an emotionally charged situation that requires split-second decision making (which could lead to failure of some kind), theres little time to compare the present event with previous market experiences. You probably wouldnt even notice if you had behaved similarly in the past and suffered the same disastrous consequences. Because the present situation is so immediate, you may have no concept of how typical and even thoughtless your behavior may be.

In fact, it may be news to you that there are only a limited number of such typical reactions leading to failure. Being able to recognize them can prevent you from repeating past mistakes without losing any of that time so necessary for split-second decisions.

The following typical trading errors have a specific cause rooted in a thinking methodology that can be changed.

1. Refusing to define a loss.

2. Not liquidating a losing trade, even after you have acknowledged the trades potential is greatly diminished.

3. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: "Im right, the market is wrong."

4. Focusing on price and the monetary value of a trade, instead of the potential for the market to move based on its behavior and structure.

5. Revenge-trading as if you were trying get back at the market for what it took away from you.

6. Not reversing your position even when you clearly sense a change in market direction.

7. Not following the rules of the trading system.

8. Planning for a move or feeling one building, but then finding yourself immobilized to hit the bid or offer, and therefore denying yourself the opportunity to profit.

9. Not acting on your instincts or intuition.

10. Establishing a consistent pattern of trading success over a period of time, and then giving your winnings back to the market in one or two trades and starting the cycle over again.


To excel in any activity-whether it is mental, such as trading, or physical, such as swimming-we need to learn specialized skills. These skills give us the necessary requirements to look at, think about, and behave toward events in a manner different from what we may be used to or what we may have been taught.

However, beyond the sheer mechanics of the activity-which just about anyone can master-lies a particular thinking methodology or strategy that leads to excellence. Although few people have it, such a thinking methodology can nevertheless be learned.

Any thinking methodology requires a series of approaches to goals and problems. These approaches might be better described as mental techniques, even skills of thought application. For example, one such skill might be the ability to identify those conditions that are conducive to making a common trading error before it actually happens. Other techniques or skills include:

1 Learning the dynamics of goal achievement so you can stay positively focused on what you want-not what you fear.

[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]