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2. Learning how to recognize the skills you need to progress as a trader and then stay focused on the development of those skills, instead of the money, which is merely a by-product of your skills.

3. Learning how to adapt yourself to respond to fundamental changes in market conditions more readily.

4. Identifying the amount of risk you are comfortable with- your "risk comfort level"-and then learn how to expand it in a way that is consistent with your ability to maintain an objective perspective of market activity.

5. Learning how to execute your trades immediately upon your perception of an opportunity.

6. Learning how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough.

7. Learning how to structure your beliefs to control your perception of market movement.

8. Learning how to achieve and maintain a state of objectivity.

9. Learning how to recognize "true" intuitive information and then learning how to act on it consistently.


Trading systems give us a way to define, quantify, and categorize market behavior. Since the markets offer traders a seemingly infinite combination of behaviors, all with their corresponding opportunities and risks, it is easy to understand how our minds can become overwhelmed. Trading systems limit the scope of market behavior, and therefore make this activity a little easier for our minds to manage. They also give us direction and suggestions about what to do in a given market situation. Without them traders could easily feel as if they are floating aimlessly in an endless sea of possibilities and opportunities with no land in sight.

Since trading systems define opportunity and offer suggestions, following these suggestions can lead to the development of skills,

even though as suggestions they merely point the way for your awareness to be directed. A true skill not only points the way, but almost automatically begins to direct awareness as well. And a thinking methodology controls the selection of which skills should be used and when.

I do not offer a trading system in this book. Its more a means of interfacing a trading system with the minds psychological structure. If a trading system provides awareness of market signals, and suggests behaviors appropriate for any given market situation, then the thinking methodology I will share with you teaches skills and processes of skill application.

Having the skills necessary to consciously manipulate ones psychological environment is essential for the trader who recognizes how ineffectual a trading system can suddenly become whenever a tense situation demands a split-second decision.

Most everyone reading a book of this nature would consider himself as successful to one degree or another, either through trial and error, or the rigorous application of some proven formula, through which each has learned-intentionally or not-skills or methodologies of thought to achieve this success.

In any case, we all have a natural tendency not only to want to achieve success in something, but also to apply the principles of success that work very well in one situation to practically everything eke. It often doesnt occur to us that some environments may require very different psychological resources to achieve success.

Suppose, for example, that you arbitrarily tried to apply a certain thought system of success to trading futures or stocks without first investigating the usefulness or validity of that system in relationship to the actual conditions as they exist in the markets. More than likely, you would be doomed to failure before you even started.

Obviously people dont consciously start trading with the belief that they dont have the right resources or that theyre going to fail. In fact, it is just the opposite. Because most traders come from or still enjoy very successful careers outside of trading, they have a great deal of confidence in their ability to extend this success in the trading environment. This unfounded confidence, coupled with the way the markets distort a persons concept of reward in relationship to time and effort expended, will cause the trader to form some very unrealistic expectations about the kind of results he should achieve.

Believing that trading is easy is the reason for the unrealistic expectations. And they are probably the single biggest reason why most traders never make it beyond the initial levels of development before they lose all their money.

Starting out believing that trading is easy is a psychological trap that entices almost all traders. But it isnt too difficult to understand why, when you examine the dynamics of the process of how we set up a standard of performance for ourselves by which to gauge our progress. There are four basic components that make up a persons standard of performance or expectations for results.

First is our basic concept of time; most people believe that it is limited, passing nonstop and will eventually run out. Second is our concept of effort-our supply of personal energy is not inexhaustible; it runs out, we tire, and we may even become ill if we dont rest properly. The third is our concept of expertise-the number of skills we have learned and our degree of proficiency in using these skills; it usually takes a great deal of time and energy to acquire expertise.

Now one of the primary ways we learn to value ourselves is based on our belief about how much work we do and the amount of time it takes to do it. Which brings us to the fourth component in the equation; reward. To determine the amount of reward we should receive, we will make an assessment about how hard or easy a job is by determining how much effort (personal energy) we will need to expend and to assess how long the job will take (using up our limited time), so we can then determine how much we should be compensated. It is like our own personal supply and demand formula for our time and energy.

Now I am going to put all this together to demonstrate how trading distorts all these components in a way that allows someone to believe that trading is easy. First, to function in the market environment requires very little if any physical effort, especially for the off-the-f loor trader. Second, time is not a relevant factor because a trader can be stunned with thousands of dollars in profits in a matter of moments. Conceivably, you could put on a trade, never have the market go against your position, and be rewarded at levels far beyond your expectations of what is possible. A person cant help but make the association between the speed at which something like this could happen and how easy it must be because there was no physical effort required.

Most people dont have to experience this personally to make the erroneous assumption that trading is easy. They will just naturally do it the first time they experience market action. They will assume that they would have been a buyer at some low point and held on to liquidate the trade for a profit. Even if its just for a couple of ticks, invariably they will multiply those ticks by several contracts to come up with these mental windfall profits for themselves. These profits could represent an exotic trip, a dream car, or thoughts of financial independence. Then they will compare how long and how hard they normally have to work to get the same amount of money, and what will result is a completely erroneous conclusion that trading is easy.

The problem is that it is almost impossible for the beginning trader to make a reasonable assessment of the level of expertise that is required to function in the trading environment, like learning to limit oneself in an unlimited environment, when possibly for the first time in the traders life he has the freedom to express himself creatively without any social constraints, or the amount of the time it takes to acquire this expertise, especially when it looks as if the profits should just roll in so easily and so fast. These kinds of assumptions will blind the trader to the true nature of the endeavor. Time is certainly a factor in learning to perceive opportunity or learning how to execute ones trades flawlessly. Both these skills could take a great deal of time to learn. However, neither time nor effort is a factor in relationship to the potential for reward.

So what happens when we dont live up to our own expectations?-especially, when most everyone starts their trading career thinking its a piece of cake and that theyre only moments away from fulfilling their financial dreams? Regardless of how long it may take any individual to admit that hes not making it, the experience is painful and invariably generates feelings of inadequacy, guilt, and even shame. When one fails, especially when the expectations for success are so high, it will create three major psychological obstacles that have to be overcome before any measure of success will be realized.

First, you will need to learn how to release yourself from any feelings of inadequacy, guilt, or shame. Second, you will need to learn how to identify and repair the residual psychological damage caused by the emotionally painful experiences because painful experiences have the potential to generate fear. Finally, you will need to

undo any inappropriate trading habits and learn the appropriate skills that will help you eventually to accumulate the wealth you desire from trading.

For many, what I have outlined may seem like an overwhelming task, and Im not going to downplay it in the slightest. Even if you havent as yet subjected yourself to any emotional trauma, just learning the appropriate skills will be no easy task. However, you should keep in mind that the rewards can be astronomical. Would any other endeavor having the unlimited potential of trading in futures or stocks be easy?

As you proceed through this book, it is very important to keep in mind that neither I nor anyone else can deny what you consider to be the structure of reality-even though what I hold to be true and what you hold to be true may differ by a wide margin. Force, violence, or even torture will not cause you or anyone else to give up your beliefs if you dont want to. However, if what I offer will produce a result you desire, then you may be quite willing to sus pend, at least temporarily, what you hold to be true and see if what works for me will also work for you.

The fire-walkers I mentioned earlier demonstrated how a thinking methodology could suspend their belief that walking on a bed of hot coals would severely damage their feet-even though they had learned early in their lives the dangers and pain of intense heat. Perhaps you too can suspend some of your beliefs about what makes trading successful. You could find out how your own early training-before you ever considered becoming a trader-may have produced contradictory attitudes and beliefs that cancel all good intentions and optimistic trading, and thus lead to failure.

Understandably, before you even consider the possibility of changing some of your innermost beliefs, you will certainly want to know not only how the process of altering beliefs works but also what benefits it will have for you as a trader.

Like all traders, you have probably read repeatedly what it takes to be successful at trading: "Trade with the trend," "Cut your losses and let your profits run," "Money management is the key," and so on. As true as these adages are, they are too vague to give you a clear understandable connection between the application of these principles and their benefits: a positive and successful trading experience. If you will recall, I listed resistance to accepting a loss among the

most common trading errors. If you have ever experienced such resistance, you have probably also encountered the following thought: "How do I accept small losses when what I want to do is make money, and I feel like a failure every time I lose."

Your helplessness in such a situation and the disastrous consequences for your finances are at the essence of this discussion. If, for example, you can change what losses mean to you and how you represent them mentally, then to whatever degree you can accomplish this, you will be releasing yourself from the stress and anxiety experienced when you have to acknowledge any given trade is a loser and take the appropriate action.

The few individuals who have achieved astronomical success in trading at some point learned to stop trying to conquer the markets or make them conform to their expectations or mental limitations. At some point in their trading careers, they understood the psychological implications of an event that is never ending, that begins only when one decides to participate, that ends only when one has had enough, and behaves without the slightest regard for individual survival. Eventually they adapted to these unusual and demanding psychological conditions by changing their perspective, although, as I have already pointed out from my experiences, the process of change usually isnt the result of making a conscious choice to take a step-by-step approach, as this book is designed to give you.

In our everyday lives it is much easier to control the external environment to satisfy our desires. What I mean is, if something has to change to get what we want, we will find it much easier to change the external conditions to suit our needs before we attempt to change our mental perspective. Changing ourselves would seem like the absolute last resort as a solution to any problem. So, why would you consciously go about the task of learning how to change yourself from the inside? I have three reasons for you.

First, because you decide to learn new skills or ways of expressing yourself. Second, because you may have any number of beliefs acting as resistance in the acquisition of the new skills you are attempting to learn. The third I will get to in a moment.

Right now I want to give you an example to illustrate these first two points. A client of mine lost an uncle that he was very close to while he was still a child. His uncle was very much of a father figure to him, where his own father was not. The uncle died of a heart

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