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No one is 100% all the time. All kinds of things can distract you. A fight with your spouse or loved one. A call from a friend like the one I mentioned in the beginning of the chapter. There are all kinds of distractions.

For example. May 4,1984,1 got invited to go to Chicago to make a speech. I was on the platform with Steve Walsh, managing director of Walsh Greenwood, and a market maker named Gary Knight. As an aside, during the QA session, a member stood up and said, "I want to address the market maker. All the rules on the exchange favor the market makers who own seats."

Without hesitation, Gary said, "Yes."

" I dont think its fair!" said the guy in the audience.

"Buy a seat," said Gary, "theyre currently going for $250,000."

Remember, the rules favor the floor traders; thats how they make their living.

Anyway, there I was on the podium. I was a bear at the time, and I had hit a nice home run in January. The market had rallied and was drawing a line. I was looking for another opportunity to go short, and I had been waiting for the break for a couple of months. As luck would have it, the market broke the day I left. Frankie Joe won a trading competition by being short. . I was on a damn plane. Distractions.

The point is that, if you want to make a living in the market, you have to be as close to 100% mentally, physically, and emotionally as possible. And in my estimate, if you can average being at the 85% level, you will do well.

So when you trade, be prepared to lose money in ways you never dreamed of. At some point, when youre right on top of the market, when youre poised and ready to hit that home run, youll have a fight with your spouse, a family member will die, something wil 1 happen that you never expected. Shoot for 100%, but be satisfied with 85%; thats the reality of it.

Conclusion to Part I: Putting It All Together

There you have it, from the ground up. What Ive presented so far is the essential knowledge that has helped make me money throughout my career. I gave you a brief history of my career, and then showed you the knowledge I picked up along the way.

The common thread to everything Ive presented so far is that it is what I consider to be ba sic, essential information and principles. I think if you apply these basic ideas and develop your own unique style of market participation, the information will work for you, too.

If you think in essentials, and integrate your approach to trading with principles that stand the test of time, youll be able to adapt to ever changing market conditions. As opposed to changing your hat on short-term strategies that change as the market changes, a principled approach will keep on working.

If you define your business philosophy and stick to it. youll achieve focus in your work; youll avoid getting off track. More specifically, if you preserve capital and shoot for consistent profits instead of the big hit, youll avoid blowing out like so many traders do.

If you study Dow Theory, youll gain more insight into the markets-all markets-than you will by studying any other theory of market behavior that I know of. Youll leam that market movements are largely a psychological phenomenon, unpredictable in absolute terms, but highly predictable in terms of probabilities.

If you understand trends, what they are and when they change, youll be equipped with knowledge that will save you countless hours of study. Youll be able to avoid moving in and out of markets arbitrarily and. instead, trade with the trend.

If you understand technical analysis, its merits and its pitfalls, youll be able to use it as a powerful tool to aid your market-timing decisions. If you keep your technical observations to a few essential ones, youll keep your mind free of the extraneous clutter that paralyzes many market technicians.

If you understand some simple basics of economics, including how money and credit affect the business cycle, youll be able to predict the effects of govemment interference in the marketplace and make money with the knowledge.

If you leam to manage your money, limiting involvement according to the associated risk, youll be able to stay at the table, year after year.

And if you follow the mles, youll achieve consistency in reaching your trading goals -the hallmark of every good trader with staying power.

But as I have said before, knowledge alone is not enough. Ive taught 38 people most of the ideas I have presented so far, yet all but five of them lost money. But it wasnt the knowledge that was at fault. It was the people, specifically their inability to consistently put the knowledge into practice. All of the people I trained were capable of making money, all of them could recognize when they violated a mle or deviated in their thinking from the principles I taught them. But they just kept on making t he same mistakes over and over again.

I puzzled over why this happened; I studied psychology and read over 200 books. And the answers I came up with are presented Part II.


Leaming is, alter all, not whether we lose the game, but how we lose and how, weve changed because of it and what we take away from it that we never had before to apply to other games. Losing, in a curious way, is winning.

-Richard Bach

When you picked up this book, it was most likely with the hope that it will help you make money in the financial markets-a potentially noble goal. Actually, the purpose of the book is to help you become a total success, not just to make money, for there is a difference between successful lining and attaining financial goals. In all my years on Wall Street, I have seen too man individual, destroy their lines while growing rich (or attempting to) to address on]% the financial part of success in this b ook. The following fable illustrates m% point.

The Traders Dream: A Fable

Once there was a rich and famous trader. His whole adult life had been devoted to becoming one of the best traders in the world and making a lot of money. And he had attained his goal, for now he had more money than he could ever spend. When he spoke, the financial world listened. But the trader was troubled. When he woke up in the moming. his limbs felt like lead no matter how much he slept. At work, he lacked his former energy his efforts seemed pointless.. Inside, he felt a deep void, a cavem that neither riches nor fame could till. For the first time in his life, he felt helpless and out of control.

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One day, feeling laden and tired, he dragged himself to work, but when he sat at his desk, he simply couldnt bring himself to switch on his Quotron machine. Numbly, he opened the window thinking some fresh air might help. But the air was damp and stale. Without even bothering to close the window, he slumped onto his couch wondering, "Whats wrong with me? I have everything I have ever worked for. I should be happy." Bewildered, unable to think, he drifted off... asleep.

He was falling into a deep black hole without dimension, feeling the emptiness sucking him down, when suddenly he felt an upmsh of cool air, and he began to float in mid space. In the distance, he spotted a white dot of light, and he began to stmggle through the black void to ward it. On his approach, he watched as the dot grew larger and larger, until it was no longer a dot, but a brightly lit hallway leading to a large mahogany door. The trader moved faster, feeling com pelled to reach the door, sensing that something important was behind it. Finally, sweating in spite of the cool air, he landed in the hallway, and feeling his feet on firm ground, he began to walk toward the door.

The sounds of his footsteps echoed in the hallway, which was bathed in a blinding white light with no apparent source. Only the door was clearly visible, and with each step it grew larger and larger. As he drew nearer, he saw a brass plaque on the door, but he was still too far away to read it. He quickened his step until finally the inscription on the plaque became readable. He stopped and read:


When he finally stood before the door, it towered above him at least three times his six -foot height.

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