Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Trade What You See, Not What You Think -- Ignore unavailable to you. Want to Upgrade?

To: Threei who wrote (4)	10/14/2000 4:00:24 PM
From: Threei	Read Replies (1) \| Respond to of 867

MENTAL STATE: switches in thinking Part 1 This topic is too huge to exhaust it in a single class. We will have many classes on it. I am going to go today through some major points that we will develop and elaborate in the future. In fact, the right mindset is what shows the difference between a winning and losing trader. Let me start with a quote from an interview that Ed Seykota gave once. It may sound strange or too cute, but the more I read it repeatedly, the more sense it made. When asked what losing traders can do to transform themselves into winning ones, he said: " A losing trader can do little to transform himself into a winning one. This is the kind of thing winning traders do". Just think of it. It does not matter if you win or lose at the current stage. That is not what makes you a winner or a loser. You either have the ability to change yourself or you don't. If you do, you have what it takes to be a winning trader. I don't believe you don't haveit. Maybe you don't want it. But if you do, you certainly can! Why do you need to change yourself? There are several reasons. First of all, great trading requires a very unusual "opinionless" state of mind. We discussed before how opinions can distort your perception. You know how dangerous it can be to have an opinion and to stick to it. However, at the same time, isn't it what makes us successful in other fields of activity? We were taught to insist, to prove, to press. Only in arts do great masters say; "Dissolve yourself in what you are doing, then you have a chance to create a great painting or poem." This is first major change trader has to go through. Next thing we have to defeat is our sense of certainty. The trader wants to firm the link between a reason and an outcome. The majority of events fit into the conventional correlation; "If A happens, B follows" or "it takes A to happen for B to occur". Aristotle logic serves us well in our life, but not in trading. Everything is fuzzy here. A new trader is looking for this set of reasons and outcomes, thinking that there is some kind of secret in it. He often asks for an indicator or system used by others and tries to apply it. But the truth is that I can give any system to 10 different traders and I will get 10 different results. The quest for a reason that would define a result leads to nothing but frustration. A natural question at this point is if there is no link between reason and result, how can we trade at all? There is only one answer possible. We need to recognize that the market works in probabilities, not in certainties. We need to realize that our opinion is a map, not a territory. Lastly, we need to be willing to lose our opinion in order to not lose our money. The next major switch has to do with ego. Ego is what doesn't allow us to drop our opinion. That's what whispers in our ears "You are right and the market is wrong. All those who sell here are wrong." Ego is not something you can turn off. It might get oppressed for a while but it raises its head again. Ego itself is a topic for separate class and might very well make for a topic of an entire book. Within the framework of this session, let's state this switch as an absolute necessity. There is one more example of a switch in thinking. Let's think of what's going on with a trader as the stock he bought moves in his favor or against him. The standard emotional reaction is; When the stock goes in the trader's favor, he fears that his profit disappears and takes it while it's there. When the trade moves against him he hopes that it goes back and makes him whole. This set of reactions is in direct contradiction with the rule "Cut your losses quickly, let your profits run." In order to trade accordingly to this rule, we have to switch these two emotions. You have to fear when the stock goes against you and cut your losses right away. It's good to be a chicken sometimes! We have to hope your trade works out OK and stay with it as long as a sell signal is not generated. Emotions are the greatest enemy of a trader. A certain level of a trader's development leads to the state when trading decisions are generated and executed with no emotions at all. Why are we so emotionally involved in this game? When we hang the picture on the wall, looking for the right spot for the nail, are we emotional about it? No. So, why can't we get rid of emotions in trading? It is because when we are hanging the picture, we don't feel like our money is on the line. From this, here comes the next switch. No thinking of money! It's just not a subject of your job as a trader. Your job is reading stock movement. Can you put that nail in the right place if you don't pay attention to what you are doing, if you think of only the money that you should get paid for hanging that picture? Most likely a nail will be misplaced - and payment too, accordingly. Do your job right and the money will come as a reward for a job well done. The next major switch (yeah, they all are major) is responsibility. We live in a society that has some protecting structures in all aspects. There is nothing like that in the stock market. Nothing will stop you from self-destruction. In this situation, you have only yourself to count on. You have to assume absolute responsibility for everything that happens to your account. Nobody and nothing is there to blame. You are the one who makes the final decision and pushes the button. It's tough to think like this. It takes guts. You have to step out of the comfort zone of "It's not my fault, there is nothing I could do about it." to "I can do it and I am going to take responsibility for result". Plenty of people prefer to stay in the comfort zone of "It's someone's fault. Some evil intentions or unmanageable forces hurt me". Sometimes they might even be right. But guess what? It doesn't help! You have to make your choice. What is it that you want? Comfort or result? You want results, then take the responsibility. If someone is to blame, you will never learn. How could you if you did everything right and still lost? Your trading becomes just gambling. Either those higher powers cut in and ruined your trade or they didn't. In any case, the result depends on something else. So why learn? "I lost my connection", "Darn GSCO MM", "INCA killed me, it should be made illegal to hold the stock like this", "Software froze on me", "News wasn't fresh", "Call was not good". Those are variables of the same "It's not my fault". cont'd...