做交易如何邁向成功---The steps to success

Self-discipline is simply a mental technique to stay focused on what you need to learn,or do, to accomplish your goals. There will be times when you won't have the resources of function effectively relative to the external conditions. Other times the resources you do have will be in conflict with both the conditions and your goals. So to accomplish your goals , you will need to adapt. In other words, you will need to change the way you interact with the enviroment. To change your behavior and how you experience the enviroment (feelings and emotions), you will have to change your perspective. To change your perspective, you will have to change the mental components that effect your perception of enviormental information. Keep in mind that you can't physically control what the markets do; you can only learn to control your perception of the markets to share the  highest degree of reality (the least amount of distortion) with everyone else who is participating or has the potential to participate.

  The more sophisticated you become as a trader, the more you will realize that trading is completely mental. It isn't you against the markets, it's just you. All the other traders participating to make the market provide you with an opportunity to make money from their divergent beliefs about the future. If people didn't disagree about the future value of any particular commodity or stock, then there would be nothing to compel them to either bid a price higher or offer it lower, and the opportunity to profit from these changes would cease to exist. So the markets just offer the individual trader opportunity. They don't choose the date on which you focus your attention, and they certainly don't interpret the date you perceive. Nor are the markets responsible for what you can't perceive because of the distinctions you haven't learned to make yet. They also don't choose when you put on a trade, how long you stay in, when you get out, or how many contracts you buy or sell.

  Each individual trader creates his own experience of the markets based on this picking and chossing process and the decisions that result. If you accept this concept as valid, then the implications are that you will never have a valid reason to blame the markets for your unsatisfying results. The markets don't owe you anything (regardless of how hard you work to be successful) because every other trader participarting is doing so to take your money away. You and you alone are completely responsible for whatever you end up with. The sooner you accept that responsiblility (if you haven't already), the easier it will be to identify what skills you need to learn to interact with the markets more successfully. Even if you can't identify the mental components responsible for what you ended up with, at least by assuming that you are responsible, you will be opening yourself up to find out.

  To be a successful trader you need to trade without fear. As you have already learned when you use fear as a resource to limit yourself , you will create the very conditions you are to avoid. Or to say this another way, you will experience your fears. you also can't learn anything new because fear will force you to perceive the environmental" now" from your individual past. You will experience that past regardless of the opportunities the environment may have to offer in that same moment. Your individual history will repeat itself until you change your history, which will then allow you to learn and experience something new. Evolving beyond your fears is also the best way to learn how to predict market behavior. The more fearful traders are, the fewer the choices they perceive as available to themselves and the easier it is to predict their behavior. You will be able to recognize this clearly in others  when you recognize it yourself and work your way out of the condition where you trade with fear.

  However, you will need some resource to limit yourself so that you don't get reckless. Getting reckless is exactly what people have a tendency to do if they  don't feel any fear, especially if there is a potential for thrilling results, as in trading. The resource you need to limit yourself is self-trust. You will gain the self-trust when you establish a set of rules and guidelines to trade by and know that you will always follow those rules without hesitation, regardless of the temptations to do otherwise.

  Once you trust yourself to always do what needs to be done, there will be nothing to fear because the markets won't be able to do anything to you, as a result of your inability to respond appropriately the markets free of distortions. There won't be any need to avoid certain categories of information because of how that information will make you feel. The less reason you have to avoid or distort information, the more you make yourself available to learn about the nature of the makets. The more you learn, the easier it will be to anticipate what the market will do next. If you can accurately anticipate what will happen next, the easier it will be to give yourself more and more money (notwithstanding any mental components that would argue against giving yourself more money).

  It is very important for you understand that these new insights about the markets behavior will come in stages as you learn to trust yourself more and more. There is no "get rich quick" scheme being offered here. There are enough rags to riches to rags stories to attest to the fact that get rich quick doesn't work anyway. Getting rich quick can only lead to a great deal of anxiety and frustration if you don't have the skills to keep it. There isn't much point to making a lot of money if you are a susceptible to making that one trading error that can give it all back plus more. Once you have made a  fortune and lost it, the psychological work that you will need to do to get it back is enormous compared to the work that is necessory to keep your self from losing it in the first place. As a trader it is more important to know that you will always follow your rules than it is to make money, because whatever money you make, you will inevitably lose back to the market if you can't follow your rules.

  You also need understand that your rules will change as  your understanding and insights evolve. Many people don't like to establish trading rules because they believe that once made, they can't be changed. Any exercise that I offer you or rule that you select to guide your trading behavior is only transitory. They are methods and techniques to get you beyond certain fundamental stages of development so that you can recognize for yourself their value and what you need to do next to be more successful. In fact, a good rule of thumb to use to determine your readiness to move beyond a certain rule or cxercise and to the next challenge is the recognition that you can do what you set out to learn so well that it becomes second nature. Otherwise, keep working at it until you don't have to think about it any longer.

STEP  ONE: STAYING FOCUSED ON WHAT YOU NEED TO LEARN

First and foremost, you may need to change your perspective or the focus of your trading. Until now your focus may have been to make money. If this is so, you will need to change your perspective to 'What do I need to learn or how I have to adapt myself to interact more successfully?'" You need to stay focus on mastering the steps to achieving your goal and not the end result, knowing that the end result, money, will be a by-product of what you know and how well you can act on what you know.

  There is a tremendous difference between focusing on money and focusing on using your trading as an exercise to identify what you need to learn. The first will cause you to focus on what the markets are giving you or are taking away from you. The second perspective causes you to focus your attention on your ability to give yourself money. With the first perspective, you are placing some of the tesponsibility onto the markets to do something for you. With the second perspective, you assume all the responsibility.

  Always keep in mind that each moment is a perfect reflection of your level of development. If you look at each moment that things don't turn out as you want or expect as a mistake, then you will usually cut yourself off from the insight about yourelf contained wituin each moment. The reason why we will cut ourselves off from this information is because we typically associate mistake with pain. We will instinctively avoid pain and in doing so also avoid what we need to know about ourselves to interact more effectively in similar circumstances in the future. 

  To evolve beyond pain and our fear of mistakes, our mistakes have to be resolved. This could be a big task and you may not want to tackle it at this time. So what you will need to do is build a corollary framework to place all of your trading experiences. This framework needs to be defined in such a way that all experiences are vaild and have meaning, and, as such, mistakes don't exist-- they just point the way.

  As part of this framework you may also need to change your definition of a missed opportunity. Except for the inability to accept a loss, there isn't anything that has the potential to cause more psychological damage than a belief in missed opportunities. Missedopportunities are trades that would have always turned out perfectly because they only occurred in our mind, where we can make anything be as we want to be. Of course, we woluld have responded exactly as the conditions warranted without flaw. The problem is we didn't do it,  and the resulting sense of loss we feel is difficult to reconcile. Therefore, these missed opportunity trades have the potential to cause more anxiet and stress than the trades we actually do take that turn out to be losers.

   Nothing's worse than missing a "perfect" opportunity. However, if you could have, you would have; it's that simple. The sooner you accept this, the sooner you will be able to take advantage of these missed opportunities instead of beating youself up over them. Besides there really isn't anything to miss because the markets are in perpetual motion and will continue to be until everyone agrees on value. As long as the price keeps changing, there will always be another opportunity.

  When you start trading from the perspective that mistake don't exist, you will amazed at the sense of freedom you will feel to grow by accepting your results as a reflection of who you are in that moment, which then allows you to determine what you need to learn to do better. When you release the energy out of the belief that is possible to miss anything you will nolonger feel compelled to do something, like getting into trades too early or too late. In other words, you will giving youself additional choices (not doing something is often the most appropriate choice) where only one choice existed.

  You need to constantly keep in mind that the frofessional traders from whom you are trying to extract money already know and are using many of the principles put forth in this book. They understand the concept of onjectivity, have learned how to trade without fear, and know how to execute their trades properly. Before you can begin to take money out of the markets consistantly instead of the markets taking yours, you will also have to learn this skills.

  So, would suggest that you set aside a certain amount of trading capital as tuition for your education. How much you set aside will be a function of how many skills you need to learn. What is most important is that you a firm conmmitment to your eduaction as a trader. Even if you have been trading for years and you are successful, but not as successful as you would like to be, setting aside money that you will trade as an exercise to learn some needed skill is a very powerful simbol of your conmmitment to learning that skill. The stronger your commitment, the faster you will learn.

   STEP TWO: DEALING WITH LOSSES

     Tradin rule 1

predefine what a loss is in every potential trade. BY " predefine ", I mean determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity, at least not an opportunity in the time frame in which you trade.

  When your beliefs about losses are restructured, the possibility of a lossing trade will not creat any threat of pain. Most successful traders restructured their beliefs about losses after they lost one or more forunes. They experienced their worst fear about lossing and then came to the realization that they didn't have anything to fear if they just did what needs to be done. What needs to be done? Confront the possibility of being wrong and consequently not avoid the inevitability of taking a loss. So confronting and accepting the inevitability of a loss is a trading skill, certainly a skill learned the hard way for most, but necertheless an essential component at the foundation of virtually everything you need to learn to become a successful trader.

  The relatively few successful traders in the market today did it the hard way. You, on the other hand, have the opportunity to do it much more easily. There will be two mental components at work to help you acquire this skill. First is your understanding of why it is so essential to confront the possibility of a loss. If you don't, you will generate fear and end up creating the very experience that you are trying to avoid. When you really understand this concept, it will become unacceptable to you to trade from the old perspective of loss avoidance.

  The second is your willingness to change your defination of what it means to loss. By using some of the mental exercise, you can change these definations by using your thoughts instead of having to loss everything or practically everything you own to get to the same place. That place is "losses do not diminish you as a person." The sooner you believe it, the easier it will be to identify and execute a lossing trade. By making the execution of a losing trade an automatic function of your trading strategy, you make yourself psychologically available to take advantage of the next opportunity, even if that opportunity is in the same direction of the lossing trade you just getou of.

  Trading Rule 2

Execute your lossing trades immediately upon perception that they exist. When losses are predefined and execute without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with. There will be no threat of allowing yourself the possibility of ultimate disaster. If you find yourself considering, weighing, or judging, then you are eather not predefining what a loss is or you are not executing them immediately upon perception, in which case, if you don't and it turns out to be profitable, you are reinforcing an inappropriate begavior that will inevitably lead to disaster.  Or if you don't and the loss worsens, you will create a negaive cycle of pain, that once started will be difficult to stop. The next error after letting aloss get out of hand is usually not taking the next opportunity, Which invariably is always a winning trade. After which, we get so angry at ourselfs for passing up that opportunity that we make ourselves susceptible to any number of other trading errors, like taking a trade that was a tip from another trader, which invariably is always a loser.

  It is important for you to note that once you completely trust yourself to cut your losses, you will eventually get to the point where  you may not have to predefine what a loss is. There are traders who have reached such a high degree of objectivity and trust that they can get into a trade and know when it is a loser without having to predefine it for themselive. They let the market define it for them based on their comprehensive knoeledge of the various participants involved and their knowledge of the various relationships between price movement and time. However, the reason why they were able to learn what they know about the nature of the markets is because their focus of attention widened to include more undistorted information leading to grerater insights, once they learned, first, however, to trust themselves. Keep in mind, that fear is really the only thing that keeps us from learning anything new. You can't learn anything new about the nature of the market's behavior if you are sfraid of what you may do or can't do that is not in your best interests. By predefining and cutting your losses short, you are making youself available to learn the best possible way to let your profits grow.

  STEP THREE: BECOMING AN EXPERT AT JUST ONE MARKET BEHAVIOR

  Generally, most of us grow up believing that when we have to make a decision, the more relevant information we can gather, the better oer decisions will be. This isn't necessarily true with trading, especially in the beginning stages of one's career. In most market situations, there is an even number of traders who have a propensity to buy and those who have a propensity to sell or those who need to buy and want someone to take the other side of the transaction and vice versa. Everyone will have his reasons and rationalizations for all this trading activity, creating about as much conflicting information as there are participants. Because there is so much information and because so much of that information is conflicting, the beginning trader will need specifically to limit his awareness of the market information to which ha allows himself to be exposed. More is not better; it just creates confusion and overload that will ultimately lead to losses.

  You need to start as small as possible and then gradully allow yourself togrow into greater and greater amounts of market information. What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple trading system that identifies a psttern, preferably one that is mechanical, instead of mathematical, so that you will be working with a visual representation of market behavior. Your objective is to understand completely every aspect of the system-- all the relationships between the components-- and its potential to produce profitable trades. In the meantime, it is important to avoid all other possibilities and information.

  Out of all the combinations of behavior possible, you are going to limit your focus of attention to just one combination. Consequently, you will be letting all the other oppotunities go by. Starting small and gradully working into other combinations is a real exercise in discipline that has a couple important psychological benefits. First, you will building a base of confidence as you learn that you can, in fact, accurately assess what will most likely happen next. It is much easier to gain this confidence if you don't overwhelmyourself with the market's seemingly infinite possibilities. Second, by passing up other opportunities that you are not an expert at yet, you will be releasing yourself from any compelling desire to trade. Any compelling behavior is usually the result of some fear. That fear, in turn, will cause you to behave in many inappropriate ways.

  If the idea of letting go of opportunities that don't fit your framework is troubling to you, then ask yourself, what is the rush? If you are confident in your ability to transform yourself into a successful trader, what difference could it make you let go of some opportunities now for eduactional purposes? Once you learn to become the trader you want to be, you can then give yourself as much money as you desire. However, to get to that point, your objective shouldbe to plan your development in shch a way that you do the least amount of damage to yourself, both financially and psychologically. Then after you have developed the appropriate skills, taking money out of the markets can be as easy as almost everyone believes it is before he started trading.

  If, on the other hand, you end up doing a lot of damage to yourself, you will have to undo that damage before you can accumulate wealth as a trader. After the damage is done, it won't make any difference how much you learn about the nature of the markets or how well you learn to percive an opportunity. There are many traders who end up becoming expert market analysts but can't make a dime as traders because of all the damages they did to themselives in the early part of their trading careers. What happens in these situations is a trader's "past" will generate so much fear that he won't be able to execute his trades properly or not at all, regardless of how well he learn to predict what the market will do next. Nothing is more frustrating than to know what is going to happen next and not be able to do anything about it.

  You need to understand that the ability to perceive an opportunity ( based on the quality of distinctions that you can make) and your ability to execute a trade, are not automatic functions of one another. perception and execution are seprate skills. They can and do work in tandem, if there are no mental components blocking execution. Otherwise, the "inter" to take advantage of what you perceive as an opportunity may not have any inner support or the kind of inner support that is necessary to execute your intent properly. If there are mental obstacles preventing the proper execution of a trade, then learning how to perceive better opportunities is not going to solve the problem.

  So the object of this exercise is to halp you learn how to become an expert and stay healthy while you are doing it. And when you do become one, there will be much less standing in the way of your taking maximum advantage of your perceptive skills. If you are already looking at or trading several markets and you are not successful or not as successful as you desire, then I would suggest that you scale back to just one market or two at the most. Don't expand until you thoroughly understand the market's characteristics.

  STEP FOUR: LEARNING HOW TO EXECUTE A TRADING SYSTEM FLAWLESSLY

The proper execution of your trade is one of the most fundamental components of becoming a successful trader and probably the most difficult to learn. It is certainly much easier to identify something in the market that represents an opportunity than it is actupon in it. However, there are some good reasons why it is so difficult to act on a trading signal other than what has already been identified as mental obstacles. To understand these reasons, you need to understand the nature of trading systems (defined as any methodology the consistently identifies an opportunity to buy or sell with a potential profit in some future moment), and how they interact with the markets and ourselves.

  Most good trading systems, technical or otherwise, will take consistent money outof the markets overthe long run. Many of these good sestems have been available to the publuc for years, and yet, there is still a huge gap between what is possible and what almost everyone ends up with. The problem with trading systems is they define market behavior in limited ways when the market can behave in an infinite combination of ways. Systems mathematically or mechanically reduce relationships in human behavior characteristics to percentage odds of what could happen next. They can only capture a very limited number of these behavior characteristics vompared to the billions that are possible. Any identiafied pattern may or may not be repeating itself with respect to the way the pattern or relationship orogressed when it was observed in the past. Therefore, we never really know if it is vaild or not until it has actually completed itself. The big psychological problem here is that people have difficulty acting on opportunities with probable outcomes.

  Most people like to think themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. When it comes right down to it, no one traders to loss, no one puts on a trade believing it is going to be a loser, and all systems will definitely have some percentage of losing trades. So it's difficult not to be tempted into trying to guess which ones are going to be the losers and not participate.

  As most of you reading this book already know, trying to outguess your trading system is an exercise in extreme frustration. Sometimes the system will give you signals to trade in ways that are completely contrary to your logic and reasoning. Sometimes the system will defy your reasoning and be right, and sometimes you will agree with the system and it will be wrong. You need to understand that technical trading systems are not designed to be outguessed. What I mean is they aren't designed to give you isolated signals of an opportunity to be taken when it seems right. What they do is mathematically define, quantify, and categorize past relationships in collective hunam behavior to give you a statistically probable outcome of the future.

  As a comparison to trading, it is much easier to take risks and participate in a gambling event with a purely random outcome cased on statistically probabilities, simply because it is random. What I mean is, if you risk your money on a gambling event you know has a random outcome, then there's no rational way you could have predicted what the outcome would be. Therefore, you don't have to take responsibility for the outcome if it isn't positive. 

  Whereas, with trading, the future is not random, price movement, opportunity, and outcomes are created by traders acting on their beliefs and expectations of the future. Every trader contributes to the outcome of the future by putting on and taking off tardes in accordance with their belisfs. Because traders actually create the future by collectively acting on their beliefs about the future, the outcome of their actions is not exactly random. Why else would traders try to outguess their systems, unless they had some concept of the future and how that future will affect the markets?

  This adds an element of responsibility to trading that doesn't exist with a purely random event and that is diffcult to avoid. This higher degree of responsibility means that more of your self-esteem is at stake, making it much more difficult to participate. Trading gives you all kinds of ways to beat yourself up for all of the things you should have considered that would have resulted in a more satisfying outcome.

  Furthermore, you don't trade in an information vacuum. You from your expectations about the future with information technical systems don't take into consideration. Consequently, this sets up a conflict between what your intellect says should be happening and the purely mathematical means of predicting human behavior afforded by your technical system. This is precisely why technical systems are so difficult to relate to and execute. People aren't taught to think in terms of probabilitise-- and we certainly don't grow up constructing a conceptual framework that correlates a prediction of mass human behavior in statistical odds by means of a mathematical formula.

  To be able to execute your trading systems properly, you will need to incorporate two concepts into your mental framework-- thinking in terms of probabilities and correlating the numbers or the mechanics of your system to the behavior. Unfortunately, the only way you can really learn these things is actually experience them by executing your sestem. The problem is that rarely will the typical trader stay with his system beyond two or three losses in a row, and taking two or three losses in a row is a very common occurrence for most trading syetems. This creates something of a paradox. How do you do it if you don't believe it, and you won't learn to believe it unless you do it long enough for it to become a part of your mental framework? This is where you employ mental discipline to make flawless execution a habit.

         Exercise

Take some of the trading captial that you set aside for your education to buy and trade a simple trading system with well defined entry and exit points. Make a commitment to trade this system exactly according to the rules. You need to make a very strong commitment here and not play any games with yourself. The object of this exercise is to work through any resistance you may have to following your rules.

  This system does not have to be expensive. You can get one out of  the books on technical analysis available today. I think it is important to buy one instead of devising one of your own because it might be a litter easier to stay focused on the objectives of this exercise. With any system you devise, you are naturally going to want to make money. Save it for later, after you have learned how to execute properly.

  You also need to find a system that suits your unique tolerance for taking a loss. The amount of money you risk per trade should be an amount that you are completely comfortable with, at least at first. If you don't stay within this tolerance level, you will be, at the very least, uncomfotable, in which case to whatever degree you are uncomfotable, you shut down the learning process. When you are feeling pain, instead of being focused on what the market is teaching you about itself, you will be focused on information that will ease your pain. Which usually results in a painful lesson.

  Your objectives are to (1) learn the skill of flawless execution by learning that you can follow the rules you set forth for yourself ( I am defining " flawless execution" as executing a trade immediately upon percetion of an opportunity; inclusive within opportunity is the opportunity to exit a losing trade. ) and (2) to incorporate a belief into your mantal system about the nature of probable outcomes so that you believe that you can make money in the long run with your trading system, if, of course, you can execute it properly.  

  You will likely encounter many beliefs arguing against flawless execution. Here are few suggestions to halp you work through this resistance:

  First, ubderstand that this exercise (at least for most people) is not going to be easy on yourself. The more accepting you are of your mistakes, the easier it will be to make the next attempt. 

  Second, taking all the signals generated by your system is the only way you van get the firsthand experience you need to establish a belief in probable outcomes, and relating the mathematics or the mechanics to the behavior. You have to do it spite of your resistance, and you have to do it long enough for the system become the part of your mental framework. When that happens, you will have the force of habit working for you, and the struggle will cease. Just do the best you can and look for ways to improve your performance. Constantly keep in mind that what you are doing is more of an exercise in learning trading discipline and the skill of flawless execution, which in the long run is far more important than your immediate desire to make money. So keep your contract size light. You can always increase it later, when you have learned to trust yourself completely to always do what needs to be done without hestation.

  Stay with the exercise until it becomes second nature or a part of  who you are. As you gain in your confidence, you will learn more and consequently learn how to make money as a trader. As you make money you will gain in your confidence. This positive cycle will expand your ability to be successful just as easily as a negative cycle will feed on itself to end in despair.

  STEP FIVE: LEARNING TO THINK IN PROBABLITIES

After you have mastered the more fundamental skills, in other words, once you have acquired the discipline necessary to interact with the trading environment effectively, you can start to use your reasoning skills and intuitive powers to determine what the market is likely to do next. This will entail learning to think in probabilities. What I mean by this is, if you can't personlly move the market, then you will want to be able to identify the group that is demonstarting the greastest possibility of moving the market and you will want trade with that group. Or you will want to determine the prevalent beliefs being expresed in the market and how those beliefs will affect price movement. That identificayion process requires a detached objective perspective, where you are watching and listening to what the market is telling you, instead of being focused on what the market is doing to you personally.

  Remember, two traders willing to trade at a ptice make a market. Whatever, the extreme ends of human expression are is what the market is capable of doing. For example, have you ever said," The market can't break contract lows, it's never been there before "? If you bought those lows based on your belief of this impossibility, then consider that all it take is one trader who is willimg to sell lower to make you wrong. The fact that the market did it makes it right. You could have been a seller at the all-time lows and been a one-tick winner when the next trader broke those lows, if you could have perceived selling as an opportunity.

  If prices were to penetrate those lows with any kind of followthrough,it would indicate that there are plenty of traders who believe it wasn't going higher. These sellers obviously acted on their beliefs with enough force to outnumber the buysers available to take the other side of the trade. Regardless of the criteria the sells used to justfy their actions, how rational or irrational by anyone else's standards, nothing will after the fact the market traded lower. The fact that you believed it coulden't do it is of no consquence, unless you can trade big enough numbers or reverse it. Otherwise, you can either be with it or against it.

  To help you learn how to be with the flaw of the market, I pose a series of questons that are designed to keep you focused in the "now moment" to determine what is true about the market.

  1. What is the market telling me at this moment?

  2. Who is paying up to get in or get out?

  3. How much strength is there?

  4. Is momentum building?

  5. Can it be measured relative to something?

  6. What would have to happen to indicate the momentum is changing?

  7. Is the trend weakening or is this a normal retracement?

  8. What would show that? If the market has displayed a fairly symmetrical type          of pattern and that pattern has been disturbed, then it is a good indication            the balance of forces has shifted.

  9. Are there any places where one side will definitely gain dominance over the other? If that point is reached, it still may take sometime for the other side to be convinced they are losers. How long are you willing to give them to stampede out of their positions?

  10. If they don't stampede out of their positions, what will that tell you?

  11. What did traders have to believe to form the current pattern relative to the            past? Remember that people's beliefs don't change easily unless they are                extremely disappointed. People are disappointed when their expectations              aren't fufilled.

  12. What will disappoint the predominate force?

  13. What is the likelihood of that happening?

  14. What is the risk of finding out in a trade?

  15. Is there enough potential for movement to make the trade worth the risk?

  We may never know what traders will in fact do. But we can determine what they will likely to do if certain things happen first. For example, if traders push the price lower than the previous low, what will likely occur? Is this new low significant enough to cause traders holding long positions to bail out? Will it cause new shorts to enter the market or attract existing shorts to add to their positions? New shorts may be attracted to the market, and old shorts will add to their position. This price slide will stop when enough traders believe the price is cheap relative to something. That reference point will likely be some other previous old high or low. 

  If you can't determine the significance of any particular high or low or any other significant reference point for that matter, then you have to ask yourself if it is worth the risk of finding out. How much room will you to give the market to define itself before it is evident that the flow of the market is not in the direction of that trade?

  Ask yourself this question: For this trade to be volid or continue to be volid, the market shouldn't trade to what point? If it trades within that point, then the trade still has potential for working. Beyond that point, it is no longer valid in the direction that I started.

  Keep in mind that the amount of price movement that you determine is necessary for the market to define itself has to correspond with your emotional tolerance to accept the dollar value of a loss that size. Otherwise, don't take the trade regardless of how much potential you think it might have, unless you can realistically change the foregoing parameters to fit your capacity for a potential loss.

  Let the market define itself and then apply whatever criteria you use to define an opportunity. Identify your significant reference points and place your orders on either side of the point; then wait for the market to do whatever it is going to do. Try putting your orders in the market in advance of whayever you perceive as having a high probability of occurring based on the existing market conditions. By putting your orders in advance of some anticipated move, you will be learning how to let the market work for you. Placing your orders in advance will also help to keep you from having an opinion, and you won't be subjecting yourself to the moment-to-moment conflict inherent within all price movement.

  Keep in mind that since the market is in perpetual motion, it puts you in a position of having to make never-ending assessments of the current risk in relationship to the current possibilities for reward. To do this effectively, you will have to learn to observe the markets as if you were not in a position. This perspective will free you to take whatever action is appropriate for the situation instead of hesitating, hoping, and wishing that the market will make you right.

  The market doesn't make you right, you make yourself right. Your inability to xexcute or the degree to which you hesitate after you perceive an opportunity to get in or out of a trade or reverse your position will be an excellent gauge as to how locked in you are mentally. Making note of these occurrences of hesitation or immobility will give you an indication of the exact state of your mental resources to execute. You need this information to use as a reference point to build from.

  When you are about to enter into a position, ask yourself, by imagining, what the next five minutes or tomorrow (depending on your time frame) would have to look like volidate your trade, to confirm that the trend is still intact. What the next five minutes or tomorrow have to look like to indicate the opposite. Then, again, place your orders at the appropriate price in advance of the market's getting there.

  All this questions will keep reminding you that anything can happen, and you will be preparing yourself in advance of those possibilities.  Also, if anything can happen, then of cause, you will have to consider that there will always be something you haven't taken into consideration, had absolutely no awareness of or could have no prior konwledge of, for example, such as how many traders may enter the market for the first time with enough force to reverse its direction.

  Keep in mind that prices move in the direction of the greatest force (traders fulfilling their beliefs about the future). Or said in its converse form, prices will move in the direction of the least resistance to the prevailing force. Significant reference points give you the opportunity to make high probability assessments of the degree of balance or imbalance between the two forces, the point at which it is likely to shift, and in whose favor.

  By learning to identify significant reference points, you can  determine what each group will do based on what they already believe about future value. If you can determine on a collective basis what will validate or invalidate those beliefs, then you will konw how each group is likely to bahave.

  I want to remind you that this approach is to help you stay detached and understand that price movement is a function of traders acting individually and collectively as a force expressing their beliefs in future value. The greatest number with the strongest belief will always be right. The easiest way to make money is to go with the flow. To identify the flow, you need to stand apart from th crowd and suspend what you believe about relative value so that you can determine who is likely to do what and with how much force, how is everyone else likely to react, and if it doesn't happen, what will traders do then?

  By asking yourself the questions you are automatically keeping your focus of attention on the market and what the possibilities are. Any limitations you place on the market's behavior will cause you to focus on the impossibility instead of the possibility of something happening. Your belief that the market has to behave in certain ways prescribed by your mental structure will cause to focus your attention on what the market is doing to you, and if what it is doing is causing pain, then the potential exists for you to avoid or distort information, usually resulting in a painful forced awareness.

    STEP SIX: LEARNING TO BE OBJECTIVE

  To achieve a state of objectivity you need to operate out of beliefs that allow for anything to happen, as opposed to beliefs that allow only for market to express in a limited fashion. If you operate out of a belief that anything can happen, then whatever does happen won't be threatening to you in anyway, thereby causing you to avoid or distort certain categories of market information. Any limits you place on the market's behavior will be a compensating factor for your lack of trust and confidence to act appropriately in any given situation. This will be evidenced by the fear, stress, and anxiety that you will feel when market expresses itself beyond your maetal limits and you can't do anything to control the situation.

  However, you do have to have some belief or expectation about the future or you wouldn't ever put on a trade in the first place. To be objective, you will need to release yourself from "demand--backed expectations" and make what I call "uncommitted assessments of the probabilities." Unlike the markets, in our everyday social lives we can and do exert control over the environment to assure ourselves of the outcomes that we desire. The rules we learn to abide by in order to interact with one another are our expectations about the future. Once we learn these rules, especially if we have learner them in a painful way, we can demand certain outcomes from the environment. Hence, our expectations of the future are actually demands that the environment conform to our expectations of it. Without really thinking about it, we will carry these same kinds of damands with us into the trading environment because of our natural resistance to letting go of our expectations. That is, staying committed to any limited belief about the possibilities that exist in the markets is virtually the same as making a demand.

  If you have any doubts about this,consider that if we won't demanding that the market conform to our expectations, then we wouldn't ever have a reason to get angry when it doesn't. Have you ever gotten angry at the market? Angry is a natural defense mcchanism. When we feel angry, it is an indication that the environment is assaulting us in some way, creating an imbalance between the mental and outer environments. The outer environment is eather showing us something about itself or ourselves that we don't want to accept. We protect ourselves with our angry to ward off this assault. In our everyday lives our anger can be an effective tool to get what we want  (change what the outer environment is showing us about itself that we can't accept) or to ward off what the environment is showing us about ourselves that we can't accept.

  However, if we interact with the market with demand--backed or committed expectations of its behavior, we will cut ourselves off from the information that we need to make accurate assessments of its potential to move in any given direction. If we don't have the power to control the markets in such a way as to make them do what we expect them to do and the same time we aren't willing to give up our expectations and accept the way things are, then it would creat what would otherwise be an irreconcilable dilemma if it weren't for our ability to distort, alter, or exclude information from our awareness. Perceptual distortion is the one compensating factor that will, at least temporarily, correct the imbalance between what we expect and what the market is offering, when there is a difference between the two.

  Our committed expectations about the future will act as a force on our perception of market infprmation to control its flow into our mental system in such a way as to avoid a confrontation with anything that doesn't conform with what we already believe is possible. Which, of caurse, is always going to be less than what is possible from the market's perspective. If we are perceiving much less than what is available, then we are out of touch with what is possible from the market's perspective and setting ourselves up for a painful forced awareness. To be objective you have to make "uncommitted assessmants of the probabilities." Which simply means that you have no commitment to any particular outcome. You just observe what is happening in each moment as an indication of what will probably happen next.

  Here is what objectivity feels like, so taht you can recognize when you have achieved it.

  You feel no pressure to do anything

  You have no feeling of fear

  You feel no sense of rejection

  There is no right or wrong

  You recognize that this is what the market is telling me, this is what I do

  You can observe the market from the perspective as if you were not in a                 position, even when you are   

  You are not focused on money but on the structure of the market

  To stay objective anticipate as many possibilities as you can and how probable each of these possibilities are. Then decide in advance what you are going to do in each situation. If none of your scenarios is working out as you anticipated, then get out. Release yourself from the need to be right. The more uncommitted your assessments arethe less potential for distortion and experiencing a painful forced awareness.

 STEP SEVEN: LEARNING TO MONITOR YOURSELF

As outlined in the exercise to develop self-discipline, you need to start paying attention to what you are thinking about and what market information you are focused on.

  Trading Rules

When you are in a trade constantly ask youself if anything "has to happen." Obviously, you want the market to go in your direction; however, what I want you to do is monitor how you feel, your level of commitment to what has to happen. Remember there is a big difference in perspective between "what is happening" and something that "has to happen."  If you find that your commitment levels are rising, keep on telling yourself that it is all right for anything to happen because you are confident in your ability to respond appropriately to whatever does happen.

  Ask yourself what can't happen? What can't the market do? When you find yourself rationalizing the market's behavior to support your position, you are operating in the realm of illusion and setting yourself up for a painful forced awareness. Remember the market can do anything, even take your profits away if you allow it. Always take something out of the markets when you find yourself in a winning trade.

  A question to ask yourself is are you prepared to give yourself money today. If the answer doesn't come back a resounding yes, then find out before you trade. If you can't reconcil the issue or set it aside, then you would be better off not trading, until you do. If you are determined to trade anyway, at the very least make a substantial reduction in the number of contracts you normally trade.

  When you find yourself focused on the monetary of a trade instead of the structure of the market (i.e., what the trade is worth to you in dollar terms, dreams, goals, and so forth instead of what yhe market is telling you about its potential to move in any given direction) then assume you are distorting or avoiding certain information and either don't put the trade on or take what you have off until you become more objective.

FINAL NOTE

Even after you have learned all of the skills set forth in this book, at some point in time it will probably occur to you that your trading is simply a feedback mechanism to tell you how much you like yourself in any given moment. After you have learned to trust yourself to always act in your best interests, the only thing that will hold you back is your degree of self-valuation. That is, you will give yourself an amount money that directly corresponds with what you believe you deserve based on some value system you acquired at some point in your life. The more positive you feel about yourself, the more aboundance that will naturally flow your way as a by-product of these positive fellings. So, in essence, to give yourself more money as a trader you need to identify, change or decharge anything in your mental environment that doesn't contribute to the highest degree of self-valuation that is possibile. What's possible? Stay focused on what you need to learn, do the work that is necessary, and your belief in what is possible will naturally expand as a function of your willingness to adopt.