Developing true trading confidence is of course one of the secrets to successful trading. As you know confidence is a pre-requisite to success in your life, whatever you aim to achieve. The problem with the notion of confidence is that there are many myths told by the pop culture of personal development which are peddled all over the internet. Statements like: Think positive, develop gratitude make a plan and set your goals, and hey presto, the world will unfold according to your desires as if by magic, are nothing but oversimplified wishful thinking and empty piffle and do not produce sound foundations for true confidence.
Confidence, based on weak foundations is a major hazard which can lead to uncontrolled
trading losses. I should know, because I have been there. So, what do I mean? I am
talking about the type of confidence you may have been taught by your well meaning
parents and at school. This type of confidence is conditioned into you and has made
you adopt incorrect parameters against which you measure confidence and has nothing
to do with an inner worth that comes through deep empathy and understanding of your
true self. This kind of shallow confidence is also typical of people in the concrete
operational stage.
Like many I am the product of the stiff upper lip upbringing. I was taught confidence.
What I mean by this is that I was taught to identify with my education and my upbringing.
If I produced a good grade at school my confidence levels were high, when I produced
low grades my confidence levels were low. I guess most of you can relate and identify
with this scenario. Like many in my peer group confidence meant making the grade.
Provided I made the grades, I had the right to be confident. Confidence was based
on outside results; it could be earned provided you remained within the rules of the
system. Confidence was something you either deserved or not, rather than something
that resides inside you and can be honed and nurtured through understanding and self
knowledge. The notion of inner worth did not come into the equation. Inner worth came
from the outside.
The vast majority of the population still view confidence in this way. What an illusion
this is though. Learned confidence and true confidence are two entirely different
things. Sure, good upbringing, impeccable manners, the learnt ability to talk in front
of many people are all very useful skills to have and I am not knocking them. On the
contrary, if you have had the benefit of such an upbringing it will help you in certain
respects, but, believe me it will not do one iota for your trading skills or give
you the deep inner confidence that we all crave and which is essential to lasting
trading success and lasting success all round in life in general.
Remember, I have talked before about the person you identify with as being the real
you. I was talking about the lawyer identifying with being the lawyer, just as you
might identify with your degree from Harvard or Oxford. You may recall that the majority
of people, 70 percent, are in the concrete operational stage of development and think
like this. They see their identity as the lawyer, the trader, or the privileged student
who has a Harvard degree and therefore must have certain character traits which the
rest of the lesser mortals may not have.
It is naturally assumed if you belong into that group that you will perform in line
with that socio economic group. If you belong to that group you will probably also
subconsciously act out the expectations of your peers. You do this because you have
not as yet learned to do anything else and question these superficial values that
make up what you think is the real you.
We will talk a lot more about values throughout this book, because it is important
that you get an in depth understanding of your core values. Without that understanding
you cannot make fully congruent decisions, least of all in your daily trading.
Your core values also relate to your confidence, or, should I perhaps say: How you
define confidence. I am certain, by the end of this chapter your view of true confidence
will have changed somewhat.
So, what does self confidence mean to you? Let us examine this next.
For this purpose I want you to get pen and paper and write down the answer to the
following questions. Do not ponder too long over answering each of them. You will
do the exercise again later where you can think about your answers longer if you must.
For the first run it is vital that you write down what comes into your mind first.
In other words, do not think, just write down the answers. They are already there
in your subconscious mind and you can consciously access them now. Let’s begin:
What does confidence mean to you?
We are now going to examine each question closer for its intrinsic meaning with regard to true confidence.
If you have answered yes to making decisions automatically and quickly, this may be a good thing, provided of course this decision making comes from a deep sense of inner conviction that you are on the right track and comfortable with your decisions. This is the sign of someone confident and comfortable with themselves, or is it?
You see, quick decision making can also cover up deeply hidden insecurities masquerading
as self confidence. You may not know that you have many doubts lurking in the deeper
subconscious mind. But if you find yourself questioning the decisions you initially
made with gusto and tend to bail easily whenever the prevailing situation changes,
your confidence could be a masque. If you are like that you are very likely to be
happiest to trade very short term and probably have good reasoning why this suits
you.
However, impulse trading is also a potential danger here. Ask yourself if all the
trades you are putting on, are necessary. Perhaps you could get better results trading
less often?
Perhaps you are learning to trade and the risk to capital naturally is much lower
trading the three minute chart than trading a wider time frame. You may think that
the market is too whippy, there is no direction and it is natural to trade a very
short time frame in those conditions. It also gives you the excuse to be out of the
market very quickly at the first sign of change. Not a bad thing, particularly when
the markets are going through a corrective phase, this trading style is to be favoured.
However, the real question right now is whether this trading style may be hiding
an insecurity or lack of confidence and if resolved, might move you to higher levels
of trading mastery. Ask yourself how you really feel moving from trading the three
minute chart to trading the 15 minute chart or even the 60 minute chart.
Do you take out time to think carefully about your strategies? Does this mean you
are confident? Perhaps you are a true strategist by nature, as some traders are and
you make serious money with this trading style. If so, great. Yet, as with the first
question I want you to examine yourself a little deeper.
The need to think carefully about one’s strategy often hides an underlying fear of
making a decision. There may be a need to have confirmation that one is right. Observe
your thinking: Do you often think thoughts like this: “I need to be careful”, or “I
must not make any mistakes”, probably followed by thoughts like this: “I cannot afford
to make mistakes, I really need to watch what I am doing I have screwed up often enough
in the past.”
Do some of these thoughts have a familiar feel about them? If so a tendency to procrastinate
may well be a major challenge in your trading. Procrastination can be covered up with
a multitude of excuses. You really feel the need to check and re-check your trading
system? After all, it means that your are discerning, diligent and a responsible trader,
or does it? Take note, because these patterns are also typical signs of lack of confidence.
You get to work on these issues later with EFT and Micro EFT. For now, just observe
what is going in inside your head at a deeper level.
I asked you if you believe that anyone who comes up with a new idea is confident?
This is a very interesting question because many of us admire those people who have
the ability to keep coming up with a stream of new ideas. New ideas can be either
a great asset in your trading, provided you use this ability with true confidence
or it can be a complete hindrance. If you are forever looking for new and better ways
you probably think somewhere along these lines: “I am not good enough”.
Perfectionism is a well known issue for many of us. It also hides lack of confidence
and self esteem very well. The constant drive for perfection can be easily mistaken
for an unrelenting strive for mastery. Alas, is this really so, or is your mind playing
tricks with you? Do you really have to be perfect in order to be your best? Ask yourself
this question: Is it possible to be perfect or are you already perfect, because presumably
you are already doing the very best you are capable of right now? Do you recognise
this trait in yourself?
From my own experience I can tell you with true confidence that the drive to be creative
and move on to find new and better things is very likely hiding a confidence problem.
I am very creative and also always looking to improve a system thinking that I can
do better. While this attitude is a strength it also hides a weakness at a deeper
level and you should be mindful of this possibility. I have thoughts of doubt along
the following lines: My system may not stand up the next time. Maybe the markets have
changed and the next time I follow my signals it will not work as well. Unmasking
such self defeating inner talk for what it is, is paramount to creating self confidence.
I have worked with very good professional traders who would convince themselves of
the need to be extra careful in certain market conditions. There were times when they
stopped trading their system even though they knew that it worked very well and would
stand up well to different market conditions.
A lack of self belief triggered through changed personal circumstances can bring
suppressed fears to the surface. Alas, these traders could not accept that it is fear
that is stopping them from performing at their best. They believe that they are doing
well, after all, they do not lose money, they just do not make as much as they are
used to making. They argue when the market conditions change and they are certain
of where it is going, maybe in a few months, or whenever, they will be back to peak
performance.
Breaking through these smoke screens of self delusion can be hard. A hallmark of
lack of confidence is the need to justify one’s actions or inactions and present them
as strengths when in reality they are hiding deep insecurities. The mind can be very
inventive and provide you with all the excuses and justifications you need. It will
do anything to help you feel good about yourself superficially. This is how it works.
If you demand consciously to feel good but are unwilling to look deeper inside and
let go of old mental gremlins niggling away in the vaults of your subconscious mind,
guess what? Your mind will find ways of obliging you. If you chose to avoid being
honest with yourself, your mind will provide the delusions. Ultimately your unwillingness
to deal with your issues will never serve you, but the mind does not care about that.
It will always give you what you consciously focus on.
If you recognise yourself here, congratulations. Now you can start doing something
about it.
Perhaps you are quietly cursing me for my arrogance and my boldness for dismantling
your old belief system, please stay with me.
Well, I did not promise you that I would make you feel comfortable all the time,
did I? I am promising you though that you will broaden your self awareness if you
remain open to my suggestions and by the time you have finished with this book you
will walk away with a much better knowledge of yourself which will provide you with
a sound grounding for your chosen trading and investment style.
If you are still deciding whether or not trading is for you, you will know the answer
once you have finished the self examination and provided that you have been totally
honest with yourself.
You will have removed a lot of the old illusions and shadows that have stopped you before now to see clearly and feel what is right for you. Once you have developed true esteem for you and freed yourself from expectations other people have of you then you are truly in control of your life.
My fourth question to you was whether confidence means that you should always see
the other person’s point of view? I could also ask if you can truly be confident not
seeing another’s view all the time. Confidence is about your ability to be calm and
peaceful, even when things are not the way you like them. In other words, true confidence
is internally driven and not by external factors. I will talk about this in more detail
in the following sub chapter.
If you believe that confidence means that you insist on your view point without seeing
the other person’s point of view, you are displaying ego centric tendencies which
would point to a problem in one of the earlier developmental stages. Insisting on
seeing things from your vantage point only will hamper your trading in the long run.
It will deprive you of the mental flexibility you need to have under all circumstances
in order to anticipate and assess market moves correctly. Needless to say such an
attitude also smacks of confidence problems which you are hiding with a bossy attitude
of certainty. However, a deep seated fear will not let you see other viewpoints. You
may be so scared that your view might be threatened and proven wrong that you would
reject new ideas, even if they may benefit you, rather than keeping an open mind.
You do not have the inner independence and inner self assurance to be unaffected by
other people’s ideas. Such hidden fears limit your ability to connect with others
and experience empathy for their views. I hardly need to point out to you how this
attitude could stop you from assessing market direction correctly.
On the other hand, if you answered yes to the fourth question, you will probably
have a good feel for the markets and be able to make decisions by reading the vibes
of the market instead of imposing your own judgement.
My fifth question was whether you believe that a confident person never gives up.
Of course not. I am often quite amazed when personal development experts promote the
adage: “never, ever give up.” If you behaved like that in the markets you could go
broke with your first trade. In my mind such advice is the height of nonsense and
downright dangerous too. The truly confident person will know when it is time to give
up on a position in the market, a relationship, or a career that is not working out
as planned. The truly successful person will be able to see that there is no point
in wasting time, energy and money on something that clearly is not right for them
and will be willing to change tactics to achieve success.
Naturally, in your trading you need to have a cut off point for a position, or for
a trading style which may not suit you. True confidence means also being able to say
no. Perhaps trading and investing are not for you. You will know when you have finished
with this book.
You probably are drawn to trading and investing because you have money to invest
and you want to make money. That is fine. But remember, there are also plenty of other
ways to make big money. Trading and investing are just one of the many paths leading
to financial security, or ruin. So, do not be afraid to say no. The ability to say
no in the right moment could be one of your greatest assets. This ability has prevented
many a major trading disaster too.
I also asked you if you believe that as a truly confident person you must never doubt
yourself. The simple and straight forward answer to the question is no. This may surprise
you. Again, many gurus subscribe to the idea that you must have unshakeable confidence
and this means that no self doubt is allowed to creep in, because it may move you
away from your goal. A healthy self doubt can move you to bigger and better things.
Many people believe that trading is different from the normal laws that dictate success
and that you need to develop a different set of skills which is almost counter intuitive
to your nature. One of these skills is supposedly your ability to always be positive
and develop unshakable confidence. I beg to differ. Think about it: How can this be:
The markets reflect true human nature, but on a graph. You and I are human and so
are the markets. Self doubt and confidence issues are part of being human. When you
are trading the markets you are always trading aspects of yourself. Ignore certain
facets of your personality at your peril.
No, you need to develop the ability to observe yourself and the markets and recognise
your true nature, but free from attachment and judgement. Your true nature encompasses
all of you and every emotion. I will talk about this skill, which can be learned,
in a later chapter.
If you never doubt yourself, does this mean though that you are truly confident?
Well, obviously not. In fact, it could mean that you are hiding your insecurities
under a thick layer of false confidence. The inner demons are still lurking, even
though you do not allow them to show their ugly faces. Such subconscious self delusion
is very dangerous and ultimately stands in the way of big profits.
Okay, finally I asked you to choose someone who has your confidence ideal, a mentor,
if you like. When we have finished with this entire chapter I will ask you to examine
your ideal against what you have learned and see if he or she still stands up after
closer scrutinizing. This is quite important to know. If you chose to model yourself
after someone, you need to be sure that this person really does represent all those
values you should develop in the pursuit of mastery. You want to be sure that you
know how they think. What makes them get excited and what turns them off. You want
to know how they create their internal reality and if this is in line with your own.
Why do you need to know these details? Simply to ensure that there are no hidden
in-congruencies in your thinking and your model’s thinking.
You cannot follow someone’s market advice if their rules for holding positions are
totally different from yours. You have to be sure that this person not only talks
the same language as you, but that their language actually has similar meaning to
your own. You will want to know about their philosophy and understand what makes up
their belief system. If there are too many discrepancies there, you will not be able
to follow their trading style and feel comfortable. Your ability to learn from them
will be severely hampered and this in turn will do nothing for your own confidence.
Choosing a mentor is very serious business. I don’t care whether you started to trade,
or have traded for a long time. The best traders have a mentor or a coach, someone
who keeps them accountable. It is very hard if you are trading on your own and have
no-one to bounce off new ideas. You will definitely make progress faster and maintain
more consistent performance if you have a mentor.
By now you have a pretty good idea that confidence is obviously not quite what we would like to think it is. In order to be able to trade well you need to have a deeper level of confidence, the sort of confidence that comes from a quiet sense of self assurance that rests deep within. I have already mentioned that true confidence is not driven by outside events or can be measured by your achievement as a trader or anything else you achieve in your life.
Buddhism teaches us that we are not our success, nor our job, or our feelings for
that matter. So, if you are not any of these things, and confidence does not consist
of your achievement, what exactly denotes this true confidence we are after?
Real confidence is closely partnered with self esteem. Self esteem is the ability
to accept yourself for what you are. And what are you? A human being with failings
and successes along your path, you are just like every one else. Or I could say, like
everything in the universe. You have unlimited potential for both good and bad. Real
self esteem also means that you are probably a decent human being, one of the most
difficult things of all things to achieve in my mind.
You may wonder what self esteem has to do with being a decent human being? Because
you can only have true self esteem if you understand your own true nature, as part
of this universe. You will know that you are a part of something much bigger and wider,
you are both as small as the smallest part of this existence and as big as the biggest
part of the cosmos. You will understand that it is your intrinsic nature to be one
with everything that is. You will understand that there is nothing that separates
you from the next person or even the markets, because you are all the same but expressed
in different ways. You evolve together and react to each other and with each other.
You are happy together and joyful and you suffer together. This is part of being in
this universe and in particular, part of being here on this earth as a human being.
When you know about true self esteem you will understand that it is impossible not
to be touched or even to react to anything that goes on around you. There are now
a number of scientific experiments that have proven this very basic concept of our
existence. In a sense it is impossible not to be touched and influenced at some level
by market moods. If you believe that you can be totally unaffected by what goes on
around you, even if you decided to cocoon yourself from everything, you are deluding
yourself. Events, emotions and feelings of others will always make themselves known
to you through your own and thoughts feelings, even if you are not as yet fully aware
of this. You can learn though to act in harmony with the market and people around
you while staying out of judgement at the same time. A pre-requisite for this is true
self esteem and the deep understanding that in the final analysis you and the cosmos
are both the same, or at least very similar. The two go together.
When you have genuine self esteem you will still react in same way, but with a difference:
You as an individual have the choice to work on yourself and evolve and grow. You
can decide to learn not to react to what goes on in your head and just appreciate
it for what it is. Your thoughts and feelings are a mechanism of being human and they
enable you to interact with everything sensitively and intelligently. They are a gift
and when you have true self esteem you will also be fully aware of this gift and do
your utmost to use it correctly.
You have the choice to practice non-attachment and decide whether you go with the
market forces which are expressing the collective consciousness, or against it. You
choose how you react to the markets. In that sense you will always be in control.
It is only when you just sit there and let the market rule you that you can ever suffer.
When that happens you are not in touch with your true self, because you are invalidating
an essential part of your existence through your unwitting ignorance. In the very
moment when you fully understand this you will be able to be the master of your trading
and take your trading to new heights.
Confidence born from this deep understanding of your own power will give you an entirely
different feel for market forces. You will be able to develop an empathy and intuitive
feel that goes beyond any mechanical trading method. This is the ultimate power you
can have and hone. Granted, we are talking about the ultimate mastery here. There
are traders who have this ability. Admittedly, not that many but there are perhaps
more than you think. I certainly know traders at that level.
In essence, self esteem is a pre-cursor to true confidence. You have to be at that
developmental level where you can fully appreciate yourself for who you are. You have
to be able to see that your true worth is nothing to do with how good a trader you
will become, but everything to do with your ability to interact in a sensitive and
compassionate way on all levels of your existence. Self esteem and true confidence
remove barriers. They remove the need to protect yourself from perceived negativity
in other people or indeed from the markets.
A person who is less sure of themselves will often see the markets as a direct threat
to them. A lack of confidence will cause them to feel threatened because they lack
the inner security and peace that comes from self esteem and true confidence. When
you have a healthy true self esteem and as a result true confidence you will feel
much more secure within your centre. Your comfort zones will be much wider and this
in turn opens you up to more opportunities. When acting from this place your trading
may well be a little more daring than that of a person with false confidence. You
certainly will be able to interact seamlessly with the market.
Seamless interaction with your markets and your world in general is the stuff of
true mastery. Here you can interact in a natural and automatic way. This way of trading
and doing things is effortless. Trading in the zone is effortless, basically because
there are no boundaries between you and your game. You are one. Developing a sense
for what it means to have true confidence is a vital stepping stone on your path to
trading mastery.
No matter how good a trader you already are or will become the vagaries of the markets,
just like the vagaries of life will always present their fair share of challenges
and test your mental metal.
Remember what I said about Werner Heisenberg’s uncertainty principle? Heisenberg’s
scientific research has proven that particles change when observed. About 50 percent
of the particles will stay in a clearly identifiable fashion in line with the observer,
but some particles will always behave in a random fashion. In real life we talk about
there always being the event nobody reckoned with. No matter how well you know your
market there are things you cannot know. The markets will always behave in a predictable
fashion up to a point, but with a random element thrown in. Such is the very essence
of life and science is giving us proof of this fact too.
So look at the mirror of your existence through the lens of compassion, yet with
detachment that allows you to see market movement and market sentiment for what they
are. The markets are really just that, the mirror of your existence. The better you
understand your own nature which is an integral part of the cosmos as well as of the
same nature as everything that exists, the easier it will be for you to develop a
feel for market action and become consistently profitable in your trading. You are
not dealing with a separate entity. I cannot stress this fact often enough. You are
looking at a mirror of you. The only difference is the way in which you see the same
patterns expressing themselves.
When you fully internalise the above you will have to stay away from judgement and
blaming your circumstances, the volatility in the markets, the Fed, the government
and so on, thus freeing your mind up to just see and act in accordance with your newfound
clear, unobstructed vision. Staying out of judgement will become natural to you, because
you know that each time you judge something, or something you are judging an integral
part of yourself.
In fact, once you have fully grasped this very important concept you will be able
to look at your entire existence and everything you observe in the universe in a new
light. You can begin to develop a profound appreciation for everything that is unfolding
in line with its evolutionary blueprint.
As I said before, understanding the above principles is the basis for true and sound
self esteem and ultimately the foundation for true confidence. The concept is immensely
powerful, because once you are in this space you start connecting with everything
in a very immediate fashion. Boundaries start vanishing. You see, it is the boundaries
which we have built around us through our expectations, judgements, fears and other
emotions and reactions that stop us from seeing things for what they are. This also
goes for the markets.
Learn to hone this sense of true confidence inside you and you will get a sense of
seamless connection, the oneness that makes trading in the zone possible. In order
to get there and retain this mental peak state, you must free yourself from all the
distractions that stand between you and the object of your observation, in our case,
the object of your continuous attention is the market action. Any emotion, even if
it appears real to you is ultimately false and stems from a lack of knowledge about
your real self.
Let me reiterate this important point again: When you react to market moves with
emotion you are not reacting to a market move but to something inside you.
This could be your anger, a hurt ego, or anxiety because a position has gone against
you, but these reactions are just totally superficial. They are caused by a lack of
confidence due to some underlying mistrust in your abilities. This mistrust is most
likely to come from an early childhood experience and some programming in your head
that has gone awry and will have hampered your developmental progress. You also have
learned to look at events in your life through judgement and by comparison. Neither
helps you become centred and improve your trading.
You evaluate everything in terms of good and bad and black and white. This way of
judging is predominantly based on your conditioning, and therefore it rests on the
false assumption that your view is final and absolute, thus giving you a distorted
view of yourself and your reality.
I have mentioned before that the natural state of your mind is one of quietness and
peace. There is no emotion. Any form of emotion is learned and conditioned. Therefore,
it can be unlearned with perseverance and practice. The techniques you learn in this
book lead you to understand your true nature. Your true nature is to be peaceful and
to exist by going with the flow of things. Your true nature always asks of you to
go round the mountain and not through the mountain at all cost. This premise is also
the basis for successful trading.
Your job is to get a sense of this feeling and develop a choice of what it is you
want to experience. You can get there by letting go of your old conditioning. Do not
let false pride stop you from getting in touch with the real you. It always comes
back to that one simple thing: “Know thyself.” The deeper this knowledge is the deeper
will be your capacity for true self esteem.
I like to compare the market to an alpha male: The alpha male is powerful, strong and acts on its own weight with no consideration for the sentiment of others. This is how he survives and the female respects and loves these qualities, because she always recognised that these ancient qualities make survival possible. Since time immemorial the female subordinated herself to the physically stronger alpha male and in this way she built her own strength while contributing with insight and compassion to the unit. Such are universal laws in action.
The alpha market male has a momentum all of his own, fed by the collective mood of
all traders and market opinion of the general public. All this is playing out within
bigger market cycles. Market cycles derive from astrological and cyclical pressures.
You are part of these cycles. If you think I am talking a lot of baloney just consider
this: 70 percent of our bodies consist of water. Two thirds of the earth is covered
by water. I have mentioned the water experiments of Masaro Emoto before. Do you really
think that your body rhythms and moods, and the mood of everybody else is totally
unaffected by the movements of the planets? The evidence is overwhelming that the
planets have a direct effect on our emotions and it comes back to the same old thing:
Everything is inter-connected.
Studies show that in a bear market the chances of the market going down are two thirds
higher just prior to a full moon and just afterwards than at other times. Here rests
my case.
You may be familiar with a quote by Reinhold Niebuhr which is part of a verse: “God
give us grace to accept with serenity the things that cannot be changed, courage to
change the things which should be changed and the wisdom to distinguish the one from
the other.”
I feel that in this sentence the wisdom of the entire universe resides. It also sums
up an important aspect of the trading game which you must learn to master if you want
to make persistent profits.
Of course, ego often gets in the way of mastery. We have an opinion and expect the
market to oblige. Well, the market which I call the alpha male, will always be stronger
than you, the trader. Even if you are a powerful trader and have the financial means
to manipulate market action, do not kid yourself. Nature always claims its rights
in the end. The forces of the market are stronger than your biggest trading ego and
sooner or later will revert to natural laws and seek to balance themselves. The markets
cannot help their strength. They just move powerfully under their on momentum, just
like the alpha male. Your manipulation may give you a short term ego boost. It upsets
the natural yin, yan balance though. So, please do not fall into the trap that just
because you managed to make a stock move higher by getting everyone else to hop on
board that you are the master over the markets. You never will be.
Eventually, the law of duality will always claim its rightful place. If you understand
this you will take the opposite pole energetically speaking. I am not talking about
market direction, but about the energy exchange between you, the observer and the
markets which are the active force. When you allow your ego confidence to take over
and also take on an active role you upset the balance between you and the markets.
Such false confidence has been the downfall of many traders. Just think of the Hunt
brothers, or more recently: The manipulation in oil which saw oil at $ 150.00 only
to see it collapse within three months to below £ 40.00 a barrel leaving many traders
running for the exit. The swiftness of the decline was unprecedented. The examples
are countless. The rubber band can only stretch so far before it pulls back or it
snaps.
You, as a single trader are not going to influence the market action. I don’t care
how elevated you are and how well versed you are in all matters spiritual. When dealing
with the markets we are dealing with a power of force beyond our control. Positive
thinking alone does not move major market forces. You have to understand how to direct
your thinking in such a way that you know which events you can influence and when
you are powerless. The balance is often very fine. Know what you can influence and
learn to become wise enough to know when you cannot influence things and adjust your
strategy accordingly. Do this and you will be on the winning side of your trades and
always in control.
Shorting blindly into an up moving market just because the Elliott wave count says that a top is close may not be the best strategy to pursue unless you have deep pockets and very sound risk management.
Seeking harmony and balance in your trading means balancing the force of the market
through your trading. The market is the yin, male force and you the trader are the
yan, the female force. Your trading should create the opposite of this strong male
alpha force and in this way it creates harmony with the male yin. You and the market
are like the two sides that make a coin. (We have used the example of the coin a couple
of times before to illustrate universal mechanisms.) Both sides are necessary so that
that you can profit from each other. But you can’t be both heads, or both tails. Understand
this principle and you will be more successful in your trading. View your job as trader
from this standpoint and your trading will become more attuned to the market. What’s
more the yin, yan principle permeates everything and understanding it will also help
you to be in harmony with yourself and develop this much sought after inner peace
from which true confidence and good trading derive.
A real test of your true confidence is your stop loss policy. I want to talk about this interesting subject for a moment, and give you some hints of how you can use the information your mind reveals to you about your stop loss attitudes to your advantage.
How you deal with the issue of stops contains a wealth of information about your
belief in your ability as a trader and trust in your system. It also reveals how you
view your world, because we can clearly assess how realistic you are in your views
of yourself, the markets and probably of the world in general just from your views
on stops. Remember, what you do in your trading is in all likelihood reflected elsewhere
in your life. We are dealing with patterns here. You will not display a certain behaviour
trait in one area alone. It will be repeated, perhaps in a somewhat altered form,
somewhere else in your life.
If you like to close your eyes to certain facets of life that you deem unpleasant,
a coping mechanism that stems from suppressed early life trauma, as we have already
established, you will very likely do the same in your trading. Remember, early life
trauma impedes your natural growth. This means that you can only look at one or two
aspects, instead of the entire panoply of the market. You are unable to cope with
more information, because you fear that it would send you into mental overwhelm. While
you are stuck like this and maintain this attitude that gives you a false feeling
of comfort you simply cannot develop a sound approach to trading that incorporates
all possibilities as it should. Admitting that you could be wrong potentially threatens
your confidence and self esteem.
Whenever you are only looking at a partial aspect of yourself the results you are
getting will be skewed. In other words your opinions of yourself and anything else
will be lopsided, including your market views. Real confidence comes from the ability
to encompass all of you, the good and the not so good, and embrace both as your reality.
And that includes setting stop losses.
I have always had problems with setting stops, and guess what? I know many a professional
trader and even more brokers with the same issue. So, it is pretty obvious: We do
not want to lose. It is much easier and certainly more comfortable, at least on the
face of it, to assume that the unthinkable is not going to happen.
“Stops are for wimps, the market makers sniff out where all the stops in the market
place are, drive price action towards it only to reverse the price again in your direction.
Setting stops actually loses you money.” This is a mantra preached by many brokers
and wannabe traders. And, I forgot this one: “If you wait long enough, the market
always comes back to your entry point, doesn’t it”? Or does it? How much time do you
have?
True, if you spend your entire life waiting to die, at some point you are going to
be right. Just like the clock that is right twice a day.
Much has been written about the apparent absurdity of stop losses by those who believe
in their own self delusionary talk. Take it from me, if you talk to yourself along
those lines and justify your stop loss free strategies with this kind of unrealistic
inner chatter you are walking along a mental cliff and towards trading disaster. This
way of thinking is dangerous and designed to lead you to superficially believe in
your abilities, but from a very flawed perspective. I also call this: The false confidence
trap. This is something everyone should be aware off.
If you only give yourself positive affirmations you are just viewing one side of
the coin and your mind is manipulating your reality with your unwitting permission.
From such a diminished perspective your world is flat, instead of multi dimensional.
Flatlanders only see one aspect of the whole. They ignore the rest, in an attempt
to justify their views. They believe they can justify themselves simply by insisting
that their view is the only one. This attitude is naïve and does not aid your profitability
in the long run.
So, take another close look at how you deal with stop losses. Notice your inner talk.
What do you say to yourself about them? I am not talking about whether you physically
place stops in the market. This may or may not be appropriate depending on your trading
style.
You and I both know that as disciplined traders we can have a mental stop loss, a
cut off point when we have to admit to ourselves that we are wrong. This is what it
is all about. How do you feel when you take into account the possibility that the
trade may go against you. Does it lower your confidence? Does it feel as if you are
punishing yourself, whenever you take into account the possibility of a loss? Do you
identify with the trade’s success or failure? And finally: Do you ignore this kind
of inner talk and pretend that you have all the confidence in world that your trades
are always going to work out? These are tough questions and I know just how hard it
can be to stay out of your own way.
Sometimes, facing the inner music with calm detachment is quite a challenge, for
each time we set a stop loss we also admit that we could be wrong. This may potentially
take away from our confidence in the position when it actually should do exactly the
opposite.
Of course true confidence means that we can accept the fact that we will not always
be on the right side of the every trade with calm equanimity. The theory always sounds
so easy while the “reality” of our feelings tell us that turning the theory into practice
is much more of a challenge. It is easy being the Buddha sitting on a cushion all
day.
Our big friends self awareness and self knowledge come to our rescue again. Seeing
things for what they are and acknowledging that there is still yet more work to be
done are powerful movers. I deliberately am not using the term motivation. You can
only let this inner conviction grow through self awareness and self observation and
increased understanding free from judgement.
True confidence is not about motivation, it is about an inner conviction. The emphasis
is on inner, because anything you truly own comes from within. While anything that
comes from the outside is transient and ultimately meaningless. If you fret over setting
stop losses you are reacting to the mistaken belief that the outcome of your trade
affects your self worth in some way. In the final analysis that is impossible. Getting
to the point that you can fully grasp this and internalise this idea is your challenge.
Your ability to accept that you may be wrong without blaming yourself or insisting
that you are imperfect and need to try harder is a direct measure of your innermost
self esteem and true confidence. I have already mentioned that both confidence and
self esteem are a measure of your cognitive level of development. You will only be
able have true confidence and true self esteem once you have reached a certain level
of development. The first three levels of development make it pretty much impossible
to develop the true confidence that is based on self esteem, because your worldview
is not as yet world centric enough. In those levels one lacks the ability to understand
enough of the self and how one operates within the cosmos.
The more you can grasp of the entire picture of your existence and how you fit into
this universe, the more you will get an appreciation of your true purpose way beyond
the old conditioning that have formed your opinion of yourself thus far.
You will sooner or later also come to understand that there are no mistakes. Everything
you do unfolds in accordance with exact universal laws. Whenever you choose to blame
yourself, criticise your own or someone else’s actions, deeming them imperfect, you
are ultimately criticising universal laws. Now, can you see just how absurd that is?
Now think of the implications this statement has on the way you would view a stop
loss. All you are doing is acknowledging a fundamental law and work along side it
to limit potential damage and thus maximise your potential gains. You will know that
losses are as inevitable as is the universal duality of your existence. In a dynamic
market you are just being dynamic yourself. This is just another way of saying: You
should go round the mountain instead going through the mountain. In this way you will
incur the least damage and pain along the way.
Before I come to the end of our discussion on stops I want to particularly remind
the investors among you: Stop losses are just as relevant to you as to those of you
who trade short term positions. I have fallen out with a number of brokers in the
past and lost a lot of money unnecessarily because this simple policy is deemed totally
valueless by most brokers. Staying in an investment that is clearly going against
you in the hope that things will come right sooner or later is lunacy. It is like
playing chess with your eyes closed.
Hanging on to any position, whether it is an intra day position turning into a longer
term trade, or a swing trade turning into an investment, or simply just not getting
out of an investment that has lost its lustre, is just like insisting on eating food
that has gone off. Now, would you really want to do that? If the trade goes in your
direction after you got out, you can always get back in. Here rests my case.
It is only natural that we should move on to the psychology of dealing with uncertainty and I want to close this chapter with a few thoughts on our ability to deal with uncertainty. Just as an unwillingness of setting stop losses is a sign that we prefer to ignore the randomness of market moves our dislike for uncertainty is a major stumbling block to successful trading and investing. It also smacks of lack of true trading confidence, which I am sure you had already worked out.
So, just how big is your need to know? If you are at the concrete operational level,
as are the majority of people, you will want to “see” proof. You will have a need
to see the outcomes before they happen and this could cause you great problems in
your trading. The unskilled concrete operational trader will typically cut his positions
as soon as there is a profit and will have more difficulty holding over night, let
alone running a trend over weeks or even months.
This is not so much a patience issue but predominantly a development level issue
and you should be very aware of the difference if you recognise yourself in these
words. If you are at this level you will look for support from groups or anybody in
a position of authority who may confirm your views. We know that many traders and
investors follow CNBC and the like, mostly blindly, because they do not realise how
they are being brainwashed to believe in something which may or may not represent
their own values and belief systems. There is apparently certainty in numbers and
the concrete operational person loves the security of groups. If enough people share
the same view it must be true.
You may recall that problems in the pre-operational state can make it difficult to
clearly envision and develop future strategies. If you have problems embracing uncertainty
please do the EFT session in part two of this book. It will help you see your reality
in a new way and transcend this limiting view.
Uncertainty is the essence of our reality. You and I will never know the outcome
of anything for certain. The reason for this actually is very simple: Since your reality
unfolds as a succession of nows you cannot possibly have uncertainty. Uncertainty
in this moment does not exist. This moment is the only thing that is real. Uncertainty
is a mere concept that you imagine to be real based on your future which has not happened
yet. Your future can never ever be concrete. The only thing you have and the only
thing you can know for definite is what is here right now. Anything else is a figment
of your imagination.
You see, your mind loves drama. When you feed it with images, feelings and emotions
it believes you and will do its best to make these feelings, images and emotions a
reality for you. It will also oblige you when dealing with your fears of the unknown.
It will make your fears of what may or may not happen at some point in the future
reality for you and it will do it by presenting you with the results soon enough.
The result will always be in the now. You will always get what you focus on, believe
me.
Uncertainty is the ultimate mental teaser, because you cannot ever know the infinite
ways in which the universe unfolds. The field of all possibilities is beyond your
imagination with its infinite potential. This is the reality of the uncertainty you
are experiencing. Certainty only exists in the moment of now. Uncertainty therefore
also means potential opportunity.
Since you believe that uncertainty is anything that you cannot grasp, anything that
has not as yet materialised you are limiting your view of what uncertainty is all
about. You just see it as something to be scared off, because it appears to be firmly
beyond your control, therefore it is undesirable.
It is a part of our human nature that we need to feel safe. The fact is, that we
are ultimately much safer than we realise. We have lacked an understanding of the
real nature of existence and have followed flawed models for directing our thinking
for centuries. This explains how we saw uncertainty as a threat when it really is
opportunity presenting itself to you.
Since you are gaining a much deeper knowledge of yourself and your true reality you
will be able to view uncertainty for what it really is from now on. Armed with this
knowledge you can step back from your emotions of fearand recognise them for what
they are: A part of the old paradigm which you are now leaving behind. This is actually
very exiting stuff. The very moment you begin to embrace uncertainty with all its
countless benefits which are hitherto lying dormant in countless opportunities you
are about to see, your entire life will take on a very different dimension. The markets,
in line with humanity are moving away from a predominantly binary perspective to a
much more multi dimensional perspective. This makes it more challenging to trade and
grasp the new intricacies that are emerging every week, but it also opens more possibilities
to the person who is nimble and goes along with the increasing complexities and extracts
their profit accordingly.
Your need for safety will automatically be reduced by a deeper understanding of your
true nature. Understanding yourself ultimately gives you more control over your life.
Knowledge is power, as we have already concluded. Focus on this power and in particular,
focus on seeing the many possibilities that each trade you put on has to offer you.
You cannot see all possibilities if you are clinging to outdated, limiting concepts.
But you can improve your trading performance significantly by consciously embracing
the opportunities of uncertainty. Do this and you will be creating a new kind of certainty.
A certainty based on a profound understanding of the true nature of all that is.
Your trading always directly reflects how you really feel inside. Like very few other
instruments the markets are quick to teach you and you have to be quick to adjust
and learn. There is no hiding behind false hope, false confidence or old paradigms,
just because it feels familiar. Remember, the markets are a reflection of human nature.
You are always dealing with a part of yourself. You are always evolving just like
the rest of the cosmos. If you stand still you will be dead because you will be unable
to withstand the forces which are bigger than you.
Nothing ever stands still. We can observe that change in all areas of life is accelerating.
If you are trading the DOW these days you will know what I mean. Its trading character
has changed quite considerably in the last 12 months.
The message is actually quite simple, all be it not necessarily that easy to put
into practice. Accept that some of your old views are being superseded by a new understanding
of our world. The new paradigm encompasses all areas of life. It permeates the markets,
the socio economic structure and of course the way in which we see ourselves. Fight
the new paradigm and you will be left behind sooner, rather than later. The only way
to survive is to adjust and learn thus broadening your understanding of it all.