Charles Faulkner abandoned graduate school (he was studying psycholinguistics at Northwestern University) after becoming enamored with two early books written by Richard Bandler and John Grinder, the cofounders of Neuro-Linguistic Programming (more on NLP in the interview). Starting in 1981, Faulkner studied extensively with Grinder and then with Bandler and other key NLP codevelopers, becoming a certified NLP trainer in 1987. Faulkner’s focus has been on modeling human excellence, with projects that have included accelerated learning, physician decision making, and futures trading. Faulkner is also a consultant, NLP seminar leader, and program designer and author of several audio tape programs applying the techniques of NLP.
I met Charles Faulkner when he approached me after a talk I had given at a futures industry symposium. During my speech, I had made several references to this volume, which at the time was about half-completed. Faulkner explained that he had been doing research and consulting directed at helping traders overcome mental impediments to success. I told him that I was quite interested in his work because it might fit as a feature in the new hook but that my scheduling on that trip did not leave enough time for an interview. He gave me a boxed tape set, asking me to see what I thought about it.
The tape series dealt with applying NLP to various aspects of achievement. Although there are a number of NLP elements that I have trouble relating to, certain segments of the series made great sense to me and seemed helpful in increasing motivation and focusing goals. Overall, I was sufficiently impressed with Faulkner’s tape series to schedule another trip to Chicago to interview him.
A portion of NLP is concerned with studying the cues people provide through their gestures, eye movements, language, and voice into-nations. Faulkner has obviously had a great deal of experience honing these interpretative skills, and he struck me as being extremely perceptive. He had thoughtfully arranged for the use of a private conference room in a hotel near the airport in order to maximize our time together.
You’re a Neuro-Linguistic Programming trainer. That’s not going to mean very much to most readers of this hook. Let’s start with a layperson’s definition of NLP.
Actually, Natural Learning Processes might have been a better name. NLP’s principal cofounders, Richard Bandler, an information scientist, and John Grinder, a professor of linguistics, define NLP as the study of human excellence. NLP studies great achievers to pinpoint their mental programs—that is, to learn how great achievers use their brains to produce results. They began their study with extraordinarily talented therapists—individuals who consistently produced positive changes in the lives of others. Succeeding there, they went on to study talented people in other fields—managers, negotiators, athletes, and artists—to find what those individuals did to get their outstanding results. The models of the natural learning processes these people used to become extraordinary in their fields can be used by anyone wishing to excel.
To understand how NLP works, let me make an analogy to the beginning of modern skiing. Until the 1950s, most people thought skiing was a matter of natural talent. You either had the talent to do it, or you didn’t. Then something happened that changed the sport forever. Films were made of some of Europe’s great skiers to identify all the movements that characterized them. It was found that they all had certain techniques in common. Beyond that, it was discovered that the techniques of these exceptional skiers could be taught to anyone. All kinds of people could learn to he very good skiers. The key was to identify the movements that made a great skier—the essence of their skills—so it could be taught to others. In NLP we call that essence a model. The same basic principles can be applied to any other endeavor or to various aspects of human interrelationships. I like to describe NLP as software for the brain. It provides mental programs that allow you to develop new abilities and have more of the kinds of experiences you want.
As evident by NLP’s middle name, linguistics plays a pivotal role. I’m not at all clear how linguistics can dramatically affect behavior. Can you give me an example?
How do our brains process language? The answer is very, very literally. People often say things like, “Don’t worry” or “Don’t think about it.” What happens if I tell you not to think about a problem? Well, despite what I said, you’ll think about that problem. That’s because our brains cannot understand putting something in negative language. In order to know what not to think about, our brains have to first think of it.
Consider the example of experienced traders telling new traders, “Don’t think about the money. Remember, don’t think about the money.” Although that may sound like good advice, what’s going to happen? The new traders will repeat that phrase to themselves until they are literally obsessing about the money.
Because of the way our brains process language, which is literally, NLP recommends taking negative thoughts and stating them in positive terms. Instead of saying what you don’t want, state what you do want. Instead of advising a trader, “Don’t think about the money,” it would be far more effective to say, “Focus your attention on following your method.”
What are the basic principles of NLP?
NLP is based on principles different from those in psychology. Five essential principles or presuppositions guide NLP. The first is: The map is not the territory. The map is our thoughts and feelings; the territory is reality. We respond to our thoughts and feelings about reality; we don’t respond to reality. This is good news because it means that it is possible to get a better map—a better way to think and feel.
The second fundamental principle of NLP is: Experience has a structure. In other words, the way in which memories are arranged in our minds determines what they will mean and how they will affect us. If we can change the structure of our memories, we will experience those events in our lives differently. Change the structure of our thoughts and our experiences will change automatically.
The third major principle of NLP is: If one person can do it, anyone else can learn to do it. This is the great promise of NLP. Excellence and achievement have a structure that can be copied. By modeling successful people, we can learn from the experience of those who have already succeeded. If we can learn to use our brains in the same way as the exceptionally talented person, we can possess the essence of that talent.
The fourth basic principle is: The mind and body are part of the same system. If you change your mind about something, your abilities will change. If you change your posture, breathing, or other parts of your physiology, your thoughts will change. The great psychiatrist R. D. Laing used to say, “Change your mind, change your body. Change your body, change your mind.”
The fifth principle is: People have all the resources they need. In NLP, an image, a sound, or a feeling is a resource. Our brain has the ability to see inner pictures. Whether these pictures begin as fuzzy or clear, they can be built up into great motivating visions. Inner voices can criticize us or they can encourage and guide us. Any feeling we’ve had in our lives—confidence, challenge, indomitable will, whatever it is—even if we’ve only had it once, can be transferred to any situation in our lives where we want or need it.
When you say, “The map is not the territory,” do you mean that people have distorted views of reality that lead them astray?
NLP believes that all maps (mental and physical) are a distorted, or selected, view of reality. A topographical map, a street map, and a weather map all provide different views of the same territory and all are true representations. Usefulness, rather than truthfulness, will guide you to want a different map at different times. The different forms of market analysis can he seen as different maps of the same territory. Outstanding traders seek to have maps that most closely match the market territory in a way that is useful for them.
Of course, not all maps are true or useful. Let me offer one example that is particularly significant for traders. It relates to the statistical concept of regression to the mean. This mathematical phenomenon implies that if you do extremely well, you’re likely to do more poorly the next time, while if you do very poorly, you’re likely to do better the next time. This pattern is an inevitable consequence of the law of averages and tends to skew traders’ perceptions and evaluations of their own performance.
For example, if a trader does very well in one period and only average in the next, he might feel like he failed. On the other hand, if the trader does very poorly in one period, but average in the next, he’ll probably feel like he’s doing dramatically better. In either case, the trader is very likely to attribute the change of results to his system or his feelings rather than to a natural statistical tendency. The failure to appreciate this concept will lead the trader to create an inaccurate mental map of his trading ability. For example, if the trader switches from one system to another when he’s doing particularly poorly, the odds are that he’ll do better at that point in time even if the new system is only of equal merit, or possibly even if it is inferior. Yet the trader will attribute his improvement to his new system. In contrast, supertraders understand the concept of regression to the mean and use it to their advantage instead of being misled by it.
Incidentally, the same phenomenon also explains why so many people say they do better after they have gone to a motivational seminar. When are they going to go to a motivational seminar? When they’re feeling particularly low and inactive. In a sense, it doesn’t matter what the presenter does, because statistically, on average, these people will do better in the period afterwards anyway—whether or not they attended the seminar. But since they did, they’ll attribute the change to the seminar.
In the seminar example you just cited, isn’t it also possible that people will feel and perform better because of the placebo effect? For that matter, isn’t it possible that the results attributed to NLP may also be a placebo effect?
In part, this contention may be valid, and it fascinates me that this is supposed to be a criticism. Medical science researchers take the view that the placebo effect is something had. You can hear it in their language: “We have to rule out the placebo effect.” However, Bandler and Grinder looked at it differently. They saw the placebo effect as a natural human ability—the ability of the brain to heal the rest of the body. This actually presents exciting possibilities. What if this ability can be called forth when we want it or need it’? What if our brains can literally make us feel better’? NLP is concerned with results. If the favorable results are partially due to the placebo effect—that is, the natural ability of the brain to affect how we feel, heal, and function, mentally and physically—let’s use it deliberately.
NLP makes claims of being able to change behaviors and feelings very quickly through simple mental exercises. Can you give me an example of such an exercise in order to give readers who are completely unfamiliar with NLP some flavor of the approach?
Let me offer an example that will probably be of use to most of your readers. We’ve all been in trading situations where the market moved dramatically against our position. The question is: How unsettling or disconcerting was it? What happens when you’re in a similar situation a couple of weeks or even a couple of months later? If you begin to experience some of the same unsettling feelings just thinking about it, you’ve conditioned yourself just like Pavlov’s dogs. This is what NLP calls “anchoring.” If these feelings are disturbing your trading decision concentration, use the following NLP technique to neutralize them.
Quickly go through your movie of that disturbing situation and pick out one frame, like a still photograph, that symbolizes for you the whole disappointment. When you’ve found it, notice whether you see yourself in that still snapshot of that time. That is, do you see that earlier you, dressed as you were back then, in that photo? You probably won’t, and this is usually the case. So in your mind’s eye, begin to pull back so that more and more of the scene becomes visible, until you can see your earlier self in the scene.
Imagine that scene rendered in the style of a famous painter, as if it were a Renoir, a van Gogh, or even a Lichtenstein. Now consider what kind of frame might be most appropriate around this picture. Perhaps a big old-fashioned gold frame might seem right, or maybe you’ll choose a modern steel frame. You might even want to add a museum light. Take a moment to appreciate this picture as one of the framed memories in your mind. Now notice your feelings about that time. Most people will find that their disturbed or anxious feelings have been greatly reduced, or even completely eliminated. This NLP process detaches our emotions from the memory. It’s like an emotional reset button and provides a real-world example of the NLP principle: Experience has a structure. By changing the structure, we change the experience. Taking just the few minutes to do this exercise will allow a trader to regain his emotional objectivity.
Another way to change disturbing memories is to do the following: Think of that incident of disappointment and run it back to the beginning, like it’s a movie. Now put on circus music, or the William Tell Overture, better known as the theme to the “Lone Ranger” TV series. Any rich, compelling music will do, especially if it mismatches the emotions of your memory. Pick a tune, and start it playing nice and loud as you rewatch that incident in a new way. Once the memory has played through to its end with the music, then rewind it to the beginning. Now play that scene again without the music. Notice your response to it this time. For some people, the incident has become humorous, even ludicrous. For many, the previous feelings of disappointment have been neutralized, or at least greatly mitigated.
Obviously, one approach is more visual and the other more auditory. Depending on whether a person has a stronger visual or auditory sense, one of these two approaches will work better than the other.
Good, that helps clarify the type of process involved. Give me another example.
The following is an example of how to transfer feelings of confidence (or for that matter any emotional state) from one time of your life to another. As with many NLP techniques, the following will work more deeply and completely when done in a relaxed, interruption-free environment.
There are many times in your life when you’ve felt confident. Go back in your memories to a particular time when you felt abundantly confident. Relive the moment, seeing what you saw and hearing what you heard. As you begin to reexperience that confidence and feel it building, imagine a colored circle on the floor around you. As the feeling gets strong, exhale as you step out of the circle, leaving those confident feelings inside the circle. (I am fully aware that these sound like strange instructions.)
Now think of a specific time in the future when you want to have that same confidence. As you begin to think about that specific future time and place, step back into the circle and spontaneously feel those confident feelings again. You have just anchored together that future time and your feelings of confidence from your past. To test whether this has worked, think of that specific future time. You’ll feel some of that confidence as you do. This feeling is now automatic and will be there without your thinking about it when that future situation arrives. This exercise can be repeated for as many different future occasions and as many different feelings as you would like.
Why doesn’t success bring happiness? What does?
I think it’s because people base their ideas of success on outdated models or patterns of what it means to be successful. For example, someone might have the idea that in order to be successful he or she must have a certain kind of house, a certain kind of car, and a certain kind of spouse. They’re using those things as evidence for whether they are a success, but they’re leaving themselves out of the picture. They don’t ever actually step into that picture and ask, “Do I really want to live this type of life?” So I recommend that people not merely visualize what it would be like to actually live the type of life they are trying so hard to achieve, but to step into that life and mentally experience several weeks or months. When people do this exercise, they may find there are things they want to change, and I recommend they make those changes. After all, since they’re working so hard for this future, it ought to be one they’ll enjoy when it arrives.
Are you saying that the reason people don’t find happiness after achieving their goals is because they have the wrong goals?
It’s because they aren’t going for goals that will fulfill them. They’re striving for goals that society, or their family, or the media told them to have. We are inundated with all these images of how we’ll know whether we are successful. For example, what is valuable in this culture in a spouse? We know the answer from all the advertisements we see—someone who is young and attractive. But what else is important? I think people sometimes get lost; they don’t explore what success means for them.
How can people identify what goals would make them happy?
One NLP exercise that deals with this question is having people imagine themselves at the end of their lives. Some people are reluctant to do this exercise, but when I tell them to go ahead and imagine that it’s been a very long, healthy, and active life, they’re more willing to try it. Then I ask them to look back on what they have accomplished, and see whether they wish they had done something else or something more. Although it’s a mind trick, by adopting this end-of-life perspective, unconscious expectations are revealed, and people find it easier to make an assessment about what they really want to fill their lives. I ask my clients, “What is really worth the time of your life?”
The idea for this exercise came out of an experience I had when I was in college. I worked as an orderly in a hospital ward that typically had lots of elderly patients. Over the course of three years, I spoke to hundreds of people who were near the end of their lives. I asked these people how their lives had been, what they liked about their lives and what they regretted, if anything.
What did you find out?
I found out that falling in love at nineteen was important. I found out that the willingness to take risks into the unknown, like leaving one’s small hometown, was important. On the other hand, just simply retiring because of age was something many of them felt was the biggest mistake of their lives.
One thing that really struck me was that not one of these people said they truly regretted anything they had actually done—what they regretted was what they hadn’t done. They regretted that they had wasted their lives on petty pursuits. They hadn’t identified their important values and then done everything they could to fulfill them. The lesson I learned from this experience was the same one emphasized years later in NLP: If we don’t live true to our values and fulfill them, we experience disappointment and emptiness.
How do you know whether the goals you’re pursuing are the ones that will fulfill your values?
It’s useful to think in terms of a mission. A mission isn’t something you force on yourself or construct out of your current concerns; rather, it’s something that you discover within. As John Grinder once asked, “What do you love so much that you would pay to do it?” If you don’t have strongly held values, it will be hard to clearly define a mission, and you will have little motivation to achieve your goals. However, if your goals support your values and you have a clear sense of mission, then your motivation will be equally strong.
Is strong motivation a common characteristic of traders who excel?
Strong motivation is a common characteristic among those who excel in any field. There are two different types of motivation, or what NLP calls two directions of motivation: either toward what we want or away from what we don’t want.
For example, consider how people respond to waking up in the morning. When the alarm goes off, one person might mumble to himself, “Oh no, let me sleep just a little longer,” and hit the snooze button. Then when the alarm goes off again, and he sees pictures of himself rushing to get ready for work, he thinks, “No big deal, I’ll wear the same clothes as yesterday and skip breakfast,” as he hits the snooze button another time. When the alarm goes off a few minutes later, his brain begins showing him pictures of getting to work late and having to explain it to his boss. He decides he’ll drive to work faster and goes back to sleep again. But when the alarm goes off the next time, his inner voice says, “You must get up!” He sees pictures of his clients waiting impatiently and his boss yelling and screaming, threatening to fire him. When these pictures in his mind’s eye become big enough, bright enough, close enough, and loud enough, then he says, “OK, I’ll get up.” He’s finally motivated.
Another person, when he hears the alarm go off in the morning, thinks about all the great things he’s going to do that day. He sees himself accomplishing new goals and wakes up raring to go. This person is also motivated. In fact, he probably wakes up before the alarm.
The person who wouldn’t get up until he saw images like his boss yelling at him has an “Away From” motivational direction. His motivation is to get away from pain, discomfort, and negative consequences. He probably picks friends who won’t bother him. He’s not likely to make a career move until he can’t stand his job anymore. He moves away from what he doesn’t want. The person who can’t wait to get out of bed has a “Toward” motivational direction. He moves toward pleasure, rewards, and goals. He probably picks friends who stimulate him. He makes career moves to reach bigger opportunities. He moves toward what he wants. People can have both types of motivation—Away From and Toward—but most people specialize in one or the other. They are very different ways of getting motivated, and both are useful in different situations.
The benefits of Toward motivation seem pretty obvious, but how would an Away From motivation be beneficial?
Your question reflects a common perception. The benefits of Toward motivation are more obvious. People who move toward goals are greatly valued in our society. You can see it in the language of the Help Wanted ads, which liberally use terms such as “self-motivated” and “go-getter.” However, the Away From direction of motivation has gotten a bad rap. Another way of thinking about this motivation is that it is away from problems. Many people who use Away From motivation are problem solvers. You can hear it in their language. They’ll say, “Excuse me, but we have a problem here.” They see a problem and have to solve it. Sometimes they get so involved in the problem that they may forget where they are going, but they will solve the problem. The Toward motivated people are so motivated toward their goals that they might not even consider what problems they might run into or what difficulties to prepare for along the way. Therefore, both types of motivation are useful.
Are you implying that people with Away From motivation are likely to be as successful as those with Toward motivation?
That’s right. The Toward motivation may be enshrined in success magazines, but the less appreciated Away From motivation individuals can also be very successful. A perfect example is Martin Zwieg, the famous stock forecaster. He manages over a billion dollars in assets. His stock letter and books are among the most respected in the industry. When Zwieg talks about strategy, he says, “DON’T fight interest rate trends. DON’T tight market momentum.” He uses Away From motivation to minimize loss. Many outstanding traders reveal an Away From motivation when they talk about “protecting themselves” or “playing a great defense.” They’re only willing to take so much pain in the market before they get out. As Paul Tudor Jones said in your interview, “I have a short-term horizon for pain.”
Certainly there must be some disadvantages to having an Away From motivation.
Sure. People who are motivated away from things often experience a lot of pain and worry before they are motivated. If they let the stressful anxiety level get too high, it will affect their health. Stress management classes are filled with these people. It would be more useful for them to learn to accept less pain before taking action than to learn to manage it better. Also, the further away they get from the problem, the less serious it appears, and hence they lose some of their motivation. As a result, Away From motivation tends to run hot and cold. Finally, people with Away From motivation won’t necessarily know where they’re going to end up because their attention is on what they don’t want, not on what they do want.
Do successful traders tend to have one type of motivation versus the other?
Very often they come in with a developed Toward motivation—toward success, toward money—that’s why they got into the markets in the first place. However, those that are primarily Toward motivated must spend the time and energy to develop the Away From motivation required for proper money management. In my studies of traders I’ve found that it’s nearly impossible to be a really successful trader without the motivation to get away from excessive risk.
Obviously, motivation is critical to achieving goals. Is that the only critical factor, or is there more to it?
NLP research has shown that five conditions must he met in order for a goal to be achievable. First, the goal must be stated in positive terns. It’s not getting rid of something—for example, “I don’t want to lose money.” Rather, it needs to be stated in positive terms—for example, “I want to protect my assets.” The second condition is that the goal needs to be yours. “They want me to trade larger,” is an example of a goal that does not meet this condition. Instead, if your goal is, “When market conditions warrant it, I’m going to double my trading size,” you’re much more likely to reach that goal. Third, the goal must be specific. Nothing ever happens in general. The more richly detailed the description of your goal—what you’ll see, hear, and feel when you get it—the better. The fourth condition adds the when, where, and with whom. The fifth condition for achieving a goal is anticipating the effects of the goal. Is it worthwhile and desirable in itself and in its effects? This brings us full circle to having goals we really want and that will fulfill us.
The very first condition you stated as critical in achieving your goal is that the goal be stated in positive terms. Wouldn’t those with Away From motivation have difficulty in fulfilling this condition?
The underlying motivation may be one of getting Away From something negative, but the goal can still be stated in positive terms. For example, someone’s motivation for being a successful trader might be to get away from poverty. So the goal might be to set a personal record in profits for the coming year. An Away From motivation and a positive goal can work together to provide thorough motivation and outstanding results.
How did you first get involved in working with traders?
In 1987. I was approached by Steve Bianucci, a young Treasury bond floor trader who was working with Pete Steidlmayer’s Market Logic School [Steidlmayer has since left the school] and looking to make the transition from the floor to position trading. He wanted to know if NLP could be used to build a working model of a great trader. I was intrigued by his question, and it served as the catalyst for a research process that is still ongoing.
What kind of research?
Observing great traders to construct a model of trading excellence.
Wasn’t it difficult to gain access to such traders? I have trouble imagining that many of them would willingly agree to be the subjects of extended observation and modeling.
In the case of floor traders, such as Tom Baldwin [a phenomenally successful T-bond floor trader profiled in Market Wizards], direct observation was quite easy, requiring nothing more than access to the trading floor, which I got. In the case of Pete Steidlmayer [a highly successful futures trader and the inventor of Market Profile—an analytical methodology that relies heavily on the study of intraday volume], he offered classes and I was able to observe him directly. Finally, in the case of some supertraders, the observation was one step removed—watching video tapes of their trading and listening to their talks or interviews. Jimmy Rogers, Paul Tudor Jones, and Richard Dennis [three of the best traders of our generation, who were also profiled in Market Wizards] fall into this last category. I later saw Dennis on a futures industry panel that you moderated and determined my inferences about his trading strategies and emotional management style were accurate.
Can you give me a typical example of a trader who came to you for help?
I recently worked with a man who is a good trader. However, every time he gets ahead, he ends up giving back a good part of his profits. While I was working with him, it came out that he knew lots of traders who made money but who, in his words, were “not wonderful human beings.” He wanted to be successful as a trader, but he was worried about becoming like them. His unconscious solution to the problem was to not become too successful.
His beliefs also had a very restricting effect on his personal life. He thought that he had to put trading first—that trading meant that he couldn’t have a personal life or a family. Using NLP to change those beliefs helped evolve that part of himself that he had mistakenly thought was sabotaging his trading. This was a particularly gratifying experience for me, because I saw him reclaim a part of his life that he thought he couldn’t have as a trader.
He recently called me to say he had tripled his position size to over a thousand contracts. By resolving his inner conflict, he freed up mental power to better watch for opportunities and improve his trading.
What differentiates those who excel at trading from the vast majority of traders?
One critical element is beliefs. In his book Peak Performers, Charles Garfield reported that the key element these individuals share is a total belief in the likelihood of their own success. Contrast this with Dr. Michael Lerner’s research, published in his book Surplus Powerlessness, in which he found that most people feel that they have very little power over their lives. He based his conclusions on thousands of interviews conducted with people from a wide cross section of occupations. This general contrast between peak performers and the majority of the population serves equally well in explaining an essential difference between the outstanding traders and all other market participants. The supertraders have an absolute confidence in their ability to win—a confidence confirmed by competence in the markets. Contrast this with most traders who lack confidence in their system or approach and the typical tendency of many traders to blame others (their broker, floor traders, and so on) for their results.
Beyond confidence in their own success, what are some of the other characteristics of successful traders?
Another important element is that they have a perceptual filter that they know well and that they use. By perceptual filter I mean a methodology, an approach, or a system to understanding market behavior. For example, Elliott Wave analysis and classical chart analysis are types of perceptual filters. In our research, we found that the type of perceptual filter doesn’t really make much of a difference. It could be classical chart analysis, Gann, Elliott Waves, or Market Profile—all these methods appear to work, provided the person knows the perceptual filter thoroughly and follows it.
I have an explanation as to why that may be the case.
I’d certainly be interested in hearing it.
I believe a lot of the popular methodologies are really vacuous.
[He laughs.] Aha! That’s a pretty provocative statement. You’ve got my attention.
All these technical methods are based on price. In effect, they’re all different-colored glasses for looking at price. Proponents of RSI and Stochastics (two popular overbought/oversold indicators) would see price patterns filtered through these price-derived series. Gann analysis enthusiasts would see the price patterns through a Gann-based interpretation. In these cases and others, traders accumulate experience on price patterns—albeit from different perspectives. Some of the methodologies employed, however, are probably totally worthless. It’s simply that instead of looking at prices through clear glass, traders who use these methods are looking at prices through different-colored tints. The method, or tint shade, is a matter of individual preference. To extend the analogy, I would compare these methods to nonprescription sunglasses: they change the view but don’t necessarily improve the vision. The bottom line is that these methods seem to work only because the people who use them have developed some sort of intuitive experience about price.
That actually fits pretty well with my own view. People need to have a perceptual filter that matches the way they think. The appropriate perceptual filter for a trader has more to do with how well it fits a trader’s mental strategy, his mode of thinking and decision making, than how well it accounts for market activity. When a person gets to know any perceptual filter deeply, it helps develop his or her intuition. There’s no substitute for experience.
What other characteristics typify successful traders?
Another important element among traders who excel is that they have an effective trading strategy. I’m using the word “strategy” in an NLP sense, meaning a series of internal representations, mental pictures, words, and feelings, leading to a desired outcome: winning trades. One trader can act decisively, while another may be paralyzed by indecision. The difference lies in their strategies.
I’m afraid you’ve lost me. In your use of the word, what typifies the strategies of successful traders?
An effective trading strategy will have the following characteristics. First, it will be automatic. Given a specific situation, the trader will know what to do without second-guessing himself. Second, a good strategy will be congruent—that is, it won’t create any internal conflict. Third, the strategy will incorporate Away From motivation by including some specific risk control plans. Fourth, part of the strategy will involve imagining the trade from the perspective of already being in the position and considering what might be wrong with the trade before putting it on. Fifth, an effective trading strategy will provide specific evidence that will allow the trader to evaluate the merits of a trade.
Are there any other characteristics common to successful traders?
Management of one’s emotional state is critical. The truly exceptional traders can stand up to anything. Instead of getting emotional when things don’t go their way, they remain calm and act in accordance with their approach. This state of mind may come naturally. Or some people may have ways of controlling or dissipating their emotions. In either case, they know they want to be emotionally detached from feelings regarding their positions. When a position is going against him, Pete Steidlmayer’s attitude appears to be: “Hmm, look at that.” He observes his own positions with scientific detachment. By staying calm, outstanding traders get the necessary feedback to determine whether or not their approach needs to be revised.
Is having the proper emotional state an intrinsic quality? Or can it be learned?
Both. Some outstanding traders just appear to he that way—they have a natural scientific detachment—while others have learned to exercise a military-like control over their emotions. Either approach will work, but these traders are the exceptions. Trading actually tends to attract people who are ill suited to the task—those who are enamored with making lots of money; people who are willing to take high risks; individuals who seek excitement or who react to the world with emotional intensity.
How do you teach these types of people to adopt the kind of mental state appropriate to successful trading?
One thing I do is to have them actually get up, step back, and imagine seeing themselves sitting in their chairs. I get them to calmly watch as if they were observing someone else doing the trading. I also have them do other NLP exercises that are designed to achieve the same goal.
And just doing this type of simple mental exercise is sufficient to create permanent behavioral changes? For example, are you implying that previously high-strung traders will automatically respond calmly in crisis situations, simply by virtue of having done such mental exercises?
If someone is very high-strung, it means he’s particularly emotional, and it may take more work to make sure the results stick, but overall, the answer is yes. I know that it sounds hard to believe, but our brains learn very quickly. If you change the way the brain perceives a situation, you will change the way it will respond to that situation forever.
Of course, sometimes there are other conflicting considerations. One of my earliest clients was a very emotional trader who had a successful system but couldn’t follow it. I taught him some techniques for emotionally detaching from the market. I watched him applying these techniques one day, and it really worked. In just a few hours, he was up $7,000. But just as I was savoring a sense of self-satisfaction, he turned to me and in a monotone voice said, “This is boring.” I thought to myself, Uh-oh. I would like to say that I helped him solve his problem and that he made millions of dollars and lived happily ever after. No, the guy blew out. He knew how to go into an emotionally detached state, but he didn’t like to be there.
This experience taught me that some people are in the markets because they like the excitement. Since then, I’ve learned to help people who have that need for excitement to find it in other places in their lives and to schedule it, so their brain gets the idea that this process is not about denial but about appropriate times and means of expression.
Anything to add regarding traits that differentiate winning from losing traders?
A final critical characteristic distinguishing winning traders from losing traders relates to what I’ve termed “operating metaphors.” An operating metaphor determines how we view the world, and it shapes our beliefs, actions, and life-styles. Some of the metaphors used by traders to describe the market are a woman, war, and a game, to name a few of the more common ones. As an example of the game or puzzle-solving metaphors, Richard Dennis says, “It’s like playing a hundred chess games at once.” Pete Steidlmayer says he’s “solving the markets.” Paul Tudor Jones sums it up with, “It’s a game, and money is a way to keep score.” Each operating metaphor will lead a trader’s brain to a different set of beliefs and a different approach to the markets, with some being more effective than others.
Contrast the metaphors I just cited with some of the operating metaphors I’ve typically heard around the trading floor. “I got torn up today,” makes the market into a beast of prey. “We took a hit” reflects thinking that the market is a war and the speaker a wounded participant. Which metaphor will result in your feeling more objective about the market—playing a game, even a high-stakes game, or defending yourself from an attacking wild animal? The answer is obvious. The difference is in what is suggested by the metaphor. In the game, there are winners and losers, but your survival isn’t at stake, as it is with being attacked by a wild animal. You may respond brilliantly to save yourself from the beast, but that metaphor doesn’t encourage you to learn and practice long-term strategies and tactics the way a game does. Having an operating metaphor appropriate to your trading style is fundamental to success.
Can you tell who will be a successful trader and who will not?
Yes, based on how well they match the profiles of successful traders in regards to the areas just discussed: beliefs, perceptual filter, strategy, emotional-state management, and operating metaphors. On a less technical level, I can say that after years of studying traders, the best predictor of success is simply whether the person is improving with time and experience. Many traders unconsciously acknowledge their lack of progress by continually jumping from one system or methodology to another, never gaining true proficiency in any. As a result, these people end up with one year of experience six times instead of six years of experience. In contrast, the superior traders gravitate to a single approach—the specific approach is actually not important—and become extremely adept at it.
What is NLP’s view of the relationship between the conscious and unconscious minds?
The property of the conscious mind is to reflect on things. “Am I where I want to be?” “Is this a good trade?” In other words, it’s concerned with evaluation. It’s not the property of the conscious mind to change things. To offer you an analogy, when I lived in Colorado, I had a friend from the East visit me. One day, I suggested that we go horseback riding. We rented horses from a stable. I don’t know if you’ve ever rented horses from a stable, but the horses know the paths, and they also assess the experience of the rider when he gets on. I had a little experience; my friend had none.
We got on our horses, and they began to trot. Off in the distance, there was a line of trees in front of us. The closer we got to the trees, the faster the horses began to run. I knew exactly what was going on. The horses were planning to knock us off by running through the trees and then go back to the stables and take the rest of the day off. I ducked down as my horse and I went through the trees. Meanwhile, 1 heard this “thump” behind me. I pulled my horse around, and there was my friend lying on the ground, half a dozen yards before the trees.
“Are you OK?” I asked.
He was kind of embarrassed and said, “Yeah, I’m alright.”
“What happened?” I asked.
“The stupid horse was going to run into a tree, so I had to jump off,” he replied.
Now here is someone who has obviously mistaken horses for cars. The conscious mind is like the rider. It evaluates the direction the horse is going. If the horse, or the unconscious, is not going where we want it to go, it doesn’t mean that it’s bad, or not following instructions, or about to run into a tree. It means that the unconscious has its own programs and is running them the best it can based on all its history and habits just like that horse had the habit of knocking people off and going back to the stable.
With NLP, you can direct your conscious mind to notice when you’re not where you want to be. What’s more important, you can use NLP techniques to effectively introduce new patterns into your unconscious mind to bring about the changes you desire, instead of complaining or making up any one of a thousand reasons why you aren’t where you want to be in your life.
We talked earlier about taking the time to examine your goals—to make sure that they are indeed the goals you want and if they’re not, changing the direction of your efforts accordingly. Assuming a person has done that, do you have any advice on how to best transform those goals into a reality?
I can best answer that question by relating the experience of Gary Faris, an NLP trainer and colleague. Gary’s study of this very question grew out of a compelling personal experience. Gary is an avid runner. Several years ago, while running down a farm road in California, he was hit by a pick-up truck. His injuries were so severe that the emergency room doctors weren’t sure he would even live. When he survived after the first two of the six operations he would eventually undergo, the doctors said that the only reason he had made it was because he was in such good physical condition. They told him that he would never walk normally. and certainly never run again.
Over the next two years, Gary was in sports rehabilitation. He rebuilt his body, overcoming the pain. Today, he runs regularly and is the fittest trainer working for NLP Comprehensive [one of the first and foremost NLP training organizations’. Needless to say, the doctors were astounded. However, they were making their assessment based on the statistical evidence of similar cases. They didn’t realize that Gary Faris had made himself into an exceptional patient.
Right after his accident, Gary began studying sports injury rehabilitation. He searched for the core characteristics of those athletes who had gone through successful rehabilitation. He examined their mental attitudes. He found that six basic mental patterns characterized all these people.
First, these athletes used both motivating directions. In other words, they were both moving toward and away from consequences. In this way, these athletes were utilizing their maximum motivation.
Second, these athletes were absolutely dedicated to regaining full strength and health. This standard became their guiding goal. Anything less was unacceptable. In fact, many of them not only wanted to regain full strength and health, but they strived to get in even better shape than they were before their injuries. They knew their capabilities and wouldn’t accept anything less. These athletes knew they would succeed.
The third key element that these athletes had in common was that they approached their rehabilitation one step at a time. If you contemplate achieving a major project, such as overcoming a terrible injury, it’s intimidating to think of the entire task all at once. However, if you can take it in chunks, or individual steps, you’ll complete it. Each step becomes a new goal. For Gary, he had to survive before he could walk; he had to walk before he could run. Gary and the other athletes he studied derived great satisfaction from completing each step. Thus, they experienced succeeding at each of the milestones along the way to a major goal of full strength and health.
The fourth key element related to the way in which these recovering athletes perceived time. They were in the moment. In other words, they succeeded because they focused on the present. If, instead, they had focused too far into the future, it would have been easier to fall into a negative orientation by questioning whether they would achieve their ultimate objective.
The fifth element of their positive mental attitude was involvement. The more the athlete helped himself—even doing something as simple as placing ice on an inflamed area—the more complete and faster the recovery. When you participate, you feel you can influence what’s going on, and that makes you more determined and aggressive.
The sixth and final key element was related to how the athletes judged their individual performance and progress. People have a natural tendency to compare themselves and their actions with others. This type of thinking begins at an early age and becomes more ingrained as we become adults. It is critical that recovering athletes not fall into this mental habit. Because of their injuries, they would compare poorly and would likely become discouraged. The successful athletes looked solely at their own progress. They made self-to-self comparisons. They asked themselves questions like, “How far have I progressed since last week, or last month?”
Incidentally, teaching kids to make self-to-self comparisons is one of the greatest gifts parents can give them. Let them know that in any endeavor they engage in, there will always be some people who are better and others who are worse. What is important is our own progress. By adopting this mental attitude, it’s possible to look at other people’s accomplishments as inspiration and models of excellence as opposed to targets of envy.
When these six elements are combined, they create a compulsion to succeed. In subsequent research, I found that these six core characteristics provided the basis of any positive mental attitude. Whether I looked at athletes, entrepreneurs, or executives, the more confident their mental attitude, the more they used these same six elements.
You have become heavily involved in both NLP and trading. Do you see any similarities between these two endeavors?
Trading and NLP are like mirrors of each other. Trading is concerned with market patterns, and NLP is concerned with the patterns of the mind. Both deal with tangible, not theoretical, results. Traders are judged by their results—the money in their trading accounts—not the beauty or intricacy of their market theories. NLP practitioners are judged by their results—clients quickly achieving the changes they are seeking in their lives—not the originality or insights of NLP theories about how the brain works. NLP seeks to model human excellence, and trading is an activity in which excellence is required for success, since only a small minority can win. I have been drawn to NLP and trading because I like the emphasis they both place on real-world results and excellence.
Does NLP work? My personal view on this question matters little because it would represent only a sample of one. There is certainly a tremendous amount of anecdotal evidence supporting the efficacy of NLP techniques. However, rigorous, double-blind scientific tests are in short supply. No doubt the paucity of hard scientific experimental evidence is due to the extreme difficulty of measuring the results of NLP, which deal largely with feelings and beliefs. However, one of the hallmarks of NLP is that it virtually guarantees quick results. Therefore, if you try NLP in one of its forms (books, tapes, seminars, or one-on-one sessions), you should be able to make a fairly quick determination of whether the approach has any validity for you.
The broader questions of NLP’s merits aside, I did find certain aspects of Faulkner’s message compelling. First, I found the concept of mission a highly useful mental construct for focusing goals and intensifying motivation. My listening to Faulkner’s tapes coincided with a surge in my personal efforts to further a commodity trading advisory venture and significant progress in that regard. I also think there is a great deal of merit to Faulkner’s list of the six key steps in achievement:
The above elements have important implications and applications to trading. As one example, the stress on self-involvement would imply that it is unlikely for people to succeed at trading by completely relying on someone else’s system. As another, the focus on self-to-self comparisons implies that traders should judge their progress based on their own past performance, not the performance of other traders.
The image that Faulkner paints of a successful trader is in stark contrast to popular perceptions. Most people probably think of great traders as the Evil Knievels of the financial world—individuals willing to take great risks, drawn to their calling by the adrenalin-charged excitement. According to Faulkner, nothing could be further from the truth. Successful traders have learned to avoid risk, not seek it. Moreover, very few of them trade for excitement. On the contrary, based on Faulkner’s observations, one of the hallmarks of successful traders is their ability to maintain a calm, detached emotional state while trading. They may get excitement in their lives, but it’s not from trading.
Many of Faulkner’s comments have relevance to more than just trading. Most people could probably benefit from the advice given by Faulkner and NLP to explore what success means for them. The one comment I found particularly striking concerned his conversations with hundreds of elderly patients: “Not one of these people said they truly regretted anything they had actually done. What they regretted was what they hadn’t done.”