conflict at all if I hadn’t formed an expectation of how fast a waiter should be in the first place.The overriding element here is that when any conflict would happen anywhere, I would ask about the other person’s point of view. Inso doing I would discover more about the nature of people and howthey come to see reality. It didn’t matter if I thought their view onreality was completely insane; it was actually the point of view I had tocontend with. My gifted ability was never the question. It never helpeda bit. It made no difference to the nature of the conflict either way.I’ll tell you one story that had its end result the same way no matter what I would have believed, or could have hoped for, and it nevercould have been any other way under any circumstances. I was on abusiness trip in New York. I had just finished a great dinner at Smith& Wollensky’s in Manhattan with some associates. It was a good walkback to the hotel. Everyone else took a cab back, but I had never beenin New York before and wanted to see a little of it. I convinced mypartner to walk with me. No sooner had the cab driven away, and wehad walked half a block or so, when that most clichéd New York tourist tragicomedy happened: We were mugged.This particular mugger was very good at “making” us as out-oftowners. He stepped out of the shadows and said something like, “Put‘em up, tourists.” There we were at gunpoint, a. 38 caliber. Ironically, itwas a Saturday night. I said to my partner (who had a camera with him),“Wow, it’s one of those famous New York muggers. Get a picture of mewith this guy, will you?” I swear that’s what I said. It just came out; I wasin a good mood. “I’m not kidding, funny man,” the mugger said. Hepointed the gun right at me and he was shaking it so bad I thought itwould go off right there. “First time for both of us?” I asked the mugger
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while I reached for my wallet. My partner gave him his wallet. He didn’thave to ask at that point. “You’re a regular riot,” he says. “Can’t wait tillyou’re on Broadway.” And that was it. Back at the hotel it was the topicof conversation for days. The bellboy actually said, “Welcome to NewYork.” The point is that no matter what I thought the guy was gettingmy money. End of story. The conflict created was going to be resolvedhis way. The rest was just how I chose to look at it.I’m not trying to oversimplify or draw any esoteric conclusionsabout the markets from all of this. What I’m trying to say is that atevery moment of every day we are constantly bombarded with conflict in many forms and levels of complexity. It’s all around us. We canchoose to consider its nature and effect on us or ignore it completely.We can choose to attach any meaning we want to anything that isgoing on around us—or in us. From that meaning we form conclusions about the nature of reality as we see it. In the case of the mugger,everyone who comes to New York to visit is a source of income. Tosomeone else he is a nuisance or dangerous. To the police departmenthe is what creates their jobs. To other muggers he is competition. To apriest he is “the reason Christ died.” To the activist he is a confirmation ofwhat activism is hoping to change. It goes on and on. But the realityof any of this for me is simply an act of conflict that taught me moreabout the nature of reality and to adapt to it. By “adapt” I mean notwalking anywhere in New York if I don’t have to.All of our actions have their basis in our perception of reality andhow we have chosen to adapt to it. If you don’t want your water turnedoff, pay the bill. So why do people get their water turned off ? Whenthey have the $20, they spend it some other way that for them hasbecome some kind of priority for some reason of their own. The conflict is resolved one way or the other. If you don’t want that conflict, gowithout water in the first place. That will create a whole different set ofpotential conflicts. That doesn’t matter to the reality the water department feels compelled to operate under for reasons of its own.When I considered that any number of realities could coexist, andthat all had value, I was in a position to see things that I never couldbefore. It broke down the barriers between my own reality and everyone else’s. It opened up a whole different set of possibilities that werenot there before. In doing so I came to understand my fellow man and
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what matters to him. He could show me something that I had neverconsidered. I could offer possibilities to him he couldn’t see for himself.Can you see where this would create friendships that were not possiblebefore? How about opportunities for individual experiences that werenot possible before? The list is endless.Here’s an example: I was on the beach here in Chicago one weekend. There was a very attractive woman there with two male friends.One woman, two men. Either they are all friends, or she is dating oneof them, or something else. I watched for a while; I couldn’t hear whatthey were saying. Every now and then their field of view would crossmine. I just watched. Eventually, I had to know what was happening, ifanything was happening. Stop for a minute and ask yourself what youare thinking so far and why. Speculate on what I was thinking. Speculateon what they were thinking. Take a minute and do that before I tell youwhat was actually happening. Done that? You ready?They were part of a film crew shooting a movie in town. Theywere all married (no chance with the woman). They were on their dayoff. They had a call for extras and needed someone about my heightand complexion. The only reason they mentioned this to me wasbecause I walked over and said hello. They weren’t going to “bother”me. Would I like to be in the movies? She thought it was “sweet.”I thought she was attractive. They didn’t know where to go for dinner,could I suggest a place? How about I take all four of us out? The nextday, I meet a famous actor. I meet a famous Hollywood director. I askabout what kind of reality they are trying to create. They tell me. Trythis. It works. I contribute to a big movie. Just for fun. Never got paid adime. Didn’t want one.This would never have happened if my thinking had been something like, “That person is too involved with her boyfriend(s) to beinterested.” “I’ll just sit here” and create no conflict. Interested inwhat? My inflated ego? I’m trying to get laid? Would anyone care atall what I think? How would I know unless I asked? I simply placedno boundaries on any or every possibility and said, “Hello, you area very attractive woman. Are you three together in some way? AmI intruding?” I didn’t know if she or any of them would say “buzzoff ” or what they would do. I simply observed that something was
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happening that I knew meant if I went over to meet them I wouldcause conflict with whatever it was. How that conflict would beresolved, and what that would show me about my perception of whatI desired, was what concerned me. That I hoped to meet an attractivesingle woman was only my perception. What I discovered was a completely different set of realities that never entered my mind. Howmany people would say something like this, “Boy, you are so lucky.”“I would love to do something like that.” “That kind of thing neverhappens to me.” Of course it does, but your perception of what couldhappen doesn’t allow for it.You probably sat next to that director on the bus one day, butbecause he stepped on your toes trying to sit down next to you, he wasan “idiot.” Therefore, your reality was what it was of your own choosinginstead of some wonderful possibility of what it could be of your ownchoosing.The possibilities are endless. By changing my point of view toinclude everyone and everything, I became simply a mirror to others and their reality. Everything became possible because nothingwas impossible. The quality of life that can create is simply incredible.Borrow someone’s Lear jet for the weekend, have Wolfgang Puck cookyou dinner in your home, drive Mario Andretti’s Lotus, and the like.By seeing others as distinct and unique expressions of some heretoforeunknown reality, I was able to find all those people, experiences, andunobtainable knowledge that we are all looking for because it is withinthem in the first place. To see the true unalterable reality that surroundsus, you have to see that reality in little bits and pieces through the eyesof all of us who create it.So what am I saying? I have found God? No. I wasn’t looking forhim. I did find that His whole grand experiment is a playground that Ican participate on at any level I choose.Because I can create reality anyway I choose, I decided to let everyone else show me what they think it is and then be a part of that asa participant, without forming any reality on my own to compare itwith. Therefore all realities are mine, all possibilities are mine, and thatcan be anything. I walk the whole of life and anything it can offer youis already mine. I am the razor’s edge.
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I know what you are thinking. What does this have to do with trading?It has everything to do with trading. Let me postulate for you:
1. Everybody Wants the Same Thingfrom the MarketsThey want profits. They bring their cash to the table and play. Theywatch prices move. That movement means something to them. To oneperson it means one thing, to someone else it means something else—herein lies the potential for conflict.
2. Potential for ConflictThey look at the market in question and have to do something inorder for that market to pay them. They have one of two choices (actually three, but I won’t go into “staying out” as a profit—you wouldn’tunderstand that yet). They can buy or sell. They make that choice. Itmakes no difference how they came to that conclusion or what theytold themselves to justify their action. They did something and thatsomething was done—this is creating conflict.
3. Creating ConflictThe markets move for or against the position chosen by the executedtrade. This is the same for either position. Only one of those positionscan be profitable in any case.
4. Your Reality of the Situation is in Conflictwith Someone Else’sThis reality is either a profit or loss to you personally. Only one thingcan happen at this point as prices continue to move. Either someoneelse must accept that your reality is being validated, or you must validate someone else’s reality. How long this takes is not an issue.
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5. The Conflict Must be ResolvedEither you give up your position to someone else or he gives up hisposition to you. Because both of you chose to enter the conflict basedon how you personally chose to view the reality of your entry price,the fact is only one of you has the profit.
6. The Conflict is ResolvedNow start at the top again—until you are rich or broke, orsomewhere in between and you take your ball and go home.Whoever has the loss must pay the winner. It is too late to discoverwhy or how that happened. No amount of anything you could do canhelp. Your fate was sealed when you made the trade. The profit or losswas created at that moment. It was only a matter of time until oneor the other would ever walk away from the conflict with the profitand the other with the loss. You both accepted this when you got in,whether you knew it or not. The bill is due to one of you and the billis paid by the other. Nothing can change that. The markets will neverbe any other way.That is all there is to the markets. Period. End of story. Whetheryou choose to accept this or not. Whether you choose to believe itor not. If you have been paying attention to what I am getting at,this next bit will begin to make perfect sense. Because the reality ofthe market finds its expression, moment to moment, as a price thatmeans something different to everyone, then it follows as soon as someone chooses to do something—at any price—the reality of the personinvolved and the market having “agreed” in some fashion. Someoneelse thought it “agreed” with their point of view as well, but for different and completely opposite reasons. Because it is intrinsicallyimpossible for both to be right from that moment on forever (pleaseignore the market “coming back” for right now, please), it also followsthat one of you must not understand enough about what the marketcan only do from that point. It doesn’t matter which one it is becauseonly one thing can happen: The market is going to disagree with oneof you.
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Only one of you can be right in either case. Since you apparentlythink the winner will be you, what has led you to believe this?That “what leads me to believe it” thing, whatever it is, that littlesomething is why you lose. Ask yourself exactly what that little something is. Critically examine your thoughts and be brutally honest aboutwhat it is. Anything else will cause you to remain the loser, forever. Hereis the point you eventually need to get to. This is where I choose toremain every day. I don’t care what has to happen to remain in this place.The place you need to be is: “Who is the loser? I want to be the winner!” That is the only place to execute. You execute knowing it will be youbecause you know it can’t be him. Otherwise, why would you let himhave your money? The Art of the Trade is about understanding how theloser thinks so thoroughly that when he says, “Here is my money, wouldyou like it?” Your answer is, “Yes.” Anything else results in him eating you.Why give him the chance? It doesn’t matter why or how he concludedhe wants to give you his money. He decided he wanted to. Unless youare a bigger idiot than he is, you should take it. The Art of the Trade is theprocess of discovering this and doing it so well you are the traded highfor the day and the traded low for the day. When you execute, the market’s next trade is your way, and it never trades there again until maybeafter you liquidated at some point. It means discovering what the totalityof a crowd’s thinking “looks like” if it were a picture (which it is if youchoose to look at a chart).In my personal odyssey through this amazing activity, one thingbecame abundantly clear to me. By understanding how the vast majority of people really think when they create reality, or the tools they useto do it with, I found that most people do basically the same thingthe same way most of the time. I’m not talking about interpreting priceaction, I mean how they arrive at conclusions. Once you reach thatconclusion, you act on it. The thinking goes something like this: “I wantsomething. How do I get it? I should do such and such (it doesn’t matter what it is, the should part is the important thing). Where is my thingI want now?—that is, expectation of results. Here it is or isn’t.” Thiswhole process goes on within the current belief structure of the personin question. If they get what they want, they conclude it can only bebecause of the “should be doing” part, not from anything else that ispossible. It is only when they don’t get what they want that they are
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willing to accept the possibility that their belief structure must change.Here’s the really important thing: For most people, when they change theirbelief structure, they retain the same expectation of results. This comesout as “more of the same,” but for different reasons.What I learned from watching others’ behavior, as it relates to whatthey believe, while holding to the same point of view on their expectation of results, is really enlightening.Some things totally defy reason. I could write a whole book onthe things I have seen. I’ll give you just one basic example: Why dosome women get married and then divorce, then get married again anddivorce again, sometimes five or six times in a lifetime? I studied thesefemales. They believe that a successful marriage is a question of findingthe right person. They have an expectation of who that person is already.It never enters their mind that it might be a question of being the rightperson for someone else. Or that what makes a satisfying marriage issomething completely different than what they think it is. This expectation comes out as: “This is not the right person for me,” when thereality is something completely different. They can believe anything,and often do change what they believe—their “should be doing to getwhat I want” part. They call this “growing.” But they are still seeing allof it through the lens of their expectations. Since they can’t see that theirexpectation is causing the problem (How could they? They aren’t considering the possibility that the expectation is the problem!), they keepmarrying the “wrong” person (from their point of view), when the factis any person would create the same conflict. Sooner or later everyone issomeone you didn’t expect, especially if the expectation keeps changing slightly (which is another thing they do). When the conflict isn’tresolved, from the point of view of their expectation, they concludethey made a “mistake.” Rather than ask, “What is the true nature of thisconflict?” They ask, “What am I doing wrong?”Do you see what I’m getting at? This applies everywhere: the drunkwho can’t stay sober, the person who can’t get ahead in his bills, the guy whocan’t make money in the markets, the guy who is always in a fight, all kindsof things.It specifically comes out in the markets this way: Since I’m constantlylosing, I should do something to improve my approach. I don’t knowenough about _______ (fill in the blank).”
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I’ll give you a few; moving averages, retracements, point and figures,W. D. Gann, parabolics, pattern recognition, RSI, stochastics, Elliot Wave,how the pit works, the news, the fundamentals, the bonds, the beans,and so on. When the loser says, “I don’t know enough about _______,”what he is really saying is, “I expect that to make a difference.” It doesn’tcross the loser’s mind that this expectation is still inside a structure ofbeliefs that the market doesn’t function under in the first place. Hence,he will always lose. More of the same. If he makes a winning trade hewill conclude it was because of the “should be doing” part. Therefore,he will be more convinced of its validity. In any case, the markets don’twork that way. He has concluded they “must.”You want to learn so much about that loser’s thinking that youcan spot him a mile away. The best place is in your own backyard.Study your own thinking because right now it is identical to his. Bystudying your own thinking, you will see how the other person thinks,but from a new point of view. Once you know how that thinking (theloser thinking) leads to losses, you can begin to see how to exploit thatfor potential profits. The unexpected bonus I discovered is that whenyou do that, the entire world opens up to you in ways you can’t possibly imagine until you do. It makes trading look like a case of the clap.That is the meaning of life. Discovering the nature of reality, notyours—the real one. Then “getting in play” when you do. That’s it. Forme it’s that simple. It can be anything. Which means it is everything. Itwould be the same for you.Man, what a wild ride.
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Chapter 6
The Trading PoliceKilling Opportunity through Poor ExecutionBeware lest you lose the substance by grasping at the shadow.—Aesop
W
e live in a dangerous world. It is dangerous for us who livehere because that is the nature of reality as it was created.It is also dangerous because we, meaning enough of us,have chosen to make certain distinctions about this nature of reality.We have chosen to protect ourselves as much as possible and have takencertain actions to do so. Once those actions have been taken, we will findourselves in conflict with the nature of reality and because, by virtue ofits nature, it was the not the initiator of this conflict, we will always besubject to its will anytime we attempt to impose our will on it.
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What does this mean? It means the more we legislate, the more wesuffer. It means the more we attempt to protect ourselves, the morewe will find ourselves unable to protect ourselves. By creating conflict,that conflict is seeking a resolution by the very nature of the two willsin opposition. It will never be any other way until God himself choosesto create something else as the nature of reality. Until that happens weare continually going to be in a contest of wills of our own choosing unless we as a group decide to do otherwise. Because this group ismade up of individual wills this is intrinsically impossible unless everyone of us chooses to stop the conflict. As long as one person chooses tokeep the conflict in play, it is not possible. This is why “history repeatsitself,” why there is “good” and “evil,” why there is “right” and “wrong,”and why there will always be “long” and “short.”Some enlightened people have come to understand this. The onlyperson who could understand this completely is the individual whocreated the “rules” of play in the first place. Since He made it, He musthave formed distinctions for Himself as to why it was made this wayand why there would be a reason to do so. He, whoever He was, gave usthis same ability. That is why we are called “sons of God” by enlightenedindividuals, and why the currently unenlightened individuals in the initiating conflict group feel there is something “out there” or “there issomething I think is spiritual” or “something isn’t right” or “it shouldn’tbe this way” or any number of little ways of saying the same thing. Nomatter how you want to slice it, the very nature of this thinking betrayswhy this is so and will never be any other way.If you make any distinction such as “right” or “wrong,” there musthave been something behind, and above, that distinction which youmade a comparison to. That something is beyond the issue in questionbecause you cannot make any distinction without a standard of comparison that must, by definition, be neither. What is that something?It doesn’t matter how you choose to define what it is. You came tothe conclusion that some conflict (that you had a part in) is seekingto be resolved and the standard of comparison is known but unrealized to you. Or you are confused about its true nature. Everyone hasthis ability but always chooses to place its final outcome within theperspective of an intended result. This is why two individuals can beso sure they are “right” about someone or something and the other
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is “wrong.” Nobody in that particular conflict is asking if it just “is.”Since all governments are made up of more than one person, the inherent nature of all government is to perpetuate this conflict, and it has nochoice in doing so until everyone in that government (or under its control) decides to change. That is why the history of mankind is largely ahistory of perpetual conflict from two opposing points of view—everywar, every economic collapse, every conflict between church and state;all of it. This is also why the absolute best form of government is the“enlightened monarch,” one individual who understands this conceptand can “legislate” from this point of view only, never his own. All “legislation” he would then enact would always be in the best position toboth enlighten his subjects and reduce or eliminate this conflict withinhis kingdom. This is also why all spiritual texts in any form all refer tosome distant point in time where there will be “peace on earth underGod.” That is because His “messenger” will be the “instigator” of thisand He will be “king on earth.” God has tried to do this more than once.It is we who have the problem.This is also why all “good” monarchs are overthrown. (Hey, he isdoing such and such I don’t like!) All spiritual leaders are assassinated.(He’s “wrong” about God!) All “good” politicians are voted out. (He’staking away my “rights.”) A “new” point of view takes over and thewhole cycle repeats itself until we kill each other.What does this have to do with trading? I’ll get to that. This chapteris about how regulators contribute to the process of making all of thisharder for us. Once this is clear to you, you might be able to see itfrom the “higher” point of view. This will put you in a better positionto profit from their actions, once you know what their intentions are,and how it can’t possibly coexist with what “real traders” think becauseyou can’t trade consistently for profits unless you see it differently fromeverybody else. Regulators are in the “everybody else” group.Let me show you how the whole process starts. The regulators arepart of government. In our particular government, we have come tointerpret the rules to mean “everybody is equal,” and we all have “equalrights.” In reality, all governments attempt to minimize “inequality.” It’sjust how they view this weeks “flavor” of inequality that concerns us.The framers of the U.S. Constitution were, for the most part, enlightened people. They meant to make their intentions so clear it would
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be impossible to reinterpret them from any other point of view. Theyknew that certain points of view would help the process of rediscovering what the basic idea was on to. They hoped to make all points ofview congruent with the basic idea in some form that the two opposingpoints of view would then see the others and an effective compromisefor all would be reached. They knew that the government itself wouldbe part of the problem, so they attempted to put the government in aposition where it could never influence this process of finding congruency. The whole thing is not new. Just read Plato’s Republic for the starting point, and the rest of history (if you have time), to see the endpointthe way Jefferson, Franklin, Hamilton, and the others tried to find it. Theresult was the best attempt in history, but the inevitable is the inevitable.What Jefferson and the rest meant when they said “all men areequal” was that all men have the same basic nature subject to theircreator. They assumed that everybody would basically know what thatmeant. Today, we have come to see those words as “I have the samerights as you. You can’t tell me what to do.” Today, we interpret “Life,Liberty, and the pursuit of Happiness” to mean “I can have anythingI want. If I don’t, it is somebody else’s fault.” Our government nowfinds itself in the business of protecting everybody’s “rights” and, therefore, it spends most of its time creating new and fascinating conflictsbetween the most ridiculous points of view as to “rights” that youcould think of. For example, employment “rights” have escalated to thepoint where employers are impeded from dismissing a poor performerif that performer can claim some type of “discrimination.” In trying toprotect the “rights” of certain aggrieved groups to a job, the government has diminished the rights of employers to fairly and effectivelymanage their workforce. Another example is the “right” of a childto an education. Sure, it’s great that we have a public school systemopen to all. The problem is too many public schools are ineffective anddownright dangerous. If a well-meaning, loving, and intelligent parentelects to home school their child, the parent vey well may run afoulof local authorities. The rights of the child—as understood by government—trump the rights of the parent. In regard to guns, we have cometo interpret, “The right of the people to keep and bear arms shall notbe infringed” to mean “Only certain kinds of weapons can be ownedby the public. Guns are dangerous in the first place.” Did you know
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that many parts of the Brady Bill were actually taken from a 1936 Nazilegislation that removed guns from the public? Hitler and the Nazis wereelected. If no one shoots back at you, how easy is it for any governmentto take complete control of everything?Let’s talk about taxes. In all of recorded history, there has never beena country as wealthy as the United States. Every year the total amountof taxes raised in this country, in all their many forms, is larger than thegross domestic product of some nations. I read somewhere that the totaltaxes paid on a pack of cigarettes every year is bigger than the net worth ofCosta Rica. The U.S. borrows more money than any country in recordedhistory. With all this cash flowing into the U.S. Treasury, every single fiscalyear this country still cannot operate at a surplus on behalf of its citizens.Where is this conflict developing? Well, for starters, in this country if youare “disadvantaged” (whatever that means), you have the “right” to a homeat the taxpayers’ expense, income at the taxpayers’ expense, and medical/health benefits at the taxpayers’ expense. If you have children, the taxpayerspay for them too.Some enlightened people have seen this conflict for centuries. Thecode of Hammurabi, the Torah, the Koran, the Tao Te Ching, the wordsof Buddha, Zoroaster, Confucius, Jesus, Moses, Solomon, Alexander theGreat, Plato, Aristotle, Cleopatra, and others all, in some form or another,basically say, “If you don’t work, you don’t eat.” End of story. How comewe still have this conflict? The citizens of this nation have so fully convinced the government that certain “rights” exist that we are being bleddry so that everyone can be “equal” when in reality we are not “equal;”we are confused about reality in the first place. I’m not saying it is “bad”to spread the wealth around, I’m saying “where do you draw the line?”As soon as someone says, “NO, the line is drawn here,” someone else says,“You don’t have the right to do that.” People in this country don’t wantto take responsibility for themselves; they want someone else to “recognize” their “rights.” The end result is that hundreds of billions of dollarsare simply wasted and the problems get worse. No place in the world isricher and at the same time no place in the world is falling apart at thesocial seams faster than the United States.I could go on but I don’t want my right of free speech taken away.The point I’m making is that the intention of any law is eventuallyturned into a state of conflict that must be subject to some other law.
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The interpretation between the two creates more conflict subject toa new interpretation, subject to new laws, subject to new interpretations, subject to new laws again, until all our heads are spinning, andsomeone decides to start over. That’s called a revolution. That will happen here again sooner or later, in some form or another. I hope I neverlive to see it.Let me show you how this plays out in the markets by using agaming illustration. Never assume I equate trading with gaming.Anyone who believes that is completely lost. Just take this book backfor a refund if you think that is the case. Anyway, suppose a man wentto a casino to play cards. Suppose he has read a book on card play.He sits down and loses all his money over a period of time. He can’tunderstand why because the book said “such and such and eventually you can win.” He must now form a conclusion. Either the bookwas lying, or the book was right, and he didn’t have enough moneyto finally win, or something else. His expectation was a perceptionthat he could beat the house. If the expectation was strong enough, hemight conclude