most important is that youmake a firm commitment to your education as a trader. Even if you havebeen trading for years and you are successful, but not as successful as youwould like to be, setting aside money that you will trade with as an exerciseto learn some needed skill is a very powerful symbol of your commitmentto learning that skill. The stronger your commitment, the faster you willlearn.
STEP TWO: DEALING WITH LOSSES
Trading Rule 1
Predefine what a loss is in every potential trade. By "predefine," I meandetermine what the market has to look like or do, to tell you that the tradeno longer represents an opportunity, at least not an opportunity in the timeframe in which you trade.
When your beliefs about losses are restructured, the possibility of alosing trade will not create any threat of pain. Most successful tradersrestructured their beliefs about losses after they lost one or more fortunes.They experienced their worst fears about losing and then came to therealization that they didn't have anything to fear if they just did what needsto be done. What needs to be done? Confront the possibility of beingwrong and consequently not avoid the inevitability of taking a loss. Soconfronting and accepting the inevitability of a loss is a trading skill,certainly a skill learned the hard way for most, but nevertheless an essentialcomponent at the foundation of virtually everything you need to learn tobecome a successful trader.
The relatively few successful traders in the market today did it the hardway. You, on the other hand, have the opportunity to do it much moreeasily. There will be two mental components at work to help you acquirethis skill. First is your understanding of why it is so essential to confront thepossibility of a loss. If you don't, you will generate fear and end up creatingthe very experience that you are trying to avoid. When you reallyunderstand this concept, it will become unacceptable to you to trade fromthe old perspective of loss avoidance.
170The second is your willingness to change your definitions of what itmeans to lose. By using some of the mental exercises in Chapter 14 you canchange these definitions by using your thoughts instead of having to loseeverything or practically everything you own to get to the same place. Thatplace is "losses do not diminish me (you) as a person." The sooner youbelieve it, the easier it will be to identify and execute a losing trade. Bymaking the execution of a losing trade an automatic function of your tradingstrategy, you make yourself psychologically available to take advantage ofthe next opportunity, even if that opportunity is in the same direction of thelosing trade you just got out of.
Trading Rule 2
Execute your losing trades immediately upon perception that they exist.When losses are predefined and executed without hesitation, there isnothing to consider, weigh, or judge and consequently nothing to temptyourself with. There will be no threat of allowing yourself the possibilityof ultimate disaster. If you find yourself considering, weighing, or judging,then you are either not predefining what a loss is or you are not executingthem immediately upon perception, in which case, if you don't and it turnsout to be profitable, you are reinforcing an inappropriate behavior that willinevitably lead to disaster. Or if you don't and the loss worsens, you willcreate a negative cycle of pain, that once started will be difficult to stop. Thenext error after letting a loss get out of hand is usually not taking the nextopportunity, which invariably is always a winning trade. After which, weget so angry at ourselves for passing up that opportunity that we makeourselves susceptible to any number of other trading errors, like taking atrade that was a tip from another trader, which invariably is always a loser.
It is important for you to note that once you completely trust yourselfto cut your losses, you will eventually get to the point where you may nothave to predefine what a loss is. There are traders who have reached such ahigh degree of objectivity and trust that they can get into a trade and knowwhen it is a loser without having to predefine it for themselves. They letthe market define it for them based on their comprehensive knowledge ofthe various participants involved and their knowledge of the variousrelationships between price movement and time. However, the reason whythey were able to learn what they know about the nature of the markets isbecause their focus of attention widened to include more undistortedinformation leading to greater insights, once they learned, first, however, totrust themselves. Keep in mind, that fear is really the only thing that keepsus from learning anything new. You can't learn anything new about thenature of the market's behavior if you are afraid of what you may do orcan't do that is not in your best interests. By predefining and cutting yourlosses short, you are making yourself available to learn the best possible wayto let your profits grow.
171STEP THREE: BECOMING AN EXPERT ATJUST ONE MARKET BEHAVIOR
Generally, most of us grow up believing that when we have to make adecision, the more relevant information we can gather, the better ourdecisions will be. This isn't necessarily true with trading, especially in thebeginning stages of one's career. In most market situations, there is an evennumber of traders who have a propensity to buy and those who have apropensity to sell or those who need to buy and want someone to take theother side of the transaction and vice versa. Everyone will have his reasonsand rationalizations for all this trading activity, creating about as muchconflicting information as there are participants. Because there is so muchinformation and because so much of that information is conflicting, thebeginning trader will need specifically to limit his awareness of the marketinformation to which he allows himself to be exposed. More is not better; itjust creates confusion and overload that will ultimately lead to losses.
You need to start as small as possible and then gradually allow yourself togrow into greater and greater amounts of market information. What youwant to do is become an expert at just one particular type of behaviorpattern that repeats itself with some degree of frequency. To become anexpert, choose one simple trading system that identifies a pattern,preferably one that is mechanical, instead of mathematical, so that youwill be working with a visual representation of market behavior. Yourobjective is to understand completely every aspect of the system—all therelationships between the components—and its potential to produceprofitable trades. In the meantime, it is important to avoid all otherpossibilities and information.
Out of all the combinations of behavior possible, you are going to limityour focus of attention to just one combination. Consequently, you will beletting all the other opportunities go by. Starting small and graduallyworking into other combinations is a real exercise in discipline that has acouple of important psychological benefits. First, you will be building abase of confidence as you learn that you can, in fact, accurately assess whatwill most likely happen next. It is much easier to gain this confidence ifyou don't overwhelm yourself with the market's seemingly infinitepossibilities. Second, by passing up other opportunities that you are not anexpert at yet, you will be releasing yourself from any compelling desire totrade. Any compelling behavior is usually the result of some fear. That fear,in turn, will cause you to behave in many inappropriate ways.
If the idea of letting go of opportunities that don't fit into yourframework is troubling to you, then ask yourself, what is the rush? If you areconfident in your ability to transform yourself into a successful trader, whatdifference could it make that you let go of some opportunities now foreducational purposes? Once you learn to become the trader you want tobe, you can then give yourself as much money as you desire. However, to
172get to that point, your objective should be to plan your development in sucha way that you do the least amount of damage to yourself, both financiallyand psychologically. Then after you have developed the appropriate skills,taking money out of the markets can be as easy as almost everyone believesit is before he started trading.
If, on the other hand, you end up doing a lot of damage to yourself,you will have to undo that damage before you can accumulate wealth as atrader. After the damage is done, it won't make any difference how muchyou learn about the nature of the markets or how well you learn toperceive an opportunity. There are many traders who end up becomingexpert market analysts but can't make a dime as traders because of all the damagethey did to themselves in the early part of their trading careers. What happens inthese situations is a trader's "past" will generate so much fear that he won't beable execute his trades properly or not at all, regardless of how well he learned topredict what the market will do next. Nothing is more frustrating than to knowwhat is going to happen next and not be able to do anything about it.
You need to understand that the ability to perceive an opportunity, based onthe quality of distinctions that you can make and your ability to execute a trade, arenot automatic functions of one another. Perception and execution are separateskills. They can and do work in tandem, if there are no mental componentsblocking execution. Otherwise, the "intent" to take advantage of what youperceive as an opportunity may not have any inner support or the kind of innersupport that is necessary to execute your intent properly. If there are mentalobstacles preventing the proper execution of a trade, then learning how toperceive better opportunities is not going to solve the problem.
So the object of this exercise is to help you learn how become an expert andstay healthy while you are doing it. And when you do become one, there will bemuch less standing in the way of your taking maximum advantage of yourperceptive skills. If you are already looking at or trading several markets and youare not successful or not as successful as you desire, then I would suggest that youscale back to just one market or two at the most. Don't expand until youthoroughly understand the markets' characteristics.
STEP FOUR: LEARNING HOW TOEXECUTE A TRADING SYSTEM FLAWLESSLY
The proper execution of your trades is one of the most fundamental componentsof becoming a successful trader and probably the most difficult to learn. It iscertainly much easier to identify something in the market that represents anopportunity than it is to act upon it. However, there are some good reasons why itis so difficult to act on a trading signal other than what has already been identifiedas mental obstacles. To understand these reasons, you need to understand thenature of trading systems (defined as any methodology that consistentlyidentifies an opportunity to buy or sell with a potential profit in some futuremoment), and how they interact with the markets and ourselves.
173Most good trading systems, technical or otherwise, will take consistentmoney out of the markets over the long run. Many of these good systemshave been available to the public for years, and yet, there is still a huge gapbetween what is possible and what almost everyone ends up with. Theproblem with trading systems is they define market behavior in limitedways when the market can behave in an infinite combination of ways.Systems mathematically or mechanically reduce relationships in humanbehavior characteristics to percentage odds of what could happen next.They can only capture a very limited number of these behaviorcharacteristics compared to the billions that are possible. Any identifiedpattern may or may not be repeating itself with respect to the way thepattern or relationship progressed when it was observed in the past.Therefore, we never really know if it is valid or not until it has actuallycompleted itself. The big psychological problem here is that people havedifficulty acting on opportunities with probable outcomes.
Most people like to think of themselves as risk takers, but what theyreally want is a guaranteed outcome with some momentary suspense tomake them feel as if the outcome had been in doubt. The momentarysuspense adds the thrill factor necessary to keep our lives from getting tooboring. When it comes right down to it, no one trades to lose, no one putson a trade believing it is going to be a loser, and all systems will definitelyhave some percentage of losing trades. So it's difficult not to be temptedinto trying to guess which ones are going to be the losers and notparticipate.
As most of you reading this book already know, trying to outguess yourtrading system is an exercise in extreme frustration. Sometimes the systemwill give you signals to trade in ways that are completely contrary to yourlogic and reasoning. Sometimes the system will defy your reasoning and beright, and sometimes you will agree with the system and it will be wrong.You need to understand that technical trading systems are not designed tobe outguessed. What I mean is, they aren't designed to give you isolatedsignals of an opportunity to be taken when it seems right. What they do ismathematically define, quantify, and categorize past relationships incollective human behavior to give you a statistically probable outcome of thefuture.
As a comparison to trading, it is much easier to take risks and participatein a gambling event with a purely random outcome based on statisticalprobabilities, simply because it is random. What I mean is, if you risk yourmoney on a gambling event that you know has a random outcome, thenthere's no rational way you could have predicted what that outcome wouldbe. Therefore, you don't have to take responsibility for the outcome if itisn't positive.
Whereas, with trading, the future is not random, price movement,opportunity, and outcomes are created by traders acting on their beliefsand expectations of the future. Every trader contributes to the outcome of
174the future by putting on and taking off trades in accordance with theirbeliefs. Because traders actually create the future by collectively acting ontheir beliefs about the future, the outcome of their actions is not exactlyrandom. Why else would traders try to outguess their systems, unless theyhad some concept of the future and how that future will affect the markets?
This adds an element of responsibility to trading that doesn't exist with apurely random event and that is difficult to avoid. This higher degree ofresponsibility means that more of your self-esteem is at stake, making itmuch more difficult to participate. Trading gives you all kinds of ways tobeat yourself up for all of the things you should have or could haveconsidered that would have resulted in a more satisfying outcome.
Furthermore, you don't trade in an information vacuum. You form yourexpectations about the future with information technical systems don't takeinto consideration. Consequently, this sets up a conflict between what yourintellect says should be happening and the purely mathematical means ofpredicting human behavior afforded by your technical system. This isprecisely why technical systems are so difficult to relate to and execute.People aren't taught to think in terms of probabilities—and we certainlydon't grow up constructing a conceptual framework that correlates aprediction of mass human behavior in statistical odds by means of amathematical formula.
To be able to execute your trading systems properly, you will need toincorporate two concepts into your mental framework—thinking in termsof probabilities and correlating the numbers or the mechanics of your systemto the behavior. Unfortunately, the only way you can really learn thesethings is actually to experience them by executing your system. The problemis that rarely will the typical trader stay with his system beyond two or threelosses in a row, and taking two or three losses in a row is a very commonoccurrence for most trading systems. This creates something of a paradox orCatch 22. How do you do it if you don't believe it, and you won't learn tobelieve it unless you do it long enough for it to become a part of yourmental framework? This is where you employ mental discipline to makeflawless execution a habit.
Exercise
Take some of the trading capital that you set aside for your education to buyand trade a simple trading system with well-defined entry and exit points.Make a commitment to trade this system exactly according to the rules. Youneed to make a very strong commitment here and not play any games withyourself. The object of this exercise is to work through any resistance youmay have to following your rules.
This system does not have to be expensive. You can get one out of manyof the books on technical analysis available today. I think it is important tobuy one instead of devising one of your own because it might be a littleeasier to stay focused on the objectives of this exercise. With any system
175you devise, you are naturally going to want to make money. Save it forlater, after you have learned how to execute properly.
You also need to find a system that suits your unique tolerance fortaking a loss. The amount of money you risk per trade should be anamount that you are completely comfortable with, at least at first. If youdon't stay within this tolerance level, you will be, at the very least,uncomfortable, in which case to whatever degree you are uncomfortable,you shut down the learning process. When you are feeling pain, instead ofbeing focused on what the market is teaching you about itself and yourself,you will be focused on information that will ease your pain. Which usuallyresults in a painful lesson.
Your objectives are to (1) learn the skill of flawless execution by learningthat you can follow the rules you set forth for yourself (I am defining"flawless execution" as executing a trade immediately upon perception of anopportunity; inclusive within opportunity is the opportunity to exit a losingtrade.) and (2) to incorporate a belief into your mental system about the natureof probable outcomes so that you believe that you can make money in the longrun with your trading system, if, of course, you can execute it properly.
You will likely encounter many beliefs arguing against flawless execution.Here are few suggestions to help you work through this resistance:
First, understand that this exercise (at least for most people) is not going to beeasy, so be easy on yourself. The more accepting you are of your mistakes, theeasier it will be to make the next attempt. If your child were learning how to ridea bike, I'm sure you wouldn't scold him for falling off and tell him not to tryagain. You would encourage him and eventually he'd learn. Give yourself thesame kind of understanding and consideration.
Second, taking all the signals generated by your system is the only way youcan get the firsthand experience you need to establish a belief in probableoutcomes, and relating the mathematics or the mechanics to the behavior. Youhave to do it in spite of your resistance, and you have to do it long enough forthe system to become a part of your mental framework. When that happens, youwill have the force of habit working for you, and the struggle will cease. Just dothe best you can and look for ways to improve your performance. Constantlykeep in mind that what you are doing is more of an exercise in learning tradingdiscipline and the skill of flawless execution, which in the long run is far moreimportant than your immediate desire to make money. So keep your contractsize light. You can always increase it later, when you have learned to trustyourself completely to always do what needs to be done without hesitation.
Stay with the exercise until it becomes second nature or a part of who you are.As you gain in your confidence, you will learn more and consequently learnhow to make money as a trader. As you make money you will gain in yourconfidence. This positive cycle will expand your ability to be successful just aseasily as a negative cycle will feed on itself to end in despair.
176STEP FIVE: LEARNING TO THINKIN PROBABILITIES
After you have mastered the more fundamental skills, in other words,once you have acquired the discipline necessary to interact with the tradingenvironment effectively, you can start to use your reasoning skills andintuitive powers to determine what the market is likely to do next. This willentail learning to think in probabilities. What I mean by this is, if you can'tpersonally move the market, then you will want to be able to identify thegroup that is demonstrating the greatest possibility of moving the marketand you will want to trade with that group. Or you will want to determinethe prevalent beliefs being expressed in the market and how those beliefswill affect price movement. That identification process requires a detachedobjective perspective, where you are watching and listening to what themarket is telling you, instead of being focused on what the market is doingto you personally.
Remember, two traders willing to trade at a price make a market.Whatever the extreme ends of human expression are is what the market iscapable of doing. For example, have you ever said, "The market can't breakcontract lows, it's never been there before"? If you bought those lows basedon your belief of its impossibility, then consider that all it takes is one traderwho is willing to sell lower to make you wrong. The fact that the market didit makes it right. You could have been a seller at the all-time lows and beena one-tick winner when the next trader broke those lows, if you could haveperceived selling as an opportunity.
If prices were to penetrate those lows with any kind of followthrough, itwould indicate that there are plenty of traders who believe it wasn't goinghigher. These sellers obviously acted on their beliefs with enough force tooutnumber the buyers available to take the other side of the trade.Regardless of the criteria the sellers used to justify their actions, howrational or irrational by anyone else's standards, nothing will alter the factthe market traded lower. The fact that you believed it couldn't do it is of noconsequence, unless you can trade big enough numbers to reverse it.Otherwise, you can either be with it or against it.
To help you learn how to be with the flow of the market, I pose a seriesof questions that are designed to keep you focused in the "now moment"to determine what is true about the market.
1. What is the market telling me at this moment?Who is paying up to get in or get out?
How much strength is there?
Is momentum building?
Can it be measured relative to something?
nw YS
What would have to happen to indicate the momentum is changing?
1777. Is the trend weakening or is this a normal retracement?
What would show that? If the market has displayed a fairlysymmetrical type of pattern and that pattern has been disturbed, thenit is a good indication the balance of forces has shifted.
9. Are there any places where one side will definitely gaindominance over the other? If that point is reached, it still may takesometime for the other side to be convinced they are losers. Howlong are you willing to give them to stampede out of their positions?
10. If they don't stampede out of their positions, what will that tell you?
11. What did traders have to believe to form the current pattern relativeto the past? Remember that people's beliefs don't change easilyunless they are extremely disappointed. People are disappointed whentheir expectations aren't fulfilled.
12. What will disappoint the predominate force?13. What is the likelihood of that happening?14. What is the risk of finding out in a trade?
15. Is there enough potential for movement to make the trade worth therisk?
We may never know what traders will in fact do. But we can determinewhat they will likely do if certain things happen first. For example, if traderspush the price lower than the previous low, what will likely occur? Is thisnew low significant enough to cause traders holding long positions to bail out?Will it cause new shorts to enter the market or attract existing shorts to add totheir positions? New shorts may be attracted to the market, and old shorts willadd to their position. This price slide will stop when enough traders believe theprice is cheap relative to something. That reference point will likely be someother previous old high or low.
If you can't determine the significance of any particular high or low or any othersignificant reference point for that matter, then you have to ask yourself if it isworth the risk of finding out How much room will you have to give the market todefine itself before it is evident that the flow of the market is not in the directionof that trade?
Ask yourself this question: For this trade to be valid or continue to be valid,the market shouldn't trade to what point? If it trades within that point, then thetrade still has potential for working. Beyond that point, it is no longer valid inthe direction that I started.
Keep in mind that the amount of price movement that you determine isnecessary for the market to define itself has to correspond with your emotionaltolerance to accept the dollar value of a loss that size. Otherwise, don't take thetrade regardless of how much potential you think it might have, unless you canrealistically change the foregoing parameters to fit your capacity for a potentialloss.
178Let the market define itself and then apply whatever criteria you use to definean opportunity. Identify your significant reference points and place your orderson either side of the point; then wait for the market to do whatever it is going todo. Try putting your orders in the market in advance of whatever you perceive ashaving a high probability of occurring based on the existing market conditions.By putting your orders in advance of some anticipated move, you will belearning how to let the market work for you Placing your orders in advance willalso help to keep you from having an opinion, and you won't be subjectingyourself to the moment-to-moment conflict inherent within all price movement.
Keep in mind that since the market is in perpetual motion, it puts you in aposition of having to make never-ending assessments of the current risk inrelationship to the current possibilities for reward. To do this effectively, youwill have to learn to observe the market as if you were not in a position. Thisperspective will free you to take whatever action is appropriate for the situationinstead of hesitating, hoping, and wishing that the market will make you right.
The market doesn't make you right, you make yourself right. Yourinability to execute or the degree to which you hesitate after you perceivean opportunity to get in or out of a trade or reverse your position will be anexcellent gauge as to how locked in you are mentally. Making note of theseoccurrences of hesitation or immobility will give you an indication of theexact state of your mental resources to execute. You need this information touse as a reference point to build from.
When you are about to enter into a position, ask yourself, by imagining,what the next five minutes or tomorrow (depending on your time frame)would have to look like to validate your trade, to confirm that the trend isstill intact. What would the next five minutes or tomorrow have to looklike to indicate the opposite. Then, again, place your orders at theappropriate price in advance of the market's getting there.
All these questions will keep reminding you that anything can happen,and you will be preparing yourself in advance for those possibilities. Also,if anything can happen, then of course, you will have to consider that therewill always be something you haven't taken into consideration, hadabsolutely no awareness of or could have no prior knowledge of, forexample, such as how many traders may enter the market for the first timewith enough force to reverse its direction.
Keep in mind that prices move in the direction of the greatest force(traders fulfilling their beliefs about the future). Or said in its converseform, prices will move in the direction of the least resistance to theprevailing force. Significant reference points give you the opportunity tomake high probability assessments of the degree of balance or imbalancebetween the two forces, the point at which it is likely to shift, and in whosefavor.
By learning to identify significant reference points, you can determinewhat each group will do based on what they already believe about futurevalue. If you can determine on a collective basis what will validate or
179invalidate those beliefs, then you will know how each group is likely tobehave.
I want to remind you that this approach is to help you stay detached andunderstand that price movement is a function of traders acting individuallyand collectively as a force expressing their beliefs in future value. Thegreatest number with the strongest belief will always be right. The easiestway to make money is to go with the flow. To identify the flow, you needto stand apart from the crowd and suspend what you believe about relativevalue so that you can determine who is likely to do what and with how muchforce, how is everyone else likely to react, and if it doesn't happen, whatwill traders do then?
By asking yourself these questions you are automatically keeping yourfocus of attention on the market and what the possibilities are. Anylimitations you place on the market's behavior will cause you to focus on theimpossibility instead of the possibility of something happening. Your beliefthat the market has to behave in certain ways proscribed by your mentalstructure will cause you to focus your attention on what the market is doingto you, and if what it is doing is causing pain, then the potential exists foryou to avoid or distort information, usually resulting in a painful forcedawareness.
STEP SIX: LEARNING TO BE OBJECTIVE
To achieve a state of objectivity you need to operate out of beliefs thatallow for anything to happen, as opposed to beliefs that allow only for themarket to express itself in a limited fashion. If you operate out of a beliefthat anything can happen, then whatever does happen won't be threateningto you in any way, thereby causing you to avoid or distort certain categoriesof market information. Any limits you place on the market's behavior willbe a compensating factor for your lack of trust and confidence to actappropriately in any given situation. This will be evidenced by the fear,stress, and anxiety that you will feel when the market expresses itselfbeyond your mental limits and you can't do anything to control thesituation.
However, you do have to have some belief or expectation about thefuture or you wouldn't ever put on a trade in the first place. To beobjective, you will need to release yourself from "demand-backedexpectations" and make what I call "uncommitted assessments of theprobabilities." Unlike the markets, in our everyday social lives we can anddo exert control over the environment to assure ourselves of the outcomesthat we desire. The rules we learn to abide by in order to interact with oneanother are our expectations about the future. Once we learn these rules,especially if we have learned them in a painful way, we can demand certainoutcomes from the environment. Hence, our expectations of the future areactually demands that the environment conform to our expectations of it.
180Without really thinking about it, we will carry these same kinds of demandswith us into the trading environment because of our natural resistance toletting go of our expectations. That is, staying committed to any limitedbelief about the possibilities that exist in the markets is virtually the same asmaking a demand.
If you have any doubts about this, consider that if we weren't demandingthat the market conform to our expectations, then we wouldn't ever have areason to get angry when it doesn't. Have you ever gotten angry at themarket? Anger is a natural defense mechanism. When we feel anger, it is anindication that the environment is assaulting us in some way, creating animbalance between the mental and outer environments. The outerenvironment is either showing us something about itself or ourselves thatwe don't want to accept. We protect ourselves with our anger to ward offthis assault. In our everyday lives our anger can be an effective tool to getwhat we want (change what the outer environment is showing us aboutitself that we can't accept) or to ward off what the environment is showingus about ourselves that we can't accept.
However, if we interact with the market with demand-backed orcommitted expectations of its behavior, we will cut ourselves off from theinformation that we need to make accurate assessments of its potential tomove in any given direction. If we don't have the power to control themarkets in such a way as to make them do what we expect them to do and atthe same time we aren't willing to give up our expectations and accept theway things are, then it would create what would otherwise be anirreconcilable dilemma if it weren't for our ability to distort, alter, orexclude information from our awareness. Perceptual distortion is the onecompensating factor that will, at least temporarily, correct the imbalancebetween what we expect and what the market is offering, when there is adifference between the two.
Our committed expectations about the future will act as a force on ourperception of market information to control its flow into our mental systemin such a way as to avoid a confrontation with anything that doesn'tconform with what we already believe is possible.
Which, of course, is always going to be less than what is possible fromthe market's perspective. If we are perceiving much less than what isavailable, then we are out of touch with what is possible from the market'sperspective and setting ourselves up for a painful forced awareness. To beobjective you have to make "uncommitted assessments of the probabilities."Which simply means that you have no commitment to any particularoutcome. You just observe what is happening in each moment as anindication of what will probably happen next.
Here is what objectivity feels like, so that you can recognize when youhave achieved it.
You feel no pressure to do anything
181You have no feeling of fearYou feel no sense of rejectionThere is no right or wrong
You recognize that this is what the market is telling me, this is what Ido
You can observe the market from the perspective as if you were not in aposition, even when you are
You are not focused on money but on the structure of the market
To stay objective anticipate as many possibilities as you can and howprobable each of these possibilities are. Then decide in advance what youare going to do in each situation. If none of your scenarios is working out asyou anticipated, then get out. Release yourself from the need to be right.The more uncommitted your assessments are the less potential for distortionand experiencing a painful forced awareness.
STEP SEVEN: LEARNING TOMONITOR YOURSELF
As outlined in the exercise to develop self-discipline in Chapter 14, youneed to start paying attention to what you are thinking about and whatmarket information you are focused on.
Trading Rules
When you are