Electronic Trading 'TNT' II

"How To Win Trading Stuff"

Extract: Chapter 5, 6 and 7

Observation should immediately tell you that markets are emotional and not logical. How can you tell? How can you know this for certain? All you have to understand is the primary underlying principle of traditional logic - the law of non-contradiction.

It might help to look at a few synonyms for the word logical: rational, cogent, understandable, clear, coherent, sensible, direct, easy, elementary, intelligible, lucid, simple.

Do any of these describe the market action you see on your charts? Logic can comprehend only those things that have a consistent and non-contradictory nature. But markets are ambiguous and inconsistent. In fact, the closest anyone has come to explaining the action of markets is through a medium called chaos theory. Markets definitely appear chaotic. But even chaos theory does not adequately explain market action. Why? Because chaos theory is just what it says it is, theory. A theory is not fact. A theory is lack of fact. A theory is something not proven.

In reality, much of a stock's price action is "engineered." With the exception of real changes in the fundamentals driving price, the majority of each day's price action is the direct result of the deliberate movement of price as an outcome of "engineering" by some person or persons who have a direct interest in causing prices to go up or down. These market makers, shakers, specialists, or market movers if you will, are able to move markets virtually at will. They may move prices up because they have previously bought low and now want to take a profit. They may move prices up because in reality they want to sell at a higher price than where the current price action is so they can buy a bit later at lower prices. The problem is, you don't know their motivation. If markets are not engineered, how else can you account for the following true scenario in one of the world's largest and most liquid stocks.

It came at a time when the company wanted to buy back a lot of their outstanding shares. The market opened and the stock began to drop steadily in one-quarter jumps. Someone was taking the price down hard and quite purposefully. A friend of ours who is a specialist in the shares of the stock informed us that, through various brokers, the company was dumping stock into the market by steadily selling below market. This was strange behavior for a company that was rumored to be wanting to buy in their shares.

Suddenly, as if by magic, the same brokers began buying the company's shares in huge quantities. We called our specialist friend wanting to know "what's going on?" He said, "Oh, the company is buying back in spades what they previously sold. They just wanted to start their buying at a lower level!"

Does that send shivers up and down your spine? It should. Are you one who thinks that markets are random? Are you one who thinks the market for a heavily traded stock is too big and too liquid for someone to move? Just remember what happened within the first two hours of trading on the day we were told the above information. Could chaos theory have explained that market action? First the strong hands handling the company's stock scared all the weak longs out of the market. Then they themselves went long at a much better price. By the end of the session, the company had bought in thousands of shares more than they had sold at the beginning of the day.

Expecting the market to be logical leads to one of the saddest consequences experienced by losing traders suffering from mental gridlock. By trying to apply hard logic to solve the problems that markets present, they miss out on one of the mind's most valuable creations: the intuitive hunch.

Next, let's talk about intuitive trading and an erroneous belief held by many traders.

Whether you think you are intuitive or whether you think you are not intuitive is to a large extent dependent upon your belief system.

If you believe you are not intuitive, then you will never put yourself in a position where you can use your intuition.

The philosopher Epictetus once said, "What concerns me is not the way things are, but rather the way people think things are." This, of course, is one of the great truths that drives markets. It is people's perception of what is happening that causes movement of price. Price movement is the most important action of markets. Everything else that happens or can be measured in markets is a derivative of price and its movement. What people think is the causative factor in price movement.

What you think also drives your own actions in the market. If you think that you cannot trade intuitively, then you probably never will.

Ancient wisdom taken from Bible scripture states: "As a man thinks, so he is."

In other words, you become what you think about. This great truth is the so called "secret" buried in the book Think and Grow Rich written by Napoleon Hill.

You are now and you will become what you think about. Hill got that from the Bible, "As a man thinks, so he is!" Whether you can trade intuitively or not is all in your mind. Humans are goal oriented creatures. Our thoughts become our realities. Your mind will find a way to get you where you want to go. If you want to become an intuitive trader, you must set that in your mind as a goal. You might even attempt for awhile to become obsessed with the idea of becoming intuitive. In our private trading seminars, we show our students how they can learn to become intuitive in their trading. Suffice it for now to say that, because intuition is somewhat of a feeling, in order to accomplish becoming intuitive one must get in touch with one's feelings. If you are interested in attending one of our private trading seminars, please contact us at the numbers given at the front of this book.

Why would you want to trade intuitively? Because intuition is what enables you to challenge the rules. Intuition is what tells you this pattern is not quite right - "What I'm seeing now does not quite fit my trading rules!"

Intuition is what prevents you from plunging into a losing trade just because your rules say there now exists such and such pattern, therefore I should take this trade.

The human mind is constantly recording, connecting, interrelating, and storing unrelated knowledge, experiences, and feelings. It then combines this seemingly disparate information into answers in the form of hunches as a means of solution to the problems created by the price action of markets. To take advantage of these hunches, you simply learn to ask, trust, and listen. These hunches, for no apparent logical reason, might lead you to trying a different problem-solving approach in dealing with the movement of prices.

These hunches might even lead to the behavioral changes so necessary to trading successfully. Intuition is what causes you to take a wonderfully winning trade even though there is no apparent reason for entering that trade. Intuition allows you to sometimes trade against the rules.

Intuition is not opinion, far from it. Many of you trade your opinions. For most traders that is tantamount to a death sentence in the market. Notice we did not say all traders. Some traders are blessed with marvelously wonderful opinions and those who have such a gift, even if they do not have the discipline to trade well, should consider making their living advising others.

To trade intuitively, picture in your mind that you can. See yourself taking intuitive trades. If you can picture something in your mind, you can depend upon the goal seeking mechanism that is a part of your mind to eventually get you to the point where you can trade from intuition.

The worlds of thought and action overlap. What you think has a way of becoming true. If you want to be more intuitive, believe that it is worthwhile to be intuitive, and have the persistence to keep trying until you become intuitive.

With such an attitude, you will be less afraid to occasionally break your self-imposed rules (although breaking rules is at times dangerous). You'll look for more than one right answer and be willing to go with your gut feelings.

You will be better able to tolerate the ambiguity that is inherent in trading. You'll be motivated to go beyond the status quo.

The intuitive person has the self-faith that he can go with his feelings, that his hunches will take him where he wants to go. In the markets, the pursuit of trading intuitively is well worth the effort made in developing an intuitive capability.

It has been said that necessity is the mother of invention. Many good trading ideas and rules come when there is the need for a solution. Some of the best trades have come under pressure. Some of the best ideas and strategies have come when there has been a need to "fix" a broken trade.

But if necessity is the mother of invention, then surely relaxation is the father.

Far more pleasurable and more far-reaching are the trading ideas we get when we are away from the markets.

It's the old wisdom that says, "All work and no play makes Jack a dull boy." It's too bad that so many of you Jacks and Janes have become dull.

You have become dull to the point of sterility. Dull, flat, and unproductive.

Do you ever relax?

You trade as though there were no tomorrow. Trade, trade, trade! When you are not actually trading, you are paper trading. Trade, trade, trade! Testing and back-testing, you go at it as though it were frivolous to relax.

Yes, some of you actually think it's sinful to relax. You feel that if you are not working hard at something, you are wasting time. You view work and relaxation as two mutually exclusive boxes, and if you aren't working, you feel that you aren't producing hard, tangible results.

Well we've got news for you, friend, some of the best ideas and greatest inventions have come from people when they were relaxed. Do you ever just get away from it all? The problem with a lot of you is that you need to take a hike. That's right! You need to slap on that old backpack that's sitting up in the attic or out in the garage, and take yourself for a two week hike along a mountain trail.

Don't like to hike? Then you can bike! Yes, that's it, you need to bicycle down to the seashore, or to a lake. When you get there, practice not trading. Practice not even thinking about markets. Don't watch the news on TV. Don't read a newspaper. Simply relax. Relax long enough that you forget all about markets and trading. Relax until you've rejuvenated your mind.

While you're relaxing, get into some humor. Read a funny book. Go see a comedy at the cinema. Indulge yourself in a humorous play. When you are laughing, it is much easier to relax.

Laughter puts you at ease. Getting into a humorous frame of mind not only loosens you up, it enhances your creativity. Humor stretches your thinking. It forces you to combine ideas that are usually not associated with one another. Humor allows you to take things less seriously.

As one writer put it, "There is a close relationship between the 'ha ha' of humor and the 'aha' of discovery."

If you apply the same thinking that you use in humor, and employ it to better managing your trades, then you are likely to come up with some fresh approaches to your trading and any strategies upon which you are working.

Humor may not solve your trading problems, but it will put you in a more conducive mood to do so.

Relaxation works wonderfully well to stimulate the flow of ideas. Humorous relaxation does even more to encourage this process. You will find that you are more candid in your approach to the markets.

Some of you are so serious about your trading, that it is laughable. You have become so married to the ideas of others in the area of pattern recognition and its derivatives in the form of oscillators, mathematical formulas and weird theories, that it's difficult for you to be candid, creative, and relaxed about your trading.

Step back, loosen up, take a look at yourself. Go stand in front of a mirror and ask yourself what possible market application is there in theories based on astrology, cycles, chaos, wave counting, etc.

While your standing there, smile at yourself. Then laugh at yourself. That clown in the mirror is you.

How many traders can you count who are actually making money trading with theories? Now, ask yourself how many vendors of publications and systems based on such theories are making money selling you on the idea that theories really work!!

That should get you laughing. The vendors are laughing - all the way to the bank.