WS Traders

2007-02-13T19:01:00.000-08:00

If you are looking for Internetrix's website. this is it! I am no longer maintaining the software.

Yuemin

2005-07-01T23:59:00.000-07:00

DR - Daily Reckoning - www.dailyreckoning.com
Innerworth - www.innerworth.com
TWPD - Trade with Pizza Driver - TradeWithPizzaDriver.com
NHF -Nap Hill Foundation - www.naphill.com

2005-06-01T16:26:00.000-07:00

NHF

May 31, 2005

WHEN YOU GET YOURSELF UNDER COMPLETE CONTROL, YOU CAN BE YOUR OWN BOSS.

We all have moments when we allow others to cause us to react emotionally, especially in anger. Often we regret our response later, and we vow we will never allow ourselves to behave in this fashion again. The next time you feel the anger rising, remind yourself that no one can make you angry or emotional without your consent-indeed, your active participation is required. Those who have learned to manage themselves are the individuals who are destined to be leaders. They are chosen to manage others because they have demonstrated that they can manage themselves. They are people of character.

2005-06-01T15:51:00.000-07:00

What is necessary to change a person is to change his awareness of himself.

- Abraham Maslow

Who dares nothing, need hope for nothing.

- Johann Von Schiller

2005-06-01T15:50:00.002-07:00

Innerworth 5/31/2005

Affirm To Win

Trading can be exhilarating. When you see a trading plan come to fruition, you cannot help but feel a little special. There are those times, however, when you feel frustrated and disappointed. You regret making a few bad decisions, and may question your ability to return to profitability or achieve enduring financial success. Your confidence can become shaken, and you can lose yourself in feelings of doubt and despair. At times of uncertainty, making affirmations can help you recapture a winning state of mind.

Affirmations are positive statements that motivate you. They remind you of your goals, what's important to you. For example, suppose you have just made a series of losing trades and are feeling disappointed and stuck in a psychological rut. You can recover quickly by repeating a series of positive affirmations: "I'm human. I can make mistakes. Losing trades are just part of the business of trading. My goal is to achieve enduring profitability. The big picture is all that matters. A few losses here and there are of little consequence for the big picture. Through hard work and experience, I'll achieve my financial goals." Affirmations remind you of who you are and where you're going. If you repeat the affirmations over and over again, you'll start to feel empowered. Even major setbacks suddenly seem unimportant.

You can make up a set of affirmations for any trading issue. For example, suppose you have trouble patiently waiting for a trading plan to pan out. Under these circumstances you might say, "I have willpower. I am in control. Winning traders are disciplined. I've made my trading plan, and I can follow it and wait to see what happens. I can learn to trade with discipline. The more I practice discipline, the more disciplined I will become. With each trading plan I successfully follow, I'll gain more self-control. Over time, I will become stronger, decisive, and able to control my emotions."

Affirmations can also address a more general issue, such as low self-esteem. Some traders manifest low self-esteem by defining their self-worth by their net worth. They may feel on top the world when they make a winning trade, but worthless and inadequate when they lose. Affirmations can help matters. A trader with low self-esteem may affirm, "I am human, and as a human, I have self-worth no matter how much money I have or how many losing trades I make. My worth is not defined by whether I win or lose. Trading is not my entire life. Winning or losing doesn't define who I am."

Affirmations are personal. What you write down and recite is up to you. Affirmations should inspire you, guide you, and motivate you. But whatever you write down and repeat to yourself, it should address your desires, goals, and reasons for trading. At first glance, repeating an affirmation over and over seems like an inconsequential solution, but try it. You'll find it does wonders for your motivation and your mindset. Soon, you'll find that you don't have to consciously repeat the affirmations; you'll think of the positive statements automatically. Over time, you'll train your mind to think positively. You'll approach trading with a winning mindset that will help you achieve enduring financial success.

2005-06-01T15:50:00.001-07:00

Innerworth 5/27/2005

Clear and Specific Goals

Trading can be tedious at times. Day in and day out you have to look for market opportunities, and once you find them, you have to put your money and a little bit of ego on the line, and suffer the consequences, good or bad. If your heart isn't in it, you'll eventually join the disillusioned minions who have left the trading profession. To make it as a trader in the long run, you must love the process of trading. You must think it's so exhilarating that you would do it for minimum wage if that were the only way you could trade. It's not about the prize. It's a calling, a noble mission.

Who would not want to be a winning trader? With complete financial freedom, you could do anything you wanted. It's necessary, however, to turn the abstract goal of becoming a winning trader into a specific, concrete plan. In their book, "The Inner Game of Trading," Robert Koppel and Howard Abell argue that your trading goals should be clear, precise, and well defined. You must also try to complete your goals within a reasonable time. You should state your goals in an empowering way, and your goals should be realistic. And it's also necessary to set a goal that is easy to quantify.

There are a variety of ways to define trading goals, according to Koppel and Abell. First, you can set performance goals in which you focus on how well you are doing in terms of your own personal standards. When trying to achieve a performance goal, you try to increase your physical and psychological skills related to trading. Second, you can set outcome goals. Outcome goals help determine what's important to you. They allow you to develop trading techniques and strategies that match your personality. Third, a motivation goal helps increase your effort, and allows you to focus your attention on honing your trading skills. Motivation goals allow you to maintain a high level of enthusiasm and confidence.

Koppel and Abell list some important goals that novice traders should set. It's important, for example, to learn to control your emotions. Many traders act emotionally rather than rationally. They also have difficulty taking losses. It's necessary to take losses quickly and easily, rather than dwell on them. It's also important to develop a trading system that is consistent with your personality. All traders should also limit their risk. These are just some examples, but with each of them, it's essential to strive to achieve specific goals every day. On some days, you might just try to set a performance goal. You might practice a trading skill you're trying to hone based on a standard you personally define as adequate. On other days, you might try to achieve a specific outcome, and see how well you do. It's vital, however, to set clearly defined goals, and enthusiastically pursue them. Log your advancement, and reward yourself when you make significant progress.

Many traders make the mistake of trading aimlessly every day without trying to achieve specific goals. As Koppel and Abell put it, it's like trying to saw down a tree without making sure that your blade is sharp enough to cut wood. Goals direct and motivate. Without clear and specific goals, you're making a journey without a map.

2005-06-01T15:50:00.000-07:00

Innerworth 5/26/2005

Don't Be Afraid To Be Yourself

There isn't one right way to trade the markets. It's tempting to emulate your favorite "Market Wizard," but in the end, it's essential to match your trading style to your personality. Some traders, for example, carefully backtest a strategy before using it. They scrupulously estimate the probability of success for a trading strategy in an attempt to forecast how it will do under current market conditions. They are methodical and somewhat compulsive in their approach. But based on their personal psychology, they know that they are most comfortable when they have considered all possibilities and taken reasonable precautions to ensure success. Other traders are more easygoing. They take risk and uncertainty in stride, and aren't afraid to formulate their trading plans as they go along: "Backtesting is of little value. History only repeats itself occasionally. You've got to go out and find opportunities as they happen." Which approach is best? Again, the approach you use to trade the markets depends on your unique personality.

That said, the single most important factor for trading successfully is self-confidence. You can have a foolproof method, but if you don't have confidence, you can't use the method effectively. Developing a sense of confidence takes hard work. You must accumulate real life experience. You must live through various market conditions, and see how you react. Once you have rock solid confidence based on a wealth of experience, though, the way you approach trading is a matter of preference.

Some people are naturally optimistic. They tend to look at the world through rose-colored glasses, believing that all turns out well in the end. If you have proven skills as a trader, an optimistic attitude can keep you at the top of your game. By pushing yourself to the limits, you will consistently perform at your best. (On the other hand, optimism can hurt you if you don't have well honed trading skills. Many novice traders over-trade, abandon risk limits, and lose big when they are overly confident.)

But not all successful traders are extremely optimistic. Indeed, many successful traders are skeptical, cynical, and think, "If I'm not careful, I could lose capital." They are confident in their ability to trade profitably, but they know themselves. They believe in preparing carefully for a trade, and prefer to over-prepare. Before they execute a trade, they must be fully satisfied that they've covered all their bases. They think and re-think their strategy. They even worry a little about whether it will work. But in the end, they trust their approach, and they are confident that all their preparation and worry will pay off.

Research studies have shown that you must be yourself in order to achieve a high level of performance. Trying to be someone you aren't just because you think it's the "right" way to trade often does more harm than good. For example, if you take optimistic people and make them question their skills unnecessarily, their performance suffers. Similarly, if methodical, pessimistic people try to avoid going through the motions of checking and re-checking for possible flaws, their performance suffers. It is vital to remember that there is no one right way to trade. In the end, you must find what works best for you. Through trial and error, you must discover what you need to do to make profits in the markets. The only standards that matter are your own. In the final analysis, it's just you, the markets, and no one else.

2005-05-25T19:43:00.001-07:00

A man is rich in proportion to the number of things he can afford to let alone.
- Henry David Thoreau

2005-05-25T19:43:00.000-07:00

Innerworth 5/25/2005

Using the Success History Search To Cultivate a Winning Attitude

Making profits is often a matter of thinking and feeling like a winner. In their book, "The Mental Edge," Kenneth Baum and Richard Trubo (1999) argue that tapping into your history of success can put you in a winning mindset.

When trying to maximize your performance, it's useful to set your sights high. "The more you expect from yourself, the more you will achieve. Modest expectations produce modest results," according to Baum and Trubo. The images that come into your mind dictate your expectations. A baseball player who tries for a homerun is more likely to do better than a player hoping to merely hit the ball to first base. Similarly, if you don't expect to see a profitable opportunity during the trading day, you won't. On the other hand, if you think optimistically, you'll reach your potential: "If I study the markets carefully enough, I'll find at least one way to make a profit today." As a trader, your goal should always be to reach your potential. That isn't the same thing as unrealistically thinking you'll make a 500% return on your money on any given day, if you are a novice trader, but achieving your peak performance, whatever it is, each and every day.

Not everyone has the same abilities. It doesn't make sense for an amateur golfer to think that he or she can play like Tiger Woods. And it isn't realistic to think that an average trader can approach the success of a "Market Wizard." But whatever your skill level is, you should try to maximize it. For some, that may just mean putting on a few small trades a day to develop an intuitive feel for the markets. For others, it may mean making $1,000 a day. The main point is to maximize your performance. Try to achieve a level of performance that exemplifies the best that you can be.

When you strive to be your best, your confidence increases. Suddenly, you're enthusiastic and ready to achieve success. Baum and Trubo suggest using positive mental imagery to put you in the proper, optimal mood. They call this mental imagery task the "Success History Search." Here's how it works: Close your eyes. Let yourself relax. Now think of a recent time when you've accomplished something important, a task you're proud of. It could be a recent winning trade. Or it could be an athletic event you won recently. Perhaps it's a big business deal you closed, or even an A+ you received on a test in college. It could have happened yesterday or 10 years ago. The main issue, however, is that the event you remember should provide a clear image that inspires you, an event that makes you feel good about yourself, and makes you feel that you can do anything. Focus on the image. Try to remember the positive, optimistic thoughts that were running through your mind. Allow yourself to feel good about the experience. Remember how it felt like to win. Soon, you'll find that you become optimistic, focused, and ready for action.

Use the Success History Search before you start the trading day or when you are about to execute a trade. If you find that replaying just one winning accomplishment isn't enough, replay two or three until you cultivate a winning attitude. Images are powerful. By remembering vivid images of past successes, you'll feel optimistic and ready to master the markets.

2005-05-25T00:42:00.003-07:00

There's nothing remarkable about it. All one has to do is hit the right keys at the right time and the instrument plays itself.
- Johann Sebastian Bach

The task of beating the market is not difficult, it is the job of beating ourselves that proves overwhelming.
- Martin Pring

Take calculated risks. That is quite different from being rash.
- General George Patton

2005-05-25T00:42:00.002-07:00

Innerworth
5/24/2005

Trading With Discipline

Top-notch traders have unwavering discipline. Expert trader John Hayden notes, "Without discipline, you will be unable to master your ego, create empowering beliefs, have faith, and develop confidence in your abilities. The lack of discipline will prevent your skill as a trader from progressing." It may be tempting to trade by the seat of your pants, but if you don't develop clearly defined trading plans to follow, and follow them consistently, you'll have difficulty achieving enduring financial success.

What's the harm in abandoning a trading plan if you make a profit anyway? Making an occasional winning trade, even when you threw your trading plan out the window, may provide short-term pleasure, but entering trades haphazardly can adversely influence your ability to maintain discipline in the long term. When you stop following your trading plans, you become rewarded for a lack of discipline and you may start believing that abandoning a trading plan is no big deal. An unjustified reward may increase your tendency to abandon trading plans in the future. You may be prone to think consciously or unconsciously, "I was rewarded once; maybe I will be rewarded again. I'll take a chance." But the positive outcomes of undisciplined trading are usually short-lived, and a lack of discipline ultimately produces trading losses.

It's useful to distinguish justified wins from unjustified wins. A justified win is when a trader makes a very detailed trading plan and follows the plan. A win that results from following a trading plan is justified and reinforces discipline. An unjustified win occurs when a trader doesn't make a plan or drifts from the plan. He or she may be rewarded, but the outcome occurred by chance. The win is unjustified and can reinforce undisciplined trading.

Cultivating discipline is vital for consistent and profitable trading. Trading is a matter of getting the law of averages to work in your favor. One implements proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It's like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. To a great extent, consistency is key. If the player uses one approach one time, and a different approach at another time, performance is haphazard. It's the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. This allows the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities, and you are likely to end up losing overall.

With discipline comes profitability. Don't let unjustified wins interfere with your ability to maintain discipline. Follow your trading plan, and reinforce the idea that if you follow your plan, you will end up more profitable in the long run.

2005-05-25T00:42:00.001-07:00

Innerworth
5/23/2005

Staying Calm Through the Ups and Downs

Many novice traders ride an emotional rollercoaster, feeling euphoric bliss after a win, but overwhelming disappointment after a loss. Experienced professional traders, however, stay calm and relaxed even after a series of losses. They don't let the natural ups and downs of trading impact their emotions.

Ideally, the winning trader stays rational and unemotional, but even a seasoned trader can fall prey to emotional ups and downs occasionally. It's natural to question your method at times. "It is easy to start doubting my approach and wonder about the validity of what I'm doing," said Manuel, a hedge fund manager Innerworth interviewed a few years ago. At the other extreme, it's also natural to become euphoric and feel omnipotent. "During winning periods, it is easy to become overconfident, and that can lead to trouble. While overconfident, I feel a false sense of security. I'm tempted to take unnecessary risks, and I start to think that I don't have to do any more research to find and figure out new ways to extract money from markets. It is easy to fall into a sense of complacency."

Novice traders are especially prone to experiencing an emotional rollercoaster. They may not use proper risk management. They are prone to risking too much capital on a single trade. And when they take big risks, they are likely to feel overly ecstatic when they win big, but especially beaten when large amounts of trading capital are wiped out after a big loss. Through proper risk management, however, relatively little is lost on a losing trade, and that helps minimize the sense of disappointment after a loss. It's easier to stay evenhanded in terms of your emotions when your equity curve is smooth, rather than jagged due to extreme losses. Trading is a business. It isn't recreational gambling. As a business professional, it's essential to maintain objectivity. The more objective you are, the easier it will be to creatively analyze market action and trade opportunities as they present themselves.

How does seasoned trader like Manuel control his emotions? He realizes that his trading performance moves in cycles. Sometimes he is profitable and sometimes he is not. Gaining awareness of this fact helps him control his emotions. "I realize that if I have a big winning period that I shouldn't get overly excited because, most likely, I'll have a flat or losing period just around the corner. That's the way the market works. No style of trading makes money all the time. The odds are that after you have a big winning period, you'll go through a period of losing money shortly thereafter. I try to make enough money to give myself a cushion to handle the losses when they come."

Trading can wreak havoc on your emotions unless you take precautions. Through proper risk management, though, you can control the extreme ups and downs that are inherent when you have your hard earned capital on the line. Winning traders, however, stay calm, objective, and rational. If you can trade in this optimal state of mind, you'll increase your chances of achieving enduring financial success.

2005-05-25T00:42:00.000-07:00

Innerworth
5/20/2005

Fighting Murphy's Law

While trading the markets, there are times when Murphy's Law says it all: "Whatever can go wrong, will go wrong." Does this sound a little too cynical? Perhaps, but only if you submit to pessimism. If you have a winning attitude, however, you're ready to tackle anything. You'll think, "Things go wrong all the time. So what, I'll take it in stride and move on." If you cultivate a winning attitude, you can fight Murphy's Law with ease.

In their book, "The Innergame of Trading," Robert Koppel and Howard Abell argue that trading knowledge is not sufficient to trade successfully. Sure, it's essential to have extensive knowledge and a wealth of experience with the markets, but trading with a winning state of mind is also necessary. Traders with a winning state of mind are anxiety-free, confident, organized, and have high self-esteem. Many traders, though, unnecessarily limit themselves. They aren't confident, but uncertain and easily shaken. They are vengeful, rather than enthusiastic about vast market opportunities. They are easily disappointed, and find it hard to get energized. And they face an adverse market event with frustration, instead of persistence and discipline.

Consider the difference between the limited trader with a pessimistic attitude and the resourceful trader with a winning attitude. The limited trader may think, "The markets are rigged, too risky, and don't let you win." The resourceful trader, in contrast, thinks, "The markets provide opportunity, and can be mastered." The resourceful trader realizes that he or she may not be perfectly skilled. Mistakes are bound to happen. The limited trader thinks, "If I get stopped out, it illustrates that I'm a loser," but the resourceful trader thinks, "If I get stopped out, then I have to reevaluate the trade." While the limited trader thinks, "If the market doesn't do what I expect it to, then I don't know anything," the resourceful trader thinks, "If the market doesn't do what I expect, then my analysis or timing has to be reconsidered." While the limited trader allows his or her emotions and feeling of low self-esteem to take over, the resourceful trader takes an active, problem solving approach and gets things done.

A winning attitude can do wonders. Rather than feel like a victim who has no control over the markets, a winning attitude allows you to gain realistic control of your thoughts and emotions. Rather than react emotional to a setback, a winning state of mind allows you to cope with an adverse event effortlessly, and manage risk in order to protect your capital. When you have a winning attitude, setbacks aren't a threat. You don't pessimistically blame the markets or market participants for a setback. Instead, you take responsibility for your actions. You think, "What can I do to make a winning trade? Maybe I can change my method. Perhaps I need to stand aside and study the current market action more closely. I'll learn from my mistakes and eventually master the markets." By not putting pressure on yourself to trade with perfection, you feel more relaxed, creative, and ready for action. So when setback after setback starts making you feel like Murphy's Law is true, question its validity, cultivate a winning attitude, take control, and master the markets.

2005-05-19T17:06:00.000-07:00

NHF

May 19, 2005

BANKERS OFTEN LEND MONEY ON CHARACTER, BUT SELDOM ON REPUTATION ALONE, FOR THEY HAVE LEARNED THAT NOT ALL REPUTATIONS ARE DESERVED.

When considering a loan, a banker attaches great importance to three things: the borrower’s ability to repay the loan, the borrower’s credit history, and the borrower’s character. The first two considerations can be calculated mathematically; the third requires judgment and experience. Prudent bankers have learned that persons of character are always a good risk because they take their obligations seriously while those who spend their resources on the trappings of success should be avoided at all costs. Protect your good reputation as you would protect your home, your investments, and your life. Once shattered, a good reputation can only be regained by those who have developed the courage and willpower to persevere in the face of great odds.

2005-05-19T17:03:00.000-07:00

Remember, today is the tomorrow you worried about yesterday.
- Dale Carnegie

I not only use all the brains I have, but all that I can borrow.
- Holbrook Jackson

2005-05-19T17:02:00.001-07:00

5/19/2005
Innerworth

A Good Mood Is More Important Than You Think

Have you felt under extreme pressure while putting on a trade, and found that you just couldn't think straight? You questioned your trading plan, and suddenly, you hesitated at a critical moment during the trade, a time when decisive action was needed. When you get like this, it may be hard to snap out of it. A bad mood has a lot to do with it. When you're in a bad mood, you'll be stuck and paralyzed. Your mood impacts your decisiveness. The better your mood, the more earnestly you'll trade.

In an innovative experiment, psychologists Benie MacDonald and Graham Davey (2005) showed that seeking extreme perfection is a function of two factors: a bad mood and a belief that mistakes have dire consequences. College students were asked to complete a task that consisted of identifying 100 spelling and punctuation errors. Participants were randomly assigned to one of four experimental groups. Some participants were told that if they made a mistake on the task, they would receive a slight form of punishment, while for others, making a mistake had no consequences. Some people did the task while in a good mood, while others did the task in a bad mood, which was induced experimentally by the researchers.

The participants who were in a bad mood, and thought that they would be punished for making a mistake, tended to unnecessarily check and recheck their work. In other words, they tried to achieve an unrealistic level of perfectionism. Why did this group of participants obsessively strive for extreme perfection? According to MacDonald and Davey, these participants allowed their mood to dictate their behavior. They thought, "I'm going to look for mistakes until I feel satisfied." When you're in a bad mood, however, this isn't a very useful strategy. A bad mood doesn't dissipate very quickly, and so if you check and recheck your work until you are satisfied, you'll check and recheck longer than necessary. Since you're in a bad mood, you'll never feel satisfied, no matter how much checking and rechecking you do.

This experiment explains why people seek out extreme perfectionism while in a bad mood. If you are prone to experience self-doubt, your confidence will be especially shaken when you are in a bad mood. As you try to execute your trading plan, you'll question whether it is viable or whether current market conditions are optimal. You'll never be satisfied and think, "Something doesn't feel quite right." At these times, it is vital to do one of two things. Either avoid trading while in a bad mood, or don't let your mood guide your actions. Remind yourself that when you are in a bad mood, you will be especially prone to question your actions, and may act irrationally or impulsively. If you are aware of the psychological mechanisms that influence your decision-making, it's possible to work around them. If you think, "I'm in a bad mood, and thus, I'm irrationally questioning my trading plan or my abilities," you can try to ignore your mood, and persistently and logically try to follow your trading plan with discipline. But whatever strategy you take, don't underestimate the powerful influence your mood has on your thoughts and decisions.

2005-05-19T17:02:00.000-07:00

5/17/2005
Innerworth

Abandoning Risk Limits

Winning traders manage risk. Risk management is vital for their survival. But financial risk management doesn't come naturally for most people. Behavioral economists have shown that people can be extremely undisciplined when it comes to risk control. After a big win, they can become overconfident to the point of exuberantly taking unnecessary risks. And after a big loss, they have a strong desire to recoup their losses. Gaining awareness of these human decision making biases can help you neutralize them, and prevent them from shattering your trading discipline.

In a classic study, behavioral economists Richard Thaler and Eric Johnson asked participants to take two gambles, one after the other, using real money. In the first of the two gambles, participants either won or lost money. The point of the study was to see what people would do in the second gamble. Would they enthusiastically take another risk or would they shrink away, averse to risk?

When participants won on the first gamble, they were willing to take a chance on a second gamble. But participants who did not win on the first gamble refused to make a second bet. Behavioral economists call this finding the "house money effect." When people obtain a windfall, they don't mind losing it. They don't see the money they won as their own and are willing to risk it freely. It's like gambling with the casino's, or house's, money. They think, "It's not my money. It doesn't matter if I blow it all."

When participants lost money on the first gamble, in contrast, they were not willing to make a bet on the second gamble. It's like when a snake or a spider bites you. Once you've been bitten, you're afraid to get bitten again. You don't take a chance in the future. You're too afraid. People don't want to take a risk when they have a clear image in their mind that they are going to get hurt. Behavioral economists call this phenomenon the "snake bite effect."

When losses are especially great, however, people easily overcome the snake bite effect. There is a strong and pervasive tendency to recoup losses. In the "break even effect," people are willing to go double-or-nothing to make back what they have lost. They will take especially risky gambles on the chance that they can break even quickly. But riskier bets often mean even bigger losses in the long run.

Managing risk is essential for long term survival. But traders are human, and humans can behave irrationally. Overconfident online investors who have made big wins, for example, tend to over-trade and take riskier trades than are prudent. And when novice traders have a long series of losers, many are tempted to make bigger, riskier trades in the hope of recouping what they've lost. Instead of falling prey to these biases, it's vital to steadfastly manage risk no matter what. Don't let common decision making biases compel you to abandon your risk management plan. Winning traders manage risk. If you can control your impulse to react irrationally and emotionally, you can easily manage risk, and achieve enduring financial success.

2005-05-18T18:27:00.000-07:00

Look, fortunes are going to be made. But the biggest risk is what you cant see today. Thats why life is the ability to step outside yourself, to see that something you cant see TODAY, something that one day you will hit yourself on the forehead and say "Why didnt I see it that way ?". You wont be able to imagine not having seen it, except that you will remember not having seen it

Lloyd Blankfein, COO, Goldman-Sachs

To different minds, the same world is a hell, and a heaven.
- Ralph Waldo Emerson

Success is getting what you want. Happiness is wanting what you get.
- Dale Carnegie

I not only use all the brains I have, but all that I can borrow.

- Woodrow Wilson

2005-05-18T18:26:00.000-07:00

Innerworth 5/18/2005

Risk Tolerance: Knowing Your Limitations and Working Around Them

Winning traders know how to tolerate risk. Trading outcomes are far from definite, but they don't mind. They have no problem putting on trade after trade and doing so with grace and nonchalance. Not everyone can live up to this standard, however. Many novice traders have trouble taking a risk, even a small one. They either avoid executing a trade, or when they do, they find it excruciating to monitor the trade as they wait to see if their profit objective will be reached. Depending on your background and personality, you may have trouble tolerating risk. But don't let it dash your hopes of making profits. You can develop a way to work around a low tolerance for risk.

When you find risk taking particularly fearful, it's hard to concentrate. You are continually on edge and tempted to close out a trade just to end the uneasiness. Part of risk tolerance is biological and part of it is socially learned. Some people are easily agitated and once they become anxious, they find it difficult to calm down. They continue to remain anxious and on edge, even when a threatening event has passed. If you are easily agitated, it's useful to take precautions to reduce your propensity for over-stimulation. The mind and body go together and there are many ways to reduce your overall level of agitation. For example, if you exercise, avoid caffeine, meditate, eat nutritiously and get plenty of rest, you will stay more relaxed. That said, it's hard to fight biology. If you've always been the kind of person who gets anxious easily, you'll have to find a way to work around this aspect of your personality.

If you find taking risks especially difficult and extremely anxiety provoking, you may need to adapt your trading style to fit your physiology. There's no one right way to do this. It depends on your preferences. But one issue to consider is the length of time you stay exposed to risk. The longer a trade, the more risk involved. Scalpers, for example, take minimum risk. They get in and get out of the market as fast as possible. Some anxiety-prone people may find this kind of fast-paced trading especially stressful, but others may find it appealing. You don't have to wait very long to see how a trade turns out.

At the other extreme, long term investing can be another option. Some companies have relatively consistent long-term trends. By doing some simple homework, you can identify a few solid companies and use a buy-and-hold strategy. After you buy the stocks, make a conscious decision to restrict the number of times you look at the price. You might decide to look only a few times a year, for example. Looking at how the stocks are doing can be a lot like looking at a slot machine or roulette wheel. When you look at it, you'll feel anxious as you anticipate what might happen. But if you avoid looking, you'll see the grain of truth in the saying, "out of sight, out of mind." That's not all you need to do, however. You will also find it useful to put a stop loss in place to limit your risk. Defining the amount of risk you are taking up front will help you tolerate risk. (Remember, though, that you must account for volatility over the course of the trade. It's impossible to completely eliminate all risk. You must find a happy medium between getting stopped out too early or allowing your investment to fall in value to an uncomfortable level.)

There's one last thing you can do: Accept the fact that should the market go against you, you will definitely lose the portion of capital that isn't protected by your stop-loss. In the end, you must accept that you may lose. One of the main reasons people have difficulty taking a risk is that they are afraid of the consequences of a potential loss. They wonder what they would tell their spouse or their parents should they lose. They wonder what they would need to do to make back the lost money. It is vital that you trade with money you don't mind losing. If you can truly believe that losing the money is no big deal, you'll be able to tolerate the risk, even if you have extremely low risk tolerance. But if you can't afford to lose the portion of your capital you are risking on the trade, don't risk it. You will never be able to convince yourself that it is a good idea, and if you have low risk tolerance, you will just be putting yourself in agonizing pain.

Extremely low risk tolerance can severely hamper trading, but if you take the proper precautions, you can still trade profitably. By finding a trading style that suits your personality and only risking money you can afford to lose, you'll feel calm enough to trade freely and profitably.

2005-05-18T18:25:00.001-07:00

5/13/2005
Innerworth

Media News and the Behavior of the Masses

As a short-term trader, your goal is to stay ahead of the crowd and let their money flow from their pockets into yours. The better you can anticipate the behavior of the masses, the better you'll be able to capitalize on their irrational decisions. The masses are notorious for over-reacting to media news. In an innovative study, behavioral economist Dr. John Nofsinger studied how media coverage influences the masses. It's not as straightforward as you might think.

A popular theory in behavioral economics is that buying and selling by the masses is motivated by a powerful tendency to avoid regret and seek out pride. These emotional tendencies often lead to irrational investment decisions. Many investors, for example, hold on to a losing investment because they don't want to face feelings of failure and regret. Keeping losses on paper postpones the inevitable. Good news raises stock prices, and when prices rise as a result of good news, most investors can't wait to sell, take profits, and bask in the glory of success. Dr. Nofsinger's study, however, reveals that things may be a little more complicated. It may depend on the kind of news investors hear, rather than whether it is good or bad. He studied how investors reacted to two kinds of news, news about specific companies and news about the economy in general.

Good news, whether it is about a specific company or about the economy in general, increases stock prices. And one would think that regardless of what kind of news raises a stock price, the impact on the masses would be the same. But Dr. Nofsinger found that the kind of news does matter. If the good news is about the specific company, the masses tend to sell, but if the good news is general economic news, they hold on to their positions. Bad news about the economy similarly has little effect on what the masses do according to Dr. Nofsinger.

What are the psychological dynamics behind the behavior of the masses? In their pursuit of pride and avoidance of regret, the masses continually monitor their positions and deliberate as to whether they have made a good or a bad investment. If the news is bad about a company, they tend to blame themselves for choosing the wrong company in which to invest. They tend to believe that they could have cherry picked a better company had they done their homework. When they hear good or bad economic news about a company, it bears on their original decision to invest in the company, and they react emotionally. On the other hand, it's hard to blame yourself for a poor economy. What could you have done? A poor economy impacts all stocks, so the only thing you could have done was to avoid investing in the market altogether. It wouldn't matter what company an investor decided to put their money in since all companies are affected by a poor economy. In this case, the masses forgive themselves, and do nothing.

The influence of emotions on the masses is powerful. By seeking out pride and avoiding regret, they allow their emotions to overpower their logic. As an astute trader, however, it's vital that you stay objective. Don't let your feelings of pride or regret influence you. Let the masses over-react. And when they do, capitalize on their irrational behavior and profit form it.

2005-05-18T18:25:00.000-07:00

5/12/2005
Innerworth

Sunk Costs in Everyday Life and in Trading

Have you ever put your time and money into a project and received nothing for it. Perhaps it's a classic car you've been meaning to restore that's been sitting in the garage for 10 years, or your grandparents' antique sofa that you put in a storage unit until you can find a way to fit it into the décor of your living room. It has sentimental value and you just don't want to part with it. It's worth the $80 a month to keep it in storage, right? Maybe you can give it to your children, but at $80 a month for 10 years? That's $9,600! Is the sentimental value worth it? That's up to you, but for some people, $9,600 is a lot to pay for sentimental value. We can get overly attached to our possessions to the point that we do whatever we can to keep them, rather than just let go of them. This attitude can transfer to the trading realm as well. People can become so overly attached to a stock that they act emotionally, as if the stock has sentimental value. But stocks aren't for owning and keeping. Stocks are for trading, and making money.

Sunk cost effects are powerful. Our time and energy are precious, and when we devote valuable resources to an activity, in everyday life or a trade, we want to believe we didn't squander the few assets we have available. When we make a trade, we want to believe that we made a good decision. A nagging voice in the back of our minds whispers, "Why did you risk resources if you did not think that you could make a decent profit?" Your first inclination is to shout, "I didn't." But you may have, and it's all right if you did. When you make a trade that isn't working out, don't be afraid to admit it. Don't try to justify your decision.

Everyone makes mistakes, and winning traders make a lot of them on their way to enduring profitability. Don't place more meaning on a trade than necessary. It's just a business deal, and when you do make a poor trading decision, don't be afraid to admit it. Don't be riddled with guilt or regret. Many times, we avoid admitting that we made a poor decision because we are afraid of the emotional consequences. We see ourselves as competent and astute, and when we make a mistake, it can make us feel inept and obtuse. It's easier to try and ignore it, and save face. For example, you can leave a losing trade on paper and hope that market conditions will improve and you'll recoup your losses. It's usually better to just face the loss, though. Just accept your limitations, and move on. It can be difficult, but you can make it easier by remembering the motto, "Don't feel bad about feeling bad." So you made a mistake. Make light of it and move on. Rather than react emotionally with guilt or anxiety, it's better to stay objective. When you objectively look at a trade, you'll be less afraid to study the consequences in meticulous detail. You'll monitor your trades, look honestly at how well you're doing and neutralize the sunk cost effect. The sunk cost effect is powerful. It's the demise of many traders who fruitlessly try to ignore what they did wrong, and in doing so remain stuck and uneasy. But if you find the courage to objectively acknowledge when you were wrong, you can take setbacks in stride, and move on to the trades that make you a winning trader.

2005-05-09T23:12:00.000-07:00

5/9/2005

Innerworth

Pick Yourself Up and Move On

Are you having a bad day? Has media coverage spoiled your trading plan? Perhaps you are just feeling a little off? When you encounter an unexpected setback, you can feel beaten down. You might be tempted to just stay knocked down, stuck, and unable to get back up. "I'll never make enough winning trades to recoup my losses." Ever have these thoughts, when you feel beaten? It's natural, but you can't stay down too long. You have to get back up and try again.

When a wild animal searches for water in the middle of a desert, it doesn't wallow in self-pity when all the watering holes are dry. It keeps on searching until it finds water. Continuing the search is a matter of survival. There's no time for worry and disappointment. When you encounter a setback, it's wise to similarly search for new market opportunities. Think optimistically. Don't retreat. Engage your primal instincts to survive.

Art Linkletter once said, "Things turn out best for people who make the best of the way things turn out." You may have expected a trade to turn out profitable yet lost. Some may see the loss as a sign of personal inadequacy, but the winning trader takes the loss in stride. He or she asks, was there something to learn here? Sometimes there is and sometimes there isn't. A good trading plan can often fail for no good reason. What winning traders don't do, though, is mull over a setback too long. They make the best of it and move on. That can mean executing the same trading plan under more favorable market conditions or it could mean searching for a new trading opportunity. Whatever is done next, stagnation is not an option.

We often feel trapped when the internal dialog we have with ourselves is pessimistic. When we feel particularly stuck, we can talk ourselves into a rut. It starts out innocently enough. You may think, "I'm disappointed. I needed this trade to be a winner." Your next thought, however, gets you into a bit of trouble. You may start thinking, "I'll never get this right. I'm just fooling myself." Then you start remembering how your best friend warned you that you'd never make it as a trader in the long run. You then remember the other failures you've had in your life and the financial obligations you have this month. Soon, you've talked yourself into a psychological rut. All seems hopeless. When you get this way, it's vital to get back your optimistic, fighting spirit.

How can you recapture your optimism? First, focus on the big picture. You might remind yourself, "I'll make the profits I want someday. It may not be today. It may not be tomorrow, but if I keep at it, I'll eventually reach my financial goals." You might also daydream a little to improve your mood. Imagine a time in the future when market conditions are just right, and you are there enthusiastically ready to take advantage of them. And how can you get ready? Practice and experience. The more trades you make, the more practice and experience you'll have, and when the time comes, you can easily make a killing in the markets. You might also want to make a list of past winning trades to help you pick your spirits up when you're down. If you read the list at the slightest sign of disappointment, you'll be able to pick your mood up before it starts on a downward spiral. Remember the times you've made big wins. If you did it in the past, you can do it again.

Merely getting yourself in a good mood may not guarantee that you will suddenly return to profitability, but it will increase the odds. There's no way you are going to find profitable market opportunities if you are pessimistic. When you are optimistic, you'll think more creatively and freely. And this optimal mindset will give you the mental edge you need to master the markets.

2005-05-09T23:01:00.000-07:00

5/6/2005

Innerworth

Dare To Be Average

When you put your money on the line, there's a strong need to seek out perfection. Many novice traders believe they can get everything just right. They believe that they can locate infallible information, find the perfect setup, and execute every trade flawlessly. In "Trading in the Zone," Mark Douglas notes that many traders are so consumed with making the perfect trade that they never get around to executing enough trades to make a profit. It may be difficult to accept for the overly compulsive trader, but trading is not a profession where you can persistently demand perfection. There's no such thing as a sure profit. Information is often inaccurate. You can plan a trade methodically only to have it fail because an unanticipated adverse event thwarts your trading plan. It's natural to strive for perfectionism. You don't want to be a sloppy, impulsive trader. That said, you don't want to be an extreme perfectionist either.

"The harder you strive for perfectionism, the worse your disappointment will become," according to Dr. David Burns (1980). Perfectionism has more disadvantages than advantages. When you strive for overly exacting standards, you feel so tight and nervous that you actually aren't very productive. You are unable to take risks because you fear failure. You tend to hold back rather than make new discoveries. Trading is a profession where you must take risks and explore new market opportunities. If you continuously strive for perfectionism, you'll never feel satisfied. You'll always think, "I could have done better."

Is your perfectionism out of hand? Here's an exercise Dr. Burns suggests for learning about the impact of your perfectionism: Dare to be average. Feel what it is like to be average and see what happens. Rather than search for the ideal setup, why not just find a profitable setup? What happens when you just make an average trade? Sure you won't make as much profit, but you might feel better. You will probably feel relaxed. Compare what it feels like to strive for high standards, moderate standards, and low standards. You may find that merely going for moderate standards makes you feel better. You may also find that you put on more trades, and achieve greater levels of profitability. Trading can be a matter of probabilities. To get the law of averages to work in your favor, you must make trade after trade. If you manage your risk, and put in a moderate effort, you can make enough trades to come out ahead. As long as the setups are reasonable, and you are using sound trading strategies, you can get the losing trades "out of the way" and focus on the winning trades. But if you are an extreme perfectionist, you'll always be on edge and unable to make trades. And because you are so concerned with overly high standards, you may never discover and take advantage of new, profitable market opportunities. By easing up, you'll feel more relaxed and creative. Ironically, you may end up more profitable by daring to be average, instead of striving for absolute perfection. So dare to be average and see what happens. You may be surprised at what you find.

2005-05-09T22:59:00.001-07:00

NHF

May 9, 2005

PROFANITY IS A SIGN OF INADEQUATE VOCABULARY OR UNSOUND JUDGMENT-OR BOTH.

Mark Twain once observed that "the difference between the right word and the almost-right word is the difference between lightning and a lightning bug." It is never appropriate to use profanity, especially among people you do not know well. Instead, build your vocabulary by reading and studying so that you can express yourself simply and eloquently. When you expand the number of words you know, you also expand your mind, because understanding the words and their meanings necessitates understanding the concepts behind them. Make sure you allow time each day for study and reflection. words, but actions speak for themselves.

2005-05-09T22:59:00.000-07:00

NHF

May 8, 2005

BOASTFULNESS IS GENERALLY AN ADMISSION OF AN INFERIORITY COMPLEX

Really capable people don’t have to boast about their achievements; they let their actions speak for them. When you boast about your accomplishments, you are telling others that you are unsure of yourself and your value in the world. Baseball manager Tommy Lasorda once noted that there are those who watch things happen, those who wonder what happened, and those who make things happen. Strive to be one of those who make things happen. If you show others what you can do, they will respect you far more than if you had simply told them what you’d done. Anyone can quarrel with words, but actions speak for themselves.

2005-05-03T17:46:00.000-07:00

Our life is frittered away by detail. Simplicity, simplicity, simplicity!

- Henry David Thoreau

2005-05-03T17:45:00.002-07:00

four indicators of emotional toughness: flexibility, responsiveness, strength, and resilience.

- Dr. Loehr

2005-05-03T17:45:00.001-07:00

Too much money is lost and too much money is missed
for two simple reasons: One, trying to predict the
future, and two, fearing the future.

-anonymous

2005-05-03T17:45:00.000-07:00

Everyone wants to be rich, but few want to work for it.

- Richard Driehaus

2005-05-03T17:44:00.001-07:00

5/3/2005

Innerworth

Building Emotional Toughness

Psychologist James Loehr (1997) argues "emotions run the show." They drive everything. "The stock market is not driven nearly as much by world events as by how people respond emotionally to those world events," according to Dr. Loehr. The most important factor in increasing performance is emotional. "Consumed by anger, fear, doubt or hopelessness, you lock up inside and fall short of the mark again. What is possible for you remains tragically out of reach." Unless you experience a full range of emotions, and become emotionally tough, you'll have trouble achieving a higher level of performance.

How do you become tougher emotionally? According to Dr. Loehr, there are four indicators of emotional toughness: flexibility, responsiveness, strength, and resilience. By working on each of these areas, you can develop the emotional skills you need to improve your performance.

Emotional flexibility is the ability to be open, expansive, and non-defensive in the face of a crisis. There's a strong tendency to blow a minor setback out of proportion and respond inflexibly. For example, when our trading strategy goes awry, or we face a temporary drawdown, our first inclination is to avoid the problem, rather than experience a range of emotions, such as a fighting spirit, humor, or enthusiasm. It's important to experience a little bit of fear, but once you go there, it's even more vital to think creatively, problem-solve and get past it. If you are open to different emotions, you'll have an easier time moving forward, rather than remaining stuck and paralyzed.

It's also important to be emotionally responsive. When facing a crisis, many people want to shut out their emotional experience. They are withdrawn and distant, estranged from their ongoing experience. But it's essential to remain open to experience and ready to respond actively and creatively. If your trading method is failing, for example, it's important to energetically try to revise it. You must actively study the markets, be open to current market conditions and accept them. Once you connect emotionally with the markets, you can find new solutions that weren't obvious at first glance.

When facing a crisis, even a minor one, emotional strength and resiliency allow you to constantly exert a positive force to change matters. Rather than back down in defeat, it's vital to show unfailing persistence. You must be able to quickly bounce back from a setback. Rather than be deterred, you must keep your overall goal in mind and keep striving for it.

Winning traders are emotional tough. They are open to a wide range of emotions, stay connected to their ongoing experience, stay positive, and bounce back from a setback quickly and easily. The more you can build emotional toughness, the more rapidly you can enhance your trading performance.

2005-05-03T17:44:00.000-07:00

5/2/2005

Innerworth

Happy Traders Seek Out Balance

Trading is a challenging business. Only the most skilled traders can make a living as an active, full time trader. Trading experts suggest that novice traders approach trading the same way that students pursue their vocation in professional school, which requires a resolute dedication to hone their skills in order to move to the top of their field. The seasoned, professional trader has rare and valuable skills, like those of a lawyer or a doctor. You have to limit your social life and focus on developing your skills if you want to be at the top of your class. Think of the interns and residents on "E.R." or the law students on the "Paper Chase." They focused all their efforts on learning about their profession, even if it meant sacrificing their social life. It required a life with little balance between work and pleasure. Is it a good idea? It depends on how much happiness you want in your life.

In a recent interview in the "APS Observer," Professor Laura King, a psychologist at the University of Missouri, Columbia, was asked how graduate students could make the most of the current lives. She said, "Enjoy the process as much as you can and try to maximize your positives by readily dedicating yourself to the goals that are likely to be rewarded." This advice is true for trading as well as for students in graduate and professional school. It's vital that you enjoy the process of trading, but should it be your raison d'être? Maybe not. Professor King suggests, "I am not one who thinks that graduate school is not a time to have a real life. You may have to keep it a secret, but have a life."

Many novice traders work under the assumption that because they're putting their money on the line to pursue trading, they should give it their all. Is it necessary? A study we conducted at Innerworth suggests that it is not. We asked a group of traders to fill out a questionnaire regarding their emotional mood. We divided the sample into happy and unhappy traders and compared them. Compared to unhappy traders, who reported a tendency to feel disappointed, frustrated, and discouraged, happy traders reported that they enjoyed the process of trading. They liked the intellectual challenge trading provided. They enjoyed learning about how companies made a profit. They enjoyed learning about new investment strategies, and enjoyed learning about how people made money in the markets. These responses are consistent with Professor King's suggestion to "enjoy the process." When asked if they allowed their personal relationships to suffer as a result of devoting too much time and energy to trading, the answer was "No." Happy traders were clearly dedicated to honing their trading skills, and enjoyed doing so, but they didn't allow their relationships to suffer as a result of their dedication. There is a valuable lesson to learn: Pursue trading earnestly, but also seek out psychological balance. Don't think that trading must be your whole life. Spend time with family and friends. That's what happy traders do.

2005-05-03T17:43:00.000-07:00

NHF

May 3, 2005

YOUR REPUTATION IS WHAT PEOPLE THINK YOU ARE; YOUR CHARACTER IS WHAT YOU ARE.

You want your reputation and your character to match, but concentrate on your character. You may be able to fool others about the kind of person you really are for a time, but it seldom lasts for long. The surest way to make sure your character and your reputation are the same is to live your life in such a way that nothing you do would embarrass you if it were printed on the front page of the newspaper. Good character means not ever taking ethical shortcuts, even though everyone else may be doing so. You build good character by doing the right thing because it’s the right thing to do.

2005-04-29T23:24:00.000-07:00

Satisfaction lies in the effort, not in the attainment. Full effort is full victory.

- Albert Einstein

2005-04-29T23:23:00.001-07:00

If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time.

- Chinese Proverb

2005-04-29T23:23:00.000-07:00

NHF

April 28, 2005

IF YOU ARE WORRIED OR AFRAID OF ANYTHING, THERE IS SOMETHING IN YOUR MENTAL ATTITUDE THAT NEEDS CORRECTION.

Worry and fear are negative emotions that serve no useful purpose. Worse, they are not benign influences on your behavior. Both tend to expand if left unchecked until they crowd out positive emotions and beliefs, taking over your mind and filling it with counterproductive emotions that cause you to doubt your ability to succeed at anything you attempt. Unless you control worry and fear, one day you will discover that they control you. While the emotions can’t always be corrected with logic or reason, they are always susceptible to action. Act, and even if your actions aren’t entirely appropriate for the situation, the very act of doing something-anything-constructive will have a positive effect on your mind and attitude.

2005-04-26T20:11:00.001-07:00

The mind has exactly the same power as the hands: not merely to grasp the world, but to change it.

- Colin Wilson

2005-04-26T20:11:00.000-07:00

I never remember feeling tired by work, though idleness exhausts me completely.

- Sherlock Holmes

2005-04-26T20:08:00.000-07:00

Innerworth 4/26/2005

Small Things Matter Too

Ask many seasoned traders to describe their most profitable trade, and you'll hear a fantastic story. It's usually purely serendipitous. For example, they may have been going long on a large position when suddenly a media reporter talked up the company for no good reason. The stock price shot up as the masses heard the news, and they made a killing. These stories are thrilling. They inspire you to hone your trading skills and master the markets. Who doesn't want to be at the right place at the right time? But if you want to be a profitable, active trader, you can't merely wait for a rare trading opportunity to present itself. Most of the time, trading is about making trade after trade to the point that it seems mundane. Rather than seek out the big, thrilling trade, it's important to remember that small trades matter a lot.

Influential advertising executive, Bruce Barton once observed, "Sometimes when I consider what tremendous consequences come from little things … I am tempted to think there are no little things." As stirring as big trades seem to be, it's the smaller trades that keep you in business. Many traders feel they reach a plateau when trading. They make trade after trade and little seems to happen. They don't suddenly find the trading Grail and achieve the great wealth and status of their dreams. Whether they realize it or not, however, they are still making progress. Each new observation of the market, each trade they execute, no matter how small, adds to their wealth of knowledge. They intuitively learn what to do and what not to do. They may see a slight variation of a classic chart pattern emerge and learn just how far the pattern can deviate from the prototype and still forecast the movement of the stock price. On another day, they may learn a new way to place a protective stop so that they protect their risk, yet don't get stopped out prematurely. These small everyday, seemingly insignificant experiences matter a lot.

Trading is challenging. Few survive to trade over many years. The traders who do survive, however, know how to stay focused and patient. They don't go for quick thrills, and unrealistically huge profit objectives. They know that losing is easy and can happen in the blink of an eye, but building capital back up can require difficult work over many weeks. Instead of going for risky, exciting trades, they seek out high probability setups, take steps to protect capital, and execute the trade decisively, according to their trading plan. They may not have an exciting tale to brag about to their friends, but they take home a tidy profit. And when they make trade after trade, the small profits add up, and they end up with big profits in the end.

So when you feel that your earnings have reached a plateau, don't get discouraged. As long as you are making profits, and staying in the game, you're continuing to develop your trading skills. You're adding to your knowledge base. You're developing a more intuitive feel for how the markets operate. It may not seem like you're making the profits of a "Market Wizard," but if you keep at it, you'll be one of the rare few that join the ranks of winning traders.

2005-04-26T20:07:00.000-07:00

Innerworth 4/25/2005

Wishing Upon a Star

When you wish upon a star, what do you wish for? If you're like most people, financial freedom is one of the first things on your list. If you had a million dollars, think of what you could do. You wouldn't have to ever work again. You could just sit on the beach and relax. But if you're like most traders, you couldn't stay away from the game even if you had infinite wealth. What else could you wish for? A crystal ball, perhaps. Or tomorrow's newspaper, just like on the television show "Early Edition." You would be able to know what the masses were going to do tomorrow. You could anticipate their every move with unfailing accuracy. Think how easy trading would be? Wouldn't it be nice to be able to predict the future?

It's fun to wish that we could trade more profitably, but wishing can often be a sign of desperation. When you are in wishing mode, you passively wait instead of taking decisive action. You hope for miracles and wonder if you'll ever see huge profits. But if you take proactive steps, you won't have to wonder. If you set your mind to it and work hard enough, you will be successful. Through hard work and determination, you can make your wish of becoming a winning trader come true.

Would it be nice to have a crystal ball? Yes. You could trade without fear. But who needs a crystal ball? Winning traders have honed their skills to the point that they don't need a crystal ball. They have methods that work across a variety of market conditions. They may not win on any single trade, but their methods give them an edge. If they make enough trades, the law of averages works in their favor and they end up profitable. They trust their method, trade with discipline, and after a series of trades, they are profitable.

Can you predict what the masses will do? Not always, but seasoned traders rely on their wealth of trading experience. More times than not, they can accurately anticipate what the masses will do. When a company fails to meet earnings estimates, the price usually goes down. When the sell off is too great, many of the masses feel regret and buy back what they had sold. Do the patterns work like clockwork? No. Do they work a lot of the time under particular conditions? Yes. What seasoned traders know, and so should you, is how specific stocks move according to world events, media reports, times of day, or whatever unique factors impact the price. Nothing is certain, but the more knowledge you have about a company, the better you'll be able to anticipate how its stock price will move. And if you can stay ahead of the masses, you can profit. You don't need to hope for a miracle. All you have to do is study the markets and develop an intuitive feel for how they move. Once you develop these skills, you could anticipate the markets almost as well as having a crystal ball.

2005-04-26T15:29:00.000-07:00

NHF

April 25, 2005

HONESTY AND HARD WORK ARE COMMENDABLE TRAITS OF CHARACTER, BUT THEY WILL NEVER MAKE A SUCCESS OF THE PERSON WHO DOES NOT GUIDE THEM TOWARD A DEFINITE MAJOR PURPOSE.

Character is an important element of success and a critical attribute of leadership, but character alone cannot ensure success unless it is channeled in a positive direction. When good, decent people-persons of character-connect with a major purpose for their lives toward which they willingly and enthusiastically direct their energies, the results can be awe-inspiring. A major purpose and outstanding character are a formidable combination.

2005-04-26T14:39:00.000-07:00

NHF

April 21, 2005

YOU CAN ALWAYS SEE IN OTHERS WHATEVER TRAITS OF CHARACTER YOU ARE LOOKING FOR.

Margaret Wolfe Hungerford said, "Beauty is in the eye of the beholder." It was her way of saying that we see what we wish to see in others. Every living human being is a complex combination of feelings, emotions, and thoughts-some good, some bad. Your impression of another depends far more upon you and your expectations of that person. If you believe someone is good, you will find good qualities. If you don’t, you won’t. When you are yourself a positive person, you tend to find positive qualities in others. As you work to develop good, constructive habits to improve yourself continually, make it a practice to look for those same qualities in others. It’s easy to spot another’s shortcomings, but when you identify the good in others and congratulate them upon their positive achievements, you will make friends on whom you can always depend-both in good times and bad.

2005-04-19T13:50:00.000-07:00

Innerworth 4/19/2005

The Art of Knowing

If you're an eternal optimist, you hate bad news. But bad news is relative. What is bad news to some is mere information, and possibly good news, to others. (For example, if you were going long last Friday, the sell off was bad news, but if you were short, you probably felt it was a bonanza.) Some novice traders hate bad news and do anything to avoid hearing it. It takes many forms. Some traders keep losses on paper to avoid acknowledging them. Other traders avoid looking at performance statistics, such as a win-loss ratio, in order to keep up the illusion that they are making huge profits. Others fudge a little, making a bunch of low profit trades to artificially boost their win-loss ratio, and still others feed their accounts every month and hope that someday, they'll make the huge profits they've been hoping for. In the end, these are all just ways of using psychological "denial," futile attempts to passively solve problems instead of taking active, decisive steps to solve them. But knowledge is power, and the more you know about your trading performance, the more you will be able to improve your trading potential and take home more profits.

Denial can be useful at times. For example, if you have developed a thorough trading plan and there is very little that can go against it, it doesn't make sense to focus on the few unlikely events that may ruin your plan. If you focus on what can go wrong, you'll hesitate. You may unnecessarily question your plan. At the moment you are ready to execute your trade, a little denial helps matters. You feel carefree and ready to see what will happen next. Over the long term, however, denial does more harm than good. If you are trying to avoid monitoring your trading performance, you will always feel uneasy. You will secretly dread taking an honest look because you are afraid of what you'll find.

It's hard to look at our performance when we think things aren't going well. But if we don't, we cannot find ways to improve. It's all a matter of attitude. Winning traders carefully look at their performance. They view it as a process that may need fixing. Just as an auto mechanic tries to fix a broken car, the winning trader identifies what works and what doesn't. Rather than passively ignoring the problem, winning traders actively identify what's going wrong and make changes. They stay detached and look at their performance objectively, as if they are merely watching a television documentary.

If you haven't looked closely at your performance lately, think about doing it soon. Keep a positive attitude. Don't look at it as a dreaded event, but as an opportunity for improvement. Don't be afraid of what you may find. If you don't meet your expectations, don't look at it as a failure. Just look at it as a type of objective feedback that you can use to improve your trading approach. Stay calm and upbeat. If you look hard enough and think about it enough, you'll find creative ways to trade more profitably. And if you don't immediately find new solutions, it is much better to stand aside until you do, rather than keep losing money on strategies that just don't work. If you take an active problem solving approach to finding ways to improve your performance, you'll eventually achieve profitability, and if you keep looking, studying, and changing, you'll stay profitable across a variety of market conditions.

2005-04-19T13:37:00.000-07:00

NHF

April 19, 2005

YOUR MENTAL ATTITUDE IS THE MOST DEPENDABLE KEY TO YOUR PERSONALITY.

Your view of yourself will greatly influence how others perceive you. If you are a confident, cheerful, positive person, your co-workers, friends, and family will be attracted to your personality. If you are unhappy, negative, and always complaining about your situation, others will be repelled. Even when at times you don’t feel very happy, by forcing yourself to behave in a positive fashion, you will find that you soon feel genuinely upbeat, because your subconscious mind doesn’t know the difference between an artificial emotion and the real thing. When you behave positively, you will positively influence everyone around you-including yourself.

2005-04-18T22:12:00.000-07:00

Do not let what you cannot do interfere with what you can do.

-John Wooden

2005-04-18T22:11:00.003-07:00

Retraining ourselves to stop living the through the lens of the past-- the seat of emotions, and learning to live in the present moment, where responses are based on the now, is what is needed.

-amg

2005-04-18T22:11:00.002-07:00

Hindsight is an exact science.

- Guy Bellamy

2005-04-18T22:11:00.001-07:00

NHF

April 18, 2005

WISE PERSONS ARE THOSE WHO THINK TWICE BEFORE SPEAKING ONCE.

Perhaps the greatest quality in a leader and the most valuable skill in building relationships is the ability to think before you speak. If you have a tendency to speak hastily in anger and regret your actions at leisure, the childhood admonition to count to ten before speaking will still serve you well. When you pause-if only for a moment-to consider the consequences, you may think better of what you were about to say. And if you must speak strongly, it’s a good idea to sugarcoat the words-just in case you have to eat them later.

2005-04-18T22:11:00.000-07:00

2005-04-17T22:50:00.000-07:00

Innerworth 4/15/2005

The Power of Positive Imagery

Have you ever had those days, or weeks, where you just couldn't get on a winning streak? Perhaps you are a novice trader trying to break into the field, and wondering if you'll ever become a full-time, active trader. Sometimes, it feels like you're just spinning your wheels. It's easy to feel like throwing in the towel. Whether you are feeling down and beaten or in a little bit of a slump, positive imagery can restore your optimism.

You can use a variety of positive images as a source of inspiration, and depending on your background and resources, some positive, motivating images are more realistic than others. If you are from a well-to-do and well-connected background, it may be motivating and realistic to imagine yourself becoming the next Warren Buffet. But if you're like most people, you would settle for becoming a skilled, profitable trader. Think of how great it would be. Imagine yourself having a wealth of market experience and being able to recognize a pattern intuitively and being able to react just as instantly. Every week, you have no problem identifying profitable setups and you have enough money in your account to take advantage of them in a major way. And then there are times when you hit upon a good run, and really make huge profits. Life is good. You enjoy the process of trading, and don't need to care about meeting your financial goals anymore. You just know you are having fun all day and sleep soundly at night.

Isn't the image pleasing? Doesn't it motivate you to work harder to reach your goals? Anyone can dream, but what is the difference between a realistic dream and a pipedream? That's a hard question to answer. Only you know your abilities and what is realistic based on your background. It doesn't make sense to imagine the impossible, however. It may feel euphoric in the short term, but you'll know that your motivating image is just a fantasy. If your dream is unrealistic, you'll end up frustrated. You'll set yourself up for failure because you can never attain the goals you've set. It's important to have a positive image that is motivating but also realistic.

How do you create a realistic, motivating image? Look for role models. There are numerous trading books with interviews of seasoned traders. Find traders who have similar backgrounds to yours. Learn how they made it. What were the market conditions? What did they do to prepare? Use their career as a roadmap for your career. Having a real person in mind as a role model can transform vague, quixotic images into a tangible, attainable reality.

Once you have a positive image in mind, it can only be motivating if you believe it is possible to attain it. It is essential to develop a clear plan for how you will reach your goals. If you don't have enough money to trade, for example, consider getting a second job. If you feel that you need more instruction, figure out how you will be able to find the time to get that instruction. If you are taking active steps each and every day to reach your goals, you will think of your positive, motivating image and feel inspired. You'll take minor setbacks in stride and work tirelessly to reach your goal of becoming a profitable, master trader.

2005-04-17T00:21:00.000-07:00

History would be wonderful thing - if it were only true.

- Leo Tolstoy

2005-04-17T00:20:00.002-07:00

Humility leads to strength and not to weakness. It is the highest form of self-respect to admit mistakes and to make amends for them.

- John (Jay) McCloy

2005-04-17T00:20:00.001-07:00

NHF
April 16, 2005

YOU CAN THINK YOUR WAY INTO OR OUT OF ALMOST ANY CIRCUMSTANCE, GOOD OR BAD.

No action takes place unless it is preceded by thought. If you’re unhappy with the circumstances in which you find yourself, you can improve your situation through the power of thought, just as surely as you can destroy a positive life with negative thinking. Success begins with an honest analysis of your present condition, acceptance of responsibility for your own life, and the development of a workable plan to achieve what you desire.

2005-04-17T00:20:00.000-07:00

NHF

April 14, 2005

THE WORST THING ABOUT WORRY IS THAT IT ATTRACTS A WHOLE FLOCK OF RELATIVES.

Worries, like sheep, seem to flock together. One worry leads to another, and soon you are overwhelmed with the potential for problems. When you allow yourself to play the "what if?" game-to speculate about additional problems that one potential problem might cause-worries multiply, each making the next seem worse. If you must play the "what if?" game, play it to win. Focus on solutions, not on the problems themselves and the additional problems they might create. However serious your worries may seem when they awaken you at midnight, if you analyze them carefully, you will find that every problem has a solution.

2005-04-13T21:21:00.000-07:00

Each of us makes his own weather, determines the color of the skies in the emotional universe which he inhabits.

- Bishop Fulton J. Sheen

2005-04-13T21:20:00.004-07:00

Chains of habit are too light to be felt until they are too heavy to be broken.

- Warren Buffett

2005-04-13T21:20:00.003-07:00

Destiny is no matter of chance. It is a matter of choice: It is not a thing to be waited for, it is a thing to be achieved.

- William Jennings Bryan

2005-04-13T21:20:00.002-07:00

The spend-thrift cannot succeed, mainly because he stands eternally in FEAR OF POVERRTY.
-someone

2005-04-13T21:20:00.001-07:00

A quitter next wins - and - a winner never quits
N.H

2005-04-13T21:20:00.000-07:00

NHF

April 13, 2005

SOME PEOPLE ARE NEVER FREE FROM TROUBLES, MAINLY BECAUSE THEY KEEP THEIR MINDS ATTUNED TO WORRY. THE MIND ATTRACTS WHAT IS DWELLS ON.

Worry serves no useful purpose and can have a serious adverse effect upon your mental as well as your physical health. Charles Mayo, who with his brother William founded the famous Mayo Clinic in Rochester, Minnesota, said, "I have never known a man who died from overwork, but many who died from doubt." Because worry is directed at some vague, uncertain threat, it is difficult to deal with it logically. The best way to get rid of your worries is to take positive action to eliminate their source. When you develop a plan for dealing constructively with problems and get to work implementing your plan, you will no longer be troubled by worries. Negative thoughts always yield the right of way to a determined person in pursuit of a positive plan of action.

2005-04-13T21:19:00.002-07:00

NHF

April 12, 2005

YOU ARE MORE APT TO "RUST" OUT YOUR BRAIN FROM DISUSE THAN YOU ARE TO WEAR IT OUT FROM USE.

Unlike a mechanical device that eventually wears out and must be replaced if it is used continually and consistently, the mind grows only stronger when it is active. The more you exercise and stretch your brain, the more proficient it becomes. Disuse, however, will have the same effect upon your mind as it will upon a machine. The most intricate, most powerful machine in the world and the greatest minds will rust away unless they are used. Unless you manage your schedule to permit time for study and learning, it is easy to yield to the temptation to spend your free time in thoughtless, mind-numbing, escapist pastimes. Relaxation is important, but so is gaining new knowledge. Make sure your daily schedule includes an allotment of time for both.

2005-04-13T21:19:00.001-07:00

Innerworth 4/11/2005

Conquering Guilt and Moving Forward

In the trading profession, profits are hardly a sure thing. Even the most seasoned trader makes a big mistake occasionally and pays the price. Professional traders at large financial institutions, for example, can mount huge losses, as well as independent short-term traders. If you are experiencing a severe drawdown, don't feel badly about it. You're not the first person and you won't be the last. Psychologically, however, it is difficult to avoid feeling uneasy. And depending on how severe it is, you may feel afraid, and ready to panic. Facing losses is one of the most difficult issues to deal with emotionally. If you are an active professional trader, your identity and livelihood are on the line. If you are a part-time trader, it's frustrating to feed your account from your day job, and wonder if you'll ever make back the money you've lost. Depending on your personality and experience with the market, you may have trouble handling feelings of loss, guilt, and fear. But unless you get your emotions under control, you'll never be able to get back on track.

When some traders face a severe drawdown, they become especially guilty. We feel guilty when we break a personal moral rule. Losing money can make almost anyone feel guilty. We want to live by the rules our parents and teachers taught us, and many of them taught us to work hard and save our money. Short-term trading requires us to risk money, and to many, risking money seems to go against how we were brought up. For example, when many novice traders announce to their family and friends that they are going to become an active, short-term trader, the first reaction is "You're going to lose your money." They say it as if novice traders are making a big mistake. Well, if you want to make huge profits in the end, you're going to have to risk money, and in all likelihood, you're going to lose a lot of it before you develop the skills you need to trade profitably across a variety of market conditions.

Are you going to lose money? Yes. Is it morally wrong? Not from the perspective of a trader. It's vital that you identify the beliefs underlying your guilt and change them. The first question you must ask, though, is whether your guilt is warranted. Guilt can protect us. It isn't a good idea to rack up so many losses that you can't pay it back easily. If you trade money that you just can't afford to lose or will have great difficulty paying back, you will naturally feel guilty. It is important to make sure that your losses are reasonable, and actually a temporary setback. Or, if the losses reflect a lack of skills, make sure that you can easily cover your losses from another source of income, such as a second job. It will be hard to control guilt if it realistically reflects losses that will permanently harm your financial security.

If you determine that you can actually afford trading losses, and still feel guilty, it is useful to look at possible assumptions that may underlie your guilt. One reason is that you may have been taught that money is sacred and that it is morally wrong to risk it and lose it for any reason. Many people hold this belief, but if you want to trade actively, you have to change the way you look at money. From the perspective of the serious trader, money is merely a vehicle to make more money. It is just part of the tools you need to trade successfully. Don't think of it as "money" but as "points" you use to keep score of how well you are doing. A second assumption that underlies guilt is the need to be perfect. You may feel guilty because you believe that you must not make trading errors or rack up losses. You may believe that if you do, you are a "bad" person or inadequate. It is essential to avoid taking losses personally. Losses are a natural part of trading. If you are a novice trader, you may mount losses, but it doesn't mean that you are a "bad" person. If you have not yet developed requisite trading skills, you may be an unskilled trader, but you aren't a bad person or inadequate. And if you are a skilled trader in a severe drawdown, you may feel guilty about something that isn't your fault. It's possible that you are merely experiencing a temporary change in market conditions. You may need to change your approach, but it doesn't mean that you are inadequate. It just means that you need to explore more options. Guilt isn't productive. When you feel guilty, then you ruminate about how bad things are. There's no time to ruminate while actively trading, however. It gets you nowhere. If you want to stay ahead of the crowd, you must actively problem solve. You must find new trading solutions, and guilt distracts you from freely searching for creative, fresh solutions.

Guilt can protect us at times, but while trading, we often feel guilty about losses that are just commonplace in the trading business. If you are experience unproductive guilt, it is essential that you learn to control it. The more you can trade calmly and freely, the more profits you'll make.

2005-04-13T21:19:00.000-07:00

Innerworth 4/8/2005

Appreciating the Beauty of the Markets

Have you ever had one of those days where you wished you had stayed in bed rather than executed your first trade of the day? Perhaps you excitedly put together a trading plan the night before only to get a poor fill when the markets opened the next morning. Maybe you were just in a bad mood and frustrated that nothing was going right. Some seasoned, trading experts warn against trading while upset or frustrated. You may be prone to making mistakes. Many times, it's better to just stand aside. But walking away can make you feel as if you have been defeated. And if you stand aside too often, you may feel as if you aren't giving trading your best shot. It can feel as if you are prematurely walking away from a challenge rather than gaining new experiences or learning how to overcome new obstacles. It may not be a good idea to stubbornly try to trade in market conditions that aren't conducive to your trading style, but there is a compromise: You can move from a "doing" mode to a "being" mode. Rather than force yourself to actively trade, you can just relax and appreciate the complexity and beauty of the markets.

During the trading day, and often during off-hours, we are consumed with doing whatever we can to make a profit. We plan, anticipate, and find solutions to trading problems. We search for a winning trading strategy, even if it means ineffectually coercing ourselves to find a way to profit from the market action. But trading is a creative endeavor. It's a combination of looking for historical patterns and using your intuition to decide whether history is actually going to repeat itself at this time and at this moment. When it comes to using your intuition and creative skills, you have to be free, open, and ready to accurately perceive what the markets are doing. It's an art. You can't force yourself to be creative. You have to let a creative idea come to you. But when you're upset, frustrated, and forcing yourself to find a winning strategy, you often choke under the pressure. You're closed off. You can't see what you need to see.

When you're having a bad trading day, you can't see clearly. You can be stuck in a "doing" mode, trying to take action, and frustrated because you can't figure out what do to next. You can get caught up trying to find solutions and taking decisive action, and get mentally overloaded with details. You're overly emotional. You're frustrated and overwhelmed. When things get that bad, you just can't think clearly enough to actually take action. The solutions to problems don't come easily, and it is quite possible that you'll make trading errors. Is it time to give up? Maybe. But an alternative is to move from a "doing" mode where you are trying to take action to a "being" mode. Rather than trying to execute a trade, which is the main concern of the "doing" mode, you can try to merely observe and study the markets. Rather than try to take charge, you can be a mere observer. Rather than pushing yourself to figure out what trade to execute in the next few moments, you can settle for merely observing the markets. You can take a rest, relax, and just study the markets. When you fully commit to avoid making a trade in the next few moments, and are content with merely being a student of the markets, you'll free up psychological energy. As you start to calm down, your creative juices will flow freely again. Suddenly, solutions that eluded you in the "doing" mode become obvious while in the "being" mode. You'll once again feel free and creative, and when your head is a little clearer, so are your perceptions and intuitions. Soon, you've moved from mental stagnation to trading in the zone.

So if you find yourself frustrated and stuck, and fruitlessly trying to push yourself to the limits, stop. Allow your mind to step aside. Breathe freely and relax. There are times when you have to just stop and appreciate the complexity and beauty of the markets. When you do, you'll naturally see new ways to trade freely, calmly, and profitably.

2005-04-11T00:47:00.000-07:00

If you have low volume on the reaction on the right hand side of the
trading range with wide spread, what is that? How can you have wide
spread and low volume as it is going down? Essentially, the bids
underneath the market, or the buy orders underneath the market, are
not there. And it is not declining so much because of the dumping of
stock, because of the pressure of supply, but instead it is declining
because of the relative lack of demand. There is relatively low
supply but even smaller demand...The bids have been pulled.

Anticipating Market Moves

2005-04-11T00:46:00.001-07:00

The function of news is to make you wrong.

Wyckoff

2005-04-11T00:46:00.000-07:00

"The best job goes to the person who can get it done without passing the buck or coming back with excuses."

- Napoleon Hill

2005-04-11T00:08:00.001-07:00

NHF

April 9, 2005

YOUR TRUE AGE IS DETERMINED BY YOUR MENTAL ATTITUDE, NOT THE YEARS YOU HAVE LIVED.

The American clergyman and author Tyrone Edwards said, "Age does not depend upon years, but upon temperament and health. Some men are born old, and some never grow so." No doubt you’ve known teenagers who were old before their time and seventy-year-olds who had the temperament and enthusiasm of those discovering the wonders of life for the very first time. It is all a matter of attitude. As you grow and develop, make sure your experience is directed toward the acquisition of wisdom, not the acceptance of cynicism. If you find it difficult to keep an open mind because of previous experiences, remind yourself that you’re dealing with different people, that conditions have changed, or that because you are older and wiser, your chances of success are greater than in the past.

2005-04-11T00:08:00.000-07:00

NHF

April 7, 2005

A NEGATIVE MIND NEVER ATTRACTS HAPPINESS OR MATERIAL SUCCESS, BUT IT WILL ATTRACT THEIR OPPOSITES.

You may trick yourself into believing that you are only playing devil’s advocate or searching for weaknesses in apparently good ideas, but in the end negative thinking always produces negative results. Just as your mind will work tirelessly to translate your positive thoughts into their physical equivalent, it will work equally hard to create negative results when all of your thoughts are negative.

2005-04-06T06:43:00.001-07:00

4/5/2005
Innerworth

Security or Excitement: Which Do You Prefer?

Would you rather have a job that pays a low salary but provides a steady income or a high paying job that may not be around next year? The answer to this question reveals a lot about your preferred trading style. If you are like most short-term active traders, you don't mind exchanging a little bit of security for a higher salary. Compared to typical jobs, trading in the short-term is risky, and one of the main factors influencing your preference for risk is your overall feeling of confidence and security. If your overall confidence is easily compromised, and if you strongly need to feel safe and secure, you'll have difficulty trading in the short term. You'll often feel anxious and uneasy. Can you build up risk tolerance? Yes, but it depends on your psychological makeup. The need for security is often based on early childhood experiences, and for some, can be difficult to change.

Money and security go hand in hand. The more money we have, the more easily we can acquire food and shelter. When our money is on the line, it's understandable to also think that our sense of safety and security is on the line. But what is a mere monetary loss to some can feel like a threat to safety and security to others. Losses take on a greater personal significance when your self-confidence is on shaky ground. For some traders, self-doubt, fear, and uncertainty may go back to the early bond formed between parent and child.

Early parent-child relationships can shape people's expectations, especially the extent to which a person feels safe and secure. Many people who feel confident and secure tended to have parents who provided what psychologists call a "secure base." Parents and loved ones were dependable, reliable, and available. This allowed the child to explore the uncertain and terrifying outside world in a carefree manner. They knew that if they encountered fear, they could quickly return to their "secure base" and gain comfort and safety. Other children felt less safe and secure. Their parents were less caring and reliable, and thus, they were fearful of leaving their parents' side because they didn't believe their parents would be there when they returned. They were afraid to venture out, did not learn to cope with uncertainty, and in adult life tend to unrealistically expect failure and rejection. Taking risks as adults is especially fearful.

People that are the most comfortable taking risks always felt safe, as children and as adults. It's as if they feel significant loved ones are always there with them to provide safety and support. That said, there are also risk-seeking gamblers. People who had parents who were psychologically absent also take risks. They tend to have a "who cares" approach to life. They may be able to take risks, but they don't have the discipline to develop specific plans and follow them. Many people fall somewhere in the middle. They can take a few risks, but they are often undisciplined. The lack of discipline usually reflects fear. They fear loss and hurt, and over-react to setbacks. A losing trade has greater symbolic meaning: it is a loss of safety and security.

If you have low risk tolerance, how do you beat it? First, you have to be realistic. If you are afraid to take risks because money represents safety and security, you'll have to make small trades and carefully manage them. Second, you may also have to adjust your trading style to match your personality. Some people with major risk tolerance issues prefer long term investing; when done properly, it can be less risky. You can identify stocks that are relatively stable and increase in value over the long term. You won't make as much with this approach, but your emotions won't be as wobbly. You'll feel calmer, and enjoy trading the markets. Third, you may want to work a stable job on the side to pay basic living expenses. If you know that your basic living expenses are relatively secure, you'll feel more comfortable "moonlighting" as a trader.

Winning traders have high levels of risk tolerance. If you have trouble taking risks, you'll have trouble trading the choppy, volatile markets in the short term. You won't feel comfortable, calm, and secure. And you'll likely make trading errors. But that doesn't mean you have to stop trading. You just need to be aware of your personality and work around it. If you match your trading style to your personality, you'll make profits in the end.

2005-04-06T06:43:00.000-07:00

Never assume the obvious is true.

- William Safire

2005-04-06T06:40:00.001-07:00

NHF

April 6, 2005

NO ONE HAS YET DISCOVERED THE LIMITATIONS OF THE POWER OF HIS OWN MIND.

Pat Ryan, the chairman and CEO of Aon Corporation, the giant multinational insurance company, is fond of saying, "You can’t conceive how high ‘up’ is, except for the limitations of your own mind." It’s not very good English, he admits, but it emphatically makes the point that the only limits that can be placed on the power of your mind will be those you impose on it yourself. When you brainstorm, don’t allow limits to be placed on any idea. Sometimes the ideas that seem the craziest at the time will later prove to be the most inspired. If you’re working with your Master Mind group, encourage the free flow of ideas from every individual present. Don’t be critical or analytical during the brainstorming process; at this point, every idea is a good one. Cluster the ideas into groups of related thoughts so that the best of them can later be shaped for practical application.

2005-04-06T06:40:00.000-07:00

NHF

April 5, 2005

IF YOU KNOW YOUR OWN MIND, YOU KNOW ENOUGH TO KEEP IT ALWAYS POSITIVE.

You may not fully understand the complex process that causes electricity to be generated and transmitted to your home. But you understand very well how to apply and use it to illuminate your home, power your computer, and perform hundreds of other essential tasks. The same is true of your mind. No one understands the incredibly complex workings of the brain; we know only that when we use our mind in a certain way, we achieve a desired result. If we think positively, we achieve positive results.

2005-04-04T20:23:00.000-07:00

"If I am not for myself, who is for me? When I am for myself, what am I? If not now, when?"

-Hillel

2005-04-04T20:20:00.001-07:00

4/4/2004
Innerworth

Waiting for the Payoff

Are you ready to work all day and make absolutely no money at all? If you ask most people that are accustomed to working a 9-to-5 job, they would say, "No way, are you kidding?" But if you are a serious, active trader, there are many days that you must accept the fact that you aren't going to take home any money.

There are various reasons that you may decide to work for no immediate payoff. For example, market conditions may not be optimal, and should you try to trade under such conditions, you may actually end up losing money. On another day, you may be tired, overly anxious, or just feel awful. If you were to trade with less than an optimal mindset, you could make trading errors that have lasting repercussions. Sometimes you need to merely study the markets and figure out what's going on, the mode the markets are in. And at other times, you may just want to read up on new trading methods to stay ahead of the crowd. There are still other times when you need to intensely focus on learning new methods and building new skills rather than trying to gain an immediate profit. Seasoned, active traders look at their profession quite differently than many people view their typical blue- or white-collar jobs. It's a creative job where part of the skill is the ability to intuitively get a feel for the markets, and understand when they should push themselves and when they should stand aside, and wait for better times.

Spending time that doesn't directly lead to an immediate payoff is hard for many people to accept. Many people are used to making an hourly, weekly, or monthly wage. But in the trading business, you have to think about things differently. You can't focus on taking home a steady paycheck. Consider what would happen if you inflexibly thought you had to take home a target profit of $200 day. It's quite likely that on many days you would work for a solid eight hours without realizing a profit. If you work under the assumption that it is critically necessary to reach the $200 goal each and every single day, it's likely that you may start wondering how you'd meet your expectations in the last 30 minutes of the session, and feel a need to get there no matter what. While under pressure, you might take low probability setups or impulsively make trading errors. The end result may be substantial losses that you would need to make up the next day. Rather than making the $200 profit, you could be down $200. You would have been better off standing aside that day.

Trading is a profession where you have to think freely and creatively. Sure, you can push yourself to your limits while studying the markets off-hours, but during the trading day, you have to stay calm and open to your intuition. You have to work with current market conditions, and use your talents to take out profits. Sometimes those profits are huge. At other times, you won't make anything. But it's all right. Your overall profits are all that matters, not what happens on any given day. So when you have those days when things don't seem to be going your way, don't get upset or disappointed. If you patiently wait for the markets to move in your favor, you can apply your specific talents to making a profit. It's just a matter of going where the markets take you.

2005-04-04T20:20:00.000-07:00

Every man has three characters -- that which he exhibits, that which he has, and that which he thinks he has.

- Alphonse Karr

2005-04-04T20:19:00.000-07:00

NHF
April 1, 2005

CONTROL YOUR OWN MIND, AND YOU MAY NEVER BE CONTROLLED BY THE MIND OF ANOTHER.

The mind is the most powerful weapon known to man. It simply cannot be controlled or contained by an outside force, however formidable that force may at first appear. Throughout history, tyrants have tried to control those who opposed them, but eventually these rulers discovered the power of the imagination was far greater than the threat of the sword. As Victor Hugo said, "An invasion of armies can be resisted, but not an idea whose time has come."

2005-03-30T20:38:00.000-08:00

Industry, perseverance, and frugality make fortune yield.

- Benjamin Franklin

2005-03-30T20:37:00.001-08:00

Innerworth 3/302005

A Fresh Start

Have you ever been stuck in a rut? All you can think about is how behind you are and how hard it will be to come back: "I haven't made enough winning trades. What am I going to do? I'll never make it back." It's natural to panic a little when you're first starting out as a trader. The anxiety and worry can get to you, but winning traders have a trick that you may find helpful: They compartmentalize their trades. They take things one trade at a time, and view each trade as a completely new opportunity. By focusing on their immediate experience, and staying fresh, they stay optimistic and full of energy.

There's a strong urge to mull over the past and worry about the future. It seems prudent to do so, but looking at your past often gets you nowhere, especially when it comes to trading. And excessive worry about the future often distracts you from what you need to do right now in order to ensure future success. While you're worrying, you aren't focusing on current market conditions. You aren't honing your trading skills in preparation for future market opportunities. Worrying about the future is a complete waste of time.

Seasoned traders compartmentalize. They put each trade into a different mental compartment. With each trade they make, they start fresh. They don't worry about where they have been or how bad they'll feel should the trade be a loser. Instead, they focus all their energy on their immediate experience, what they're doing at the moment, and what they need to do next to implement their trading plan. By focusing solely on the trade in front of them, they stay calm and relaxed. They are focused, and in the zone, the same way an athlete concentrates on making a play, or a rock climber cautiously takes the next step. There's no time or energy for worry. It is distracting and can lead to a downfall.

Obviously, it's hard not to worry about the future. Indeed, it's important to worry about losses and carefully manage risk. And if you are in a serious drawdown, and unsure of how to get out of it, it is vital to go out of your way to make plans for getting yourself out of trouble. But you don't have to worry about these issues while executing your trading plan. If you have to worry about the future (and you never have to worry if you're always planning and taking decisive action), do it off-hours, not while you're trying to execute your trading plan. In addition, don't psychologically string trades together. Treat each trade as an emotionally independent event. If you tie a string of losses together, for example, you'll start to feel upset, and your past losses will impact your ability to make future wins. Even when you're on a roll, and relishing the glory of a winning streak, you will be thrown off track when an unexpected loss crops up. You'll let it interfere with what you need to do right now in order to continue winning.

There's no one right way to trade. Some mental strategies work for some traders, but not for others. That said, many seasoned, professional traders find it useful to start each new trade as if it were a new day. They think positively, as if anything is possible. The next trade may be a winner or it may be a loser. Whatever the outcome, though, they celebrate a victory, or take a loss in stride, and just move on. And, in the end, they are profitable.

2005-03-30T20:37:00.000-08:00

NHF

March 30, 2005

A QUICK DECISION USUALLY DENOTES AN ALERT MIND.

Successful people are decisive. They don’t agonize over decisions and thereby miss out on a great opportunity. They gather the relevant information, discuss alternatives with advisers whose opinions they respect, and then make a decision and get on with it. Indecision creates the worse kind of paralysis and, left unattended, can permanently damage you and your organization. If you have trouble making decisions, remember that there are few decisions that are irreversible. If you later discover that you were wrong, correct your course and move on.

2005-03-30T20:36:00.000-08:00

Today's opportunities erase yesterday's failures.

- Gene Brown

2005-03-29T08:02:00.000-08:00

Innerworth 3/29/2005

Carefree and Profitable

While risking your capital on a trade, it's hard not to feel a little wary. After all, if this trade, the next trade, and the one after that are losers, you'll feel like an underdog trying to regain your edge. Feeling uneasy after a series of losses is understandable. But seasoned traders are carefree, even when they are in a drawdown. They aren't riddled with self-doubt. They don't question their trading strategy. They just wait for the market to move in their favor, put on the trade, and exit. It's effortless, almost easy. But if you're a novice trader, cultivating a carefree mindset isn't as simple as it sounds.

At first glance, it seems easy to follow the advice of master traders on how to trade carefree: Make small trades that have minimal consequences to your account balance should you lose. Objectify the trade. Pretend it doesn't matter, and force yourself to think of the big picture. Think optimistically: "I'll make enough trades to see a profit. I'll just keep my chin up, chalk up losses to bad luck, and keep trading. Eventually I'll see a profit." But many novice traders have trouble staying optimistic. You don't accumulate enough trading capital to trade full time by taking unnecessary risks, and to the novice trader, trading can take on the aura of throwing away hard-earned money with little reason. It can be difficult to just forget about the money. Many people live in a rule driven society. At work especially, they live by following conditional statements. If I do job task X, Y, and Z, then I'll get a big reward. The more effort I put in and the harder I work, the greater the rewards. It's like an assembly line approach to work: I'll bolt on 1,000 wheels a day to earn my daily wage. Making more money is a matter of willpower. If you can force yourself to work longer hours, you'll make more money. Such a strategy often works in white-collar jobs as well as blue-collar jobs, and it is natural to assume that merely following if-then reward contingencies when trading leads to sure profits. It's tempting to think that if you just spend more time mulling over a trade, thinking long and hard enough, you'll account for every possibility. Similarly, if you search over and over again, you'll find the ultimate trading opportunity. It makes sense, but it doesn't work that way.

Seasoned traders report that they make the most profits when they aren't expecting them. They observe the markets openly and freely, and suddenly, they make a profitable trade. If you put pressure on yourself, however, you usually choke. Your mind isn't free, but cluttered with feelings of doubt, and pressures to succeed. The frustration distracts you, and suddenly, you find it almost impossible to make enough winning trades to come out ahead.

It's much more important to cultivate a carefree mindset. Don't put pressure on yourself, and don't think about the money. Many seasoned traders don't focus on the money. In some ways, they have a disregard for money. To the professional, seasoned trader, the money is just a way to keep score. It isn't an end in itself. To the experienced trader, trading is a game. You play it, and if you rise to meet the challenge, you score more points. In this case, the points are represented as dollars, but they are just points nevertheless. They focus on playing the game and how fun it is. This approach to trading allows them to think clearly and freely. By cultivating a carefree attitude, they remain profitable.

2005-03-28T21:46:00.000-08:00

If all difficulties were known at the outset of a long journey, most of us would never start out at all.

- Dan Rather

2005-03-26T12:30:00.000-08:00

(10 years!)

Innerworth 3/24/2005

The Conscious Member of the Herd

Do you ever just feel as if you are going through the motions, acting without thinking? Are you surprised that you react emotionally, selling prematurely when you meant to hold out a little longer? Or do you jump into a trade too soon before you have systematically thought out your trading plan? You may be giving into a natural inclination to follow the crowd. It may seem routine, but if you aren't fully conscious of your actions, you may find yourself giving back profits.

The trading masses often act like a herd of cattle. This is a popular trading analogy, but humans are quite different from a herd. Have you ever closely studied a herd of cattle? Cows aren't the brightest animals. They can be contained easily with a fence of thin barbed wire, and it's easy to sneak up on them and tip them over. When one cow decides the grass is greener at the other side of the pasture, the herd just follows for no good reason. It's instinctive. Cows are "programmed" by nature to follow each other. They don't seem to think at all. By banding together, though, they can feel safe. There is safety in numbers.

The masses that invest in the markets also seem to act without thinking at times. Again, there is safety in numbers and the masses feel most comfortable when following the crowd. They search for confirmation and try to do whatever is most popular. For example, it is common to see the masses react too quickly to media reports. When a commentator reports that a company has missed an analyst's estimate, masses of traders start selling as soon as possible, regardless of the underlying dynamics behind the overall trend. When a stock is talked up, even if it is merely based on unfounded rumors, the masses start buying. Fear and greed drive many traders to execute trades on a whim, but if you want to be a winning trader, it is vital that to base your trades on a detailed trading plan.

Unless you are a scalper, trading quickly and automatically isn't a very good strategy. It's much better to develop a sound trading plan, and execute it consciously and deliberately. It's vital that you have a reasonable hypothesis as to how the market should move according to your plan, and also some hunch as to why the market is moving, or going to move, in a particular way. You should spend some time making sure when to enter, when to exit, and you should have a clear sense of what should happen and when. When you go to execute a trade, you may not need to be scrupulously deliberate, but it depends on your experience. If you have a vast amount of experience, you can quickly process a host of information and work from an "intuitive" feel you have about the markets, but if you are a novice trader, it's usually necessary to be a little more careful. Pay close attention to what the markets are doing and follow your trading plan.

The conscious trader has a detailed trading plan, and follows it. Impulsive traders make it all up as they go along and trade by the seat of their pants. If you are an extremely seasoned trader, trading on automatic pilot can work, but if you are a novice trader, you can make trading errors. You may give into emotions of fear, greed, hope or regret. When you let your emotions guide you, however, you'll tend to act like the masses, and when you trade like an unconscious member of a herd, you'll end up with losses.

2005-03-24T08:03:00.000-08:00

If your strength is small, don't carry heavy burdens. If your words are worthless, don't give advice.

- Chinese Proverb

2005-03-24T08:02:00.000-08:00

NHF

March 24, 2005

THERE IS SOMETHING ABOUT TRUTH THAT MAKES IT EASILY RECOGNIZABLE BY ALL WHO ARE SEARCHING FOR IT WITH OPEN MINDS.

Cookie mogul Wally Amos is fond of quoting the saying, "The mind is like a parachute. It functions best when opened." When you open your mind to the possibilities, objectively analyze information and refuse to allow your personal preferences and biases to influence your judgment, you will be able to perceive great truths that have been overlooked by others. A closed mind, though, will cause you to miss out on some of life’s greatest offerings. If you find yourself disputing the facts, or if you keep attempting to revise them to support your beliefs, ask yourself, Why am I so unwilling to accept this information? Am I being logical, or am I simply allowing my emotions to cloud my judgment? The worst mistake you may ever make is trying to persuade yourself to accept a false truth. It is inappropriate to try to fool others, but when you fool yourself, disaster is sure to follow.

2005-03-23T18:20:00.000-08:00

"Don't let your ego get too close to your position, so that if your position gets shot down, your ego doesn't go with it."

- Colin Powell

2005-03-23T14:57:00.000-08:00

Taking full responsibility doesn't necessarily mean blaming yourself for "mistakes," however. Taking full responsibility can merely mean sifting through all possible negative events and taking precautions to minimize their potential negative impact.

Innerworth

2005-03-23T14:55:00.001-08:00

2005-03-23T14:55:00.000-08:00

3/23/2005
Innerworth

Taking Responsibility and Taking Control

Trading involves coping with uncertainty. There are potentially endless factors that may go against your trading plan. For example, your DSL line may go down at a critical moment, an analyst may predict that a stock that you are trading will miss earnings expectations, or a stock or commodity in a related sector may suddenly move against you. When one of these unexpected events ruins our plans, our first instinct is to find an excuse: "It's not my fault. Everything is just going against me." It's easy to find excuses and many times there is, indeed, little we can do. Winning traders, however, take full responsibility for all aspects of a trade.

Taking full responsibility is crucial. Traders who don't take full responsibility will devote the bulk of their psychological energy to defending themselves against their mistakes. Rather than focusing exclusively on observing the markets, they tend to get sidetracked by a burning desire to avoid blame. In addition, while one is finding an excuse for an adverse event, no time and energy is devoted to anticipating adverse events and thinking of preventative strategies to neutralize them. Taking full responsibility doesn't necessarily mean blaming yourself for "mistakes," however. Taking full responsibility can merely mean sifting through all possible negative events and taking precautions to minimize their potential negative impact.

An awareness of all possible adverse events allows you to make specific plans. For example, if you know that your DSL line may go down unexpectedly, or that your computer may crash, you can make a backup plan. When all seems to go wrong, you won't panic, but you can effortlessly take decisive action. If you intuitively feel that an adverse event will likely thwart your plans, you can stand aside or cautiously manage risk should the market go against you. The more you consider all possible adverse events, the better you can plan, and the more easily you will come out of it unscathed.

It's useful to consider all possible adverse events. That said, it's important to remember your limitations. Some people go overboard when trying to figure out what can go wrong. It's possible to take things a little too far. If you become obsessed with every possible catastrophe, you may become an extreme perfectionist who has trouble pulling the trigger. Other people may take so much responsibility for negative outcomes that they become excessively pessimistic. It's important to take a more balanced approach. Be realistic. There's only so much you can account for and only so many precautions you can take. But, if you consider what you can control, take all possible steps to control it, and at the same time, accept what you can't control, you'll trade more effectively. You'll remain calm and trade decisively.

Everyone tends to avoid responsibility to some extent. There's a very human tendency to build up our egos and feel good about ourselves, and when events don't go our way, we try to block it all out. This general tendency usually helps us cope with most of the adverse events we encounter in our everyday lives, but it usually interferes with our ability to take preventative measures to control potential adverse events. In the end, by becoming astutely aware of what can go wrong, and taking control, you can maintain your winning edge.

2005-03-23T14:54:00.000-08:00

The important thing is not to stop questioning. Curiosity has its own reason for existing.

- Albert Einstein

2005-03-23T13:16:00.000-08:00

NHF

March 23, 2005

THE MIND GROWS ONLY THROUGH USE, AND IT ATROPHIES THROUGH IDLENESS.

Just as the physical body becomes strong through regular exercise, so does the mind require regular use to remain strong. Make sure that your personal development plan includes plenty of mental stimulation. One of the best ways to develop your imagination and visualization skills is through reading. As you read, your mind translates the words into images that help you better understand the concepts about which you are reading. Become a voracious reader. Read newspapers, trade magazines, self-help books, and novels; all will contribute to your store of knowledge and to your ability to visualize and more effectively use your imagination.

2005-03-19T00:36:00.001-08:00

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

2005-03-19T00:36:00.000-08:00

"Success is the prize for those who stand true to their ideas!"

- Josh S. Hinds

2005-03-15T22:19:00.000-08:00

3/15/2005

Motivating Images

In contemporary society, we are bombarded with media images. We see luxury cars, designer clothes, and exotic vacation spots and picture how blissful we would feel if we had these prizes. If we could just get rich quick, we could have it all: Wealth, possessions and happiness. Images are motivating. If we could make a series of sure wins, we couldn't wait until the markets opened. Trading is not a sure thing, however. It's challenging. It takes skills, skills that aren't developed overnight, but after years of experience and hard work. Many traders are initially attracted to trading with images of wealth, but they soon find that trading isn't easy money. Images that were once motivating are now frustrating reminders of how elusive financial success could be. Winning traders carry images that motivate them to persist and overcome seemingly endless setbacks. What images do you hold while trading? Do they motivate you in the right way?

If you think only about the profits you'll make as a trader, you'll be distracted. Winning traders don't focus on profits as much as the process of trading. When you focus on profits, you suddenly start thinking that you "must" make profits, and when you feel that you are obligated to make profits, you put too much pressure on yourself, so much pressure that you crack under the strain. It's useful to find other less threatening images to motivate you.

Trading online can seem a little boring at times. Some traders make it a little more exciting by imagining they are on the floor of the exchange. They hear floor traders yelling out bids. The frenzy of action is exciting. Who cares about profits when you see so many people enthralled by what they are doing? A winning trader isn't swayed by emotions, but during those times when trading seems like nothing more than staring at squiggles on a screen, it's useful to recall the image of an exciting trading floor to remind yourself that you are part of something big.

While the jazz and excitement of the markets may motivate some traders, other traders are motivated by the intellectual challenge. To many traders, the quest to capitalize on the market action is a game or a puzzle. Who will win out? Will it be the bears or the bulls? Just like a tennis match, it's fun to see what happens next. Can you anticipate what your opponent is going to do next? Can you respond with the right winning strategy at the opportune moment? Other traders may imagine themselves as a detective looking for a clue to a mystery, or similarly, a scientist trying to discover the secrets of the universe. Rather than focusing on the profits, it's fun to enjoy the process of trading, the joy of discovery or sense of mastery over a challenge.

For other traders, the sense of competition is a motivator, the joy of winning the game. It can be fun to compete for fun and see if you can be the winner. As long as you don't put too much of your ego into winning, the thrill of competition can enhance your motivation. If you look at trading as merely sport, you can trade more calmly and make winning trades. That said, focusing on competition isn't for everyone. It's more useful to look inward and follow your own standards for success, rather than feel you must beat out others. But to the extent you see trading as playful and fun, you'll be able to take setbacks in stride and persist in even the toughest of market conditions.

How we think about trading dictates how we react. The images we carry around with us can have a profound psychological impact. Different people have different images that motivate them. Sports and competition motivate some people; trying to master intellectual pursuits motivates others. Discover what motivates you? You can look at trading from a variety of perspectives. Choose a set of images that you find personally motivating. The more motivated you are, the more easily you'll be able to trade day in and day out, and achieve enduring financial success.

2005-03-15T22:18:00.000-08:00

I not only use all the brains that I have, but all that I can borrow.

- Woodrow Wilson

2005-03-14T19:12:00.000-08:00

Innerworth 3/14/2005

Don't Overwork: Take a Break

Trading the markets can be a mix of excitement and stress. It's exciting to put on trades. It's a thrill. You feel energized, and thrive on the action. But it's also stressful. You're constantly putting your ego and money on the line. If you are not careful, it can use up all your psychological energy. You end up worn out, and you'll have difficulty facing the constant challenges the markets put before you. It's vital for your long-term survival that you take time off. Don't overwork. Take a break when you need to.

Many traders don't like taking a few days off from trading for fear that they will miss a significant trading opportunity. They believe that unless they are ready to trade the markets every single day, they will miss a once in a lifetime trade, and regret it later. It's hard to break away from the markets. For example, in "Reminiscences of a Stock Operator," Jesse Livermore had trouble staying away from the markets. While on vacation far from home, he couldn't resist going to the local brokerage to monitor the markets. And once he was there, the markets seduced him into making a few trades. He just couldn't tear himself away from the action. To some, the excitement and exhilaration of the markets can be addictive. It becomes their raison d'etre. But continuous trading can also allow stressful emotions to accumulate and get pent up. With every winning trade comes a few losing trades, and the constant emotional ups and downs can take a psychological toll. It's useful to let off steam, and allow yourself to relax.

Taking days off as a trader can pose problems, however. What do you do about ongoing trades? Do you close out all your positions? If you're trading your own account, it's possible to close out your positions, but if you're a professional hedge fund manager, closing out positions can pose additional problems, such as substantial losses. It may be necessary to ask a trading partner to trade your account while you are on vacation. If you chose this option, however, you must be willing to accept the decisions of your trading partner. That can be hard for some people to do. If you don't close out positions, though, it would be difficult to fully relax. In the back of your mind, you'll wonder how your positions are doing. Ideally, while on vacation, it would be nice to close out your positions and feel that you have left your trading worries at home.

Although it may be psychologically difficult to take a vacation, taking one is essential for maintaining psychological health. It's possible if you just make a plan for taking one. If it means finding a trading partner to take over, planning trades so that they can be closed out before your planned vacation, or just closing out your positions and living with the consequences, it is essential that you take time off. By taking time off, you can relax, and allow yourself to feel refreshed, so you can take on the markets with renewed vigor..

2005-03-14T19:11:00.000-08:00

To get away from one's working environment is, in a sense, to get away from one's self; and this is often the chief advantage of travel and change.

- Charles Horton Cooley

2005-03-13T09:57:00.000-08:00

TWPD

What’s Up Doc?
It’s like a doctor looking at an EKG. To the untrained eye, it’s just a line that keeps going up and down, but to the trained eye, it shows a pattern. Your doctor is able to discern a lot of information by simply looking at the line. Traders can also learn to be “doctors” of the stock chart. We can look at a chart and know when it is behaving normally. We know when a stock looks sick, and we know when a stock looks very healthy. When a trend line is broken, either negatively or positively, the chart is telling us that the stock price wants to start a new trend.

In a sideways market, this channel becomes our friend. By identifying the natural pattern of the stock, you can determine the best place to buy (support) and the best place to sell (resistance). You can then trade this channel consistently and make a decent profit. The key is the channel lines. If you buy a stock on a dip to support, you should always set a stop loss below that level of support. So if the stock is going to start a new trend to the downside, you are protected. You can also use this when a stock begins to encounter resistance. If volume picks up and the stock seems to be testing the layer of resistance, keep your eye on it for a breakout above the channel and a new up trend to start. Otherwise, you know that it’s hitting resistance, and it’s time to sell.

2005-03-13T09:00:00.000-08:00

NHF
March 13, 2005

HAVE YOU NOTICED THAT THE MOST EFFECTIVE WORKER IS GENERALLY THE BUSIEST.

Successful people are busy people. They despise idleness and constantly search for new challenges and better ways to do things. When others discover that you are a thoughtful, helpful, enthusiastic worker, you will soon have more business than you can manage, and you will greatly increase the number of people who have a stake in your success. The most mundane tasks become much more bearable when you compete with yourself to improve at doing them. When you find faster and better ways to do your job, you also free up time that can be spent in more creative pursuits.

2005-03-11T18:33:00.000-08:00

Prosperity is a great teacher; adversity a greater.

- William Hazlitt

2005-03-10T11:47:00.001-08:00

Innerworth 3/10/2005

Dazed and Confused

The astute trader knows how to process multiple inputs, yet remains calm and decisive. With essentially endless sources of information to consider, it's easy to experience information overload. If you try to process and digest more information than you can handle, you'll experience frustration and anxiety. If you aren't careful, you may get so overwhelmed that you will be dazed and confused, so confused that you can't focus on developing a viable trading plan. It's crucial that you reduce the strain and trade decisively.

In the information age, it's tempting to believe that if we could just process every possible piece of information, we could find the ultimate trading plan. This belief goes back decades to the time when fundamental analysts tried to discover undervalued stocks. These days, there's a new version of this belief that the Holy Grail lies in the ability to discover secret information: If we could just find a novel indicator or signal, we could anticipate the masses and sell before the trend turns. If we could just analyze and digest every single piece of information at our disposal, we could develop the ultimate trading plan and win big. Many traders think that if they could find the right combination of information, they could anticipate the markets with unfailing accuracy. They work under the assumption that their information is "pure" rather than messy, and that if they think long and hard enough, they will uncover a secret code that will unlock the mysteries of wealth and lasting financial success. The odds of finding the Holy Grail are low, however.

Market information is far from perfect. There's no sound reason to sift through all of it. Consider just a few sources of information: Media coverage, analyst earnings estimates, annual reports, and news about potential adverse events. You can look through a lot of this information to formulate a trading plan, but even if you were a super-brain who could scrutinize all of it, it still may not help. Market factors may not come together in the way that you had planned. There's no sure way to know how the market will react to news, for example. Stock prices may or may not reflect media reports or a company's announcements. Sometimes market participants believe the hype, but sometimes they do not. It's not worth the time obsessing over it. All you can do is look at as much information as you can, and accept that all you can do is try to devise and implement a reasonable trading plan. It won't be foolproof and that's all right. There's no such thing as a foolproof plan, and you won't find one, no matter how much information you process.

No human, or computer, can sift through all the information we have available these days, and there's no need to. You merely have to do the best you can, and accept the fact that it is impossible to look at all of it. Eventually, you have to stop analyzing. You have to trust your intuition, make a trading plan, and follow it. Don't get overloaded. In the days before computers and the Internet, traders made money just by reading the tape. It still works today. You don't need to make things overly complex. Sometimes, it is better to simplify matters. Stay calm. Develop a trading plan, and trade decisively. It won't work all the time, but it will work enough of the time to make you profitable.