167 R U L E # 2 8
Be a Student
have to follow, the times of war and peace—and, believe it or not: the cy- cle of bulls and bears. When the individuals form into a group, the group is at the mercy of the prevailing total of the individuals’ input. The market- place is unique because even though the market is a group and subject to group behavior, each individual can participate at any time he or she chooses, while the total group goes on with or without that individual.
Our individual participation helps create the group and we can exploit the group, but that is also an individual choice too.
In my opinion, the single biggest problem facing each of us as traders is knowing where to draw the line in our individual thinking as it then be- comes our individual actions imposed on the group. We need to under- stand what creates our urge to action. Every one of us has a unique expression of how we handle data input and what that means. For some of us, a sharp rally in a market stimulates our desire for a profit by focus- ing on the market getting “too high”; we might be looking for a short.
Other traders will see that as a breakout and will jump on the market from the buy side. Some will do nothing and wait for a pullback to buy, or see a pullback as a confirmation of a failed high before selling.
In all cases, the price action is simply there; it just is. All of those vari- ous ways of making a conclusion are unique to the individual. They come from inside of us and are solely determined by how we personally choose to see things. Every trader participating in every market is choosing to see things a certain way; they are all unique individuals using the markets as a form of expression for this conclusion-making process. We all execute our trades from a unique point of view. But in all cases, the price action itself is the same for everybody. We as individuals form the conclusion as to what it means. The group itself is impervious to this. The group just goes on, with or without us.
In your trader development you will sooner or later be faced with a losing trade that makes no sense to you. This is a factor of how you at- tached meaning to the price action that created your urge to action, your participation. The group had nothing to do with that evaluation and conclusion-making process. Once you join the group in progress, you are at the mercy of the group’s behavior as a sum total of every other trader’s individual participation, too. If the trade you selected is a loser, that loser had nothing to do with how you came to the conclusion that it was time to participate; it is a factor of everyone else’s participa- tion. Your choice came from inside you; your results came from inside the group.
It is for this reason that your personal, unique individual expression of your conclusion-making process needs to become as transparent to you as you can make it. Unless your conclusion is of the sort that the group potential is in your favor, you have little or no chance for a gain once you
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execute and place yourself at risk. This transparency is something that is not a natural state for most people, for the simple reason that our daily lives do not require it. You can go through life never once working on your character imperfections or your weaknesses and still have a very nice life, for all intents and purposes. It is usually only when our weaknesses or flaws become glaringly obvious that we are willing to address them, such as an addiction problem. The world is full of horrible people who get on just fine no matter how much destruction they create around them. The world is also full of wonderful people who get on just fine. Once we all de- cide to trade in the same markets, and create a group none of us has con- trol over, everything changes. The biggest idiot in the group can profit if he is on the right side of the net order flow, and the Nobel Prize winner will have a loss if he is on the wrong side. It’s as simple as that.
So why do we need to study ourselves? Because when we understand whywe do what we do the way we do, we are no longer at the mercy of the group. Until our thinking and behavior is divorced from the group’s thinking and behavior, we cannot see the group’s thinking or behavior for what it really is. The crowd or group is behaving from its conclusion-mak- ing structure. That structure is called the herd. Until we can see clearly how a herd functions, we cannot know when to get out of the way of the herd or steer the herd.
We must rise above the average thinking process coming from an un- regenerate mind. We must study our own thinking and behavior to recog- nize when it is destructive or profitable. When we see the herd choosing to behave destructively we have the opportunity to behave profitably. Be- cause the market is a crowd, a group, and a herd, it will neverfunction from anything except the sum total of the individuals’ behavior—and that is alwaysat the lower end of the spectrum as long as the group is made of people who can’t see they are destructive. Most traders have net losses because they think and behave very similarly to every other member of the group. When a trader chooses to think and behave differently, he is the only one available for new information about the structure of the group.
This difference comes from self-analyzing your thinking and dissecting your behavior until you see clearly how you are performing exactly like the crowd or in some other unique manner. Once you know this differ- ence, and it doesn’t have to be by a wide margin, you will finally buy weak- ness and sell strength often enough to win.
It is easy to say “Be a student of yourself,” but what are the practical aspects of making a commitment to develop this skill of transparency?
No matter your personal state of development, you have to come to the understanding that this process of developing transparency is about lifting the veil of illusion. The price of knowledge is the destruction of illu- sion. People who will not let go of their illusions are the ones who suffer
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the most. In the trading arena the illusions we operate under come to full confrontation very quickly. Some traders call this process forced aware- ness. By this they mean that your personal conclusion-making process is what it is and when you have losses in your account you are wrong. If a trader excuses his loss in any manner, he is operating under illusion until his money is all gone. Now the trader has only one choice: Admit that he has an illusion problem or deny it further. If the trader is truly on the path- way to transparency, the total loss in his account came from forced awareness. The trader cannot deny that the results in his account are be- cause of his actions alone. This is why self-study leading to self-aware- ness is so important. Without it you will experience forced awareness.
Which do you prefer?
To avoid experiencing forced awareness, you can start the process of confronting your personal depth of illusion anytime. Most people do not like what they see about themselves when they do, or will not accept they really have that particular issue. This is why an interventioncan be so ef- fective when confronting people with addiction problems, because until that point, the addict really doesn’t think he has a problem. When con- fronted with a choice between the drug and the friendship, the die is cast.
The responsibility is now with the addict. In trading, you must be both the problem and the solution. You have to confront yourself or the market will do it for you. It is a choice—keep the illusion or keep your money. Which do you want most?
To consistently confront myself, so that I reduce the amount of illu- sion I might be operating under, I have a stack of note cards with ques- tions written on them. I ask myself every day, “Am I hoping the market will go my way?” “Am I afraid to execute?” “Am I trusting something be- sides myself to earn a profit today?” or numerous other questions. I also have note cards with reminders on them such as “Wait for the market to hit the stops before executing,” “The market does not know my position,”
“Follow your rules 100%,” and others as well. The point is that for me per- sonally I have found that my tendency to illusion is lessened if I remind myself daily what the basics are and what the rules are. I no longer have the conversations with myself or others that involve opinion about price action, what the fundamentals will do to prices, what some talking head in the press has to say, and so on. I no longer think like the crowd, so I now know how to exploit that crowd thinking.
I have to do this daily because I also know I have a tendency to over- confidence. When I am winning consistently I am tempted to think I know what I am doing. That is an illusion as well, and right about then I start los- ing. Since I am tired of losing and don’t want to do it any more, I am will- ing to do whatever it takes to remain a winner, even if that means my pet illusions about myself end up in the trash can.
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Please understand, in this short description of this rule it is impossi- ble to give you a detailed pathway for developing transparency and avoid- ing forced awareness. Again, the Recommended Reading section includes titles that will provide you with great places to start this process of chang- ing your thinking enough to exploit the crowd. But there is no easy way.
Always remember that every trader had to learn to trade. No one at the top of his or her game got there by accident, and all successful traders will tell you that the first blowout taught them not to rely on illusion. It started them on the pathway to true understanding.
That understanding is that the market is created inside your own head. How you see things determines how you will trade. Learn to see things in a new way. All the other rules are designed to keep you in the game until you can see clearly how to out-think the crowd.
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