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Dear Group,
I've received an Email stating that my FTP site requires a password for
entry. In order to work around that problem, I'll try posting the
attachment directly, following my signature line. We'll get this
figured out yet.
Sincerely,
Richard
The Five Fundamental Truths of Trading
1. ANYTHING CAN HAPPEN.
There are always unknown forces operating in every market at every
moment; it takes only one trader somewhere in the world to negate the
positive outcome of your edge --- only one. Regardless of how much
time, effort, or money you've invested in your analysis, from the
market's perspective, there are no exceptions to this truth. Any
exceptions that may exist in your mind will be the source of conflict
and potentially cause you to perceive market information as
threatenting.
2. YOU DON'T NEED TO KNOW WHAT IS GOING TO HAPPEN NEXT IN ORDER TO MAKE
MONEY.
There is a random distribution between wins and losses for any given set
of variables that define an edge. In other words, based on the past
performance of your edge, you may know that out of the next 20 trades,
12 will be winners and 8 will be losers. What you don't know is the
sequence of wins and losses or how much money the market is going to
make available on the winning trades. This truth makes trading a
probability or numbers game. When you really believe that trading is
simply a probability game, concepts like “right and wrong” or “win and
lose” no longer have the same significance. As a result, your
expectations will be in harmony with the possibilities.
Nothing has more potential to cause emotional discord than our
unfulfilled expectations. Emotional pain is the universal response when
the outside world expresses itself in a way that doesn't reflect what we
expect or believe to be true. As a result, any market information that
does not confirm our expectations is automatically defined and
interpreted as threatening. That interpretation causes us to adopt a
negatively-charged, defensive state of mind, where we end up creating
the very experience we are trying to avoid.
Market information is only threatening if you are expecting the market
to do something for you. Otherwise, if you don't expect the market to
make you right, you have no reason to be afraid of being wrong. If you
don't expect the market to make you a winner, you have no reason to be
afraid of losing. If you don't expect the market to keep going in your
direction indefinitely, there is no reason to leave money on the table.
If you don't expect to be able to take advantage of every opportunity
just because you perceived it and it presented itself, you have no
reason to be afraid of missing out.
If you believe that all you need to know is :
a) The odds are in your favor before you put on a trade;
b) How much it's going to cost to find out if the trade is going to
work;
c) You don't need to know what going to happen next to make money on
that trade; and
d) Anything can happen;
then the market can't make you wrong. The market can't generate
information about itself that would cause your pain-avoidance mechansims
to kick in so that you exclude that information from your awareness. If
you believe that anything can happen and that you don't need to know
what is going to happen next to make money, then you will always be
right. Your expectations will always be in harmony with the conditions
as they exist from the market's perpective, effectively neutralizing
your potential to experience emotional pain.
Furthermore, a losing trade or even a series of losing trades can't have
the typical negative effect if you really believe that trading is a
probability or numbers game. If your edge puts the odds in your favor,
then every loss puts you that much closer to a win. When you really
believe this, your response to a losing trade will no longer take on a
negative emotional quality.
3. THERE IS A RANDOM DISTRIBUTION BETWEEN WINS AND LOSSES FOR ANY GIVEN
SET OF VARIABLES THAT DEFINE AN EDGE.
If every loss puts you that much closer to a win, you will be looking
forward to the next occurrence of your edge, ready and waiting to jump
in without the slightest reservation or hesitation. However, if you
still believe that trading is about analysis or about being right, then
after a loss you will anticipate the occurrence of your next edge with
trepidation, wondering whether it's going to work. This, in turn, will
cause you to start gathering evidence for or against a trade. You will
gather evidence for the trade if your fear of missing out is greater
than your fear of losing. And you will gather information against the
trade is your fear of losing is greater than your fear of missing out.
In either case, you will not be in the most conducive state of mind to
produce consistent results.
4. AN EDGE IS NOTHING MORE THAN AN INDICATION OF A HIGHER PROBABILITY
OF ONE THING HAPPENING OVER ANOTHER.
Creating consistency requires that you completely accept that trading
isn't about hoping, wondering, or gathering evidence one way or the
other to determine if the next trade is going to work. The only
evidence you need to gather is whether the variables you use to define
an edge are present at any given moment. When you use "other"
information, outside the parameters of your edge to decide whether you
will take the trade, you are adding random variables to your trading
regime. Adding random variables makes it extremely difficult, if not
impossible, to determine what works and what doesn't. If you're never
certain about the viability of your edge, you won't feel confident about
it. To whatever degree you lack confidence, you will experience fear.
The irony is, you will be afraid of random, inconsistent results without
realizing that your random, inconsistent approach is creating exactly
what you are afraid of.
However, if you believe that an edge is simply a higher probability of
one thing happening over another, and there's a random distribution
between wins and losses for any given set of variables that define an
edge, there is no reason to gather "other" evidence for or against a
trade. To a trader operating out of these two beliefs, gathering
"other" evidence makes no sense. Gathering "other" evidence makes about
as much sense as trying to determine whether the next flip of a coin
will be heads after the last flip came up tails. Regardless of what
evidence you find to support heads coming up, there is still a 50%
chance that the next flip will come up tails. By the same token,
regardless of how much evidence you gather to support acting or not
acting on a trade, it still only takes one trader somewhere in the world
to negate the validity of any, if not all, of your evidence. The point
is "why bother?" If the market is offering you a legitimate edge,
determine the risk and take the trade.
5. EVERY MOMENT IN THE MARKET IS UNIIQUE.
“Unique" means not like anything else that exists or has ever existed.
As much as we may understand the concept of uniqueness, our minds don't
deal with it very well on a practical level. Our minds are hardwired to
automatically associate (without conscious awareness) anything in the
exterior environment that is similar to anything that is already inside
of us in the form of a memory, belief, or attitude. This creates an
inherent contradiction between the way we naturally think about the
world and the way the world exists. No two moments in the external
environment will ever exactly duplicate themselves. To do so, every atom
and every molecule would have to be in the exact same position they were
in some previous moment. Yet, based on the way our minds are designed
to process information, we will experience the "now moment" in the
environment as being exactly the same as some previous moment as it
exists inside our minds.
If each moment is like no other, then there's nothing at the level of
your rational experience that can tell you for sure that you "know" what
will happen next. So, why bother trying to know? When you try to know,
you are, in essence, trying to be right. I am not implying that you
can't predict what the market will do next and be right, because you
most certainly can. It's in the trying that you run into all the
problems. If you believe that you correctly predicted the market once,
you will naturally try to do it again. As a result, your mind will
automatically start scanning the market for the same pattern,
circumstance, or situation that existed the last time you correctly
predicted its movement. When you find it, your state of mind will make
it seem as if everything is exactly as it was the last time. The
problem is that, from the market's perspective, it is not the same. As
a result, you are setting yourself up for disappointment.
What separates the best traders from all the rest is that they have
trained their minds to believe in the uniqueness of each moment
(although this training usually takes the form of losing several
fortunes before they "really" believe in the concept of uniqueness).
This belief acts as a counteracting force, neutralizing the automatic
associative mechanism. When you truly believe that each moment is
unique, then by definition there isn't anything in your mind for the
associating mechanism to link that moment to. This belief acts as an
internal force causing you to dissociate the "now" moment in the market
from any previous moment filed away in your mental environment. The
stronger your belief in the uniqueness of each moment, the lower your
potential to associate. The lower your potential to associate, the more
open your mind will be to perceive what the market is offering you from
its perspective.
***
When you completely accept the psychological realities of the market,
you will correspondingly accept the risks of trading. When you accept
the risks of trading, you eliminate the potential to define market
information in painful ways. When you stop defining and interpreting
market information in painful ways, there is nothing for your mind to
avoid, nothing to protect against. When there is nothing to protect
against, you will have access to all that you know about the nature of
market movement. Nothing will get blocked, which means you will
perceive all the possibilities you have learned about (objectively), and
since your mind is open to a true exchange of energy, you will quite
naturally start discovering other possibilities (edges) that you
formerly couldn't perceive.
For your mind to be open to a true exchange of energy, you can't be in a
state of knowing or believing that you already know what's going to
happen next. When you are at peace with not knowing what's going to
happen next, you can interact with the market from a prospective where
you will making yourself available to let the market tell you, from its
perspective, what is likely to happen next. At that point, you will be
in the best state of mind to spontaneously enter "the zone," where you
are tapped into the "now moment opportunity flow."
From: Mark Douglas (2000): “Trading in the Zone: Master the Market with
Confidence, Discipline and a Winning Attitude." New York Institute of
Finance: New York, 216 pages; (pp 130-35).
Beginner’s Mind
People say that practicing Zen is difficult, but there is a
misunderstanding as to why. It is not difficult because it is hard to
sit in the cross-legged position, or to attain enlightenment. It is
difficult because it is hard to keep our mind pure and our practice pure
in the fundamental sense. The Zen school developed in many ways after
it was established in China, but at the same time, it became more and
more impure. But I do not want to talk about Chinese Zen or the history
of Zen. I am interested in helping you keep your practice from becoming
impure.
In Japan we have the phrase “shoshin,” which means “beginner’s mind.”
The goal of practice is always to keep our beginner’s mind. Suppose you
recite the Prajna Paramita Sutra only once. It might be a very good
recitation. But what would happen to you if you recited it twice, three
times, four times, or more? You might easily lose your original
attitude towards it. The same thing will happen in your other Zen
practices. For a while you will keep your beginner’s mind, but if you
continue to practice one, two, three years or more, although you may
improve some, you are liable to lose the limitless meaning of original
mind.
For Zen students the most important thing is not to be dualistic. Our
“original mind” includes everything within itself. It is always rich
and sufficient within itself. You should not lose your self-sufficient
state of mind. This does not mean a closed mind, but actually an empty
mind and a ready mind. If your mind is empty, it is always ready for
anything; it is open to everything. In the beginner’s mind there are
many possibilities; in the expert’s mind there are few.
If you discriminate too much, you limit yourself. If you are too
demanding or too greedy, your mind is not rich and self-sufficient. If
we lose our original self-sufficient mind, we will lose all precepts.
When you mind is demanding, when you long for something, you will end up
violating your own precepts: not to tell lies, not to steal, not to
kill, not to be immoral, and so forth. If you keep your original mind,
the precepts will keep themselves.
In the beginner’s mind there is no thought, “I have attained
something.” All self-centered thoughts limit our vast mind. When we
have no thought of achievement, no thought of self, we are true
beginners. Then we can really learn something. The beginner’s mind is
the mind of compassion. Then our mind is compassionate, it is
boundless. Dogen-zenji, the founder of our school, always emphasized
how important it is to resume our boundless original mind. Then we are
always true to ourselves, in sympathy with all beings, and can actually
practice.
So the most difficult thing is always to keep your beginner’s mind.
There is no need to have a deep understanding of Zen. Even though you
read much Zen literature, you must read each sentence with a fresh
mind. You should not say, “I know what Zen is, “ or “I have attained
enlightenment.” This is also the real secret of the arts: always be a
beginner. Be very very careful about this point. If you start to
practice zazen, you will begin to appreciate your beginner’s mind. It
is the secret of Zen practice.
From: Shunryu Suzuki (1970): “Zen Mind, Beginner’s Mind: Informal Talks
on Zen Meditation and Practice.” Weatherhill: New York, 138 pages (pp
21-22).
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