We trade our belief system

If you don't do it excellently, don't do it at all. Because if it's not excellent, it won't be profitable or fun, and if you're not in business for fun or profit, what the hell are you doing there?... Robert Townsend

You better work, work, work. I have one thing to say—you better work!...Ru Paul from the song Supermodel (You Better Work).

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http://www.traderplanet.com/newsletter_articles/view/4028/distribution:8

We trade and invest to make money. It’s science with a decent dose of art and intuition thrown into the mix. It’s work, and the instruction is to view it as work. You get paid for putting in hard days of work and hard nights of study and using your skills to make money.

Many come to the markets because of the hype, the lure of easy money and the availability of this or that system, method, software, trading technique, trading room, seminar, infomercial or tempting e-mail. Never in the history of mankind has it been easier for people to tap into the markets. Large numbers of people visualize themselves sitting in their pajamas, making trades from home and earning a really good living. On top of this, trading goes on all over the world and people can buy and sell at almost any time of the day or night. What’s not to like about this? How easy can this be?

At their core, trading and investing are simple. The challenge is that they are not easy. Why? Because markets are complex adaptive systems that are always in motion. Other than the regulations set by the exchanges, there are very few rules. In trading, we make our own rules and strive to take money from other people before they take our money. This is serious business, because it is our hard-earned money that we put at risk every time we enter a position. There is almost no way, short of complicated hedging strategies, to put money into the markets without putting it into the realm of risk.

Why do so many traders fail? Why are so many called and so few chosen? There are several main reasons for this, but the fundamental one centers around belief systems. When you think about it, you realize that the market is pretty much a level playing field. Everyone has access to similar information, charting systems, and trading platforms. For a price, you can get just about anything you think you need in terms of trading. The one thing you really need to be successful is not for sale: Your belief system and the belief system of others.

You are not really trading the markets. You are trading your beliefs about the markets against the beliefs of everyone else who is trading. This is the area where the majority of traders fail. They do not have a good understanding of their belief systems, yet struggle to put them into action to generate profits. You are what you believe, and if you don’t know who you are or what you believe, the market is a very expensive way to find out. Why? Because you will act every drama going on in your inner and outer life, and project these into the markets. Ever obliging, the markets will give back to you what you project into them. In the markets and in life, you tend to get what you give. This happens every day on a very large scale—those who know themselves take money from those who do not know themselves.

Let’s look at a price chart as one example of this. What is a price chart? Emotions plotted on a grid. That’s it. Why do you execute on that chart? Because you believe something about it. The thousands of others who are executing on that chart are also trading their beliefs. In order to have a chart, it is necessary to have both buyers and sellers. In order for price movement to occur, there must be both buyers and sellers. That means that people are trading their beliefs in that moment. If it were not so, there would be no price movement and no trading edge.

How can we understand this even more clearly? A price print means different things to different people. Those who win have learned to focus on what the price means to others, rather than to themselves. Put another way, top traders are always looking to find out where the other person is going to execute. Where is the other person who is already in the position going to get out of that position? What does that person think or believe about his position, and what is going to cause him to get out? It really is the beliefs of the other person that matter to you in terms of profit. When everyone who is going to get in is in, and everyone who is going to get out is out, there is no price movement. The movement occurs when the loser decides to get out, because the winner can wait. This is the edge that traders have when they let profits run.

Try to put this concept into perspective. It’s actually quite simple. The top trader is always looking for those edges where enough people change their beliefs and give up their positions. The top trader is asking continuously: What so other people believe about this price action? What has to happen to make these people change their beliefs? How long has the loser been losing and the winner been winning, and at what point will they each believe is enough?

Put yourself in the position of the loser and try to fathom what that person believes about his or her position. If you are attracted to this concept and want to learn more or if you don’t understand this concept---please let me know? Constantly question your own belief systems until you know why you are doing something. Always ask yourself, “What do I believe that is not true? What do others believe that is not true?” That is a good place to start working today!

If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time…Chinese Proverb

Thanks and Good Trading!

Janice Dorn, M.D., Ph.D.

www.thetradingdoctor.com

Copyright and Illustration Copyright: 2010, Janice Dorn, M.D., Ph.D. All Rights Reserved.