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GOAL: TO UNDERSTAND THE AVERAGE TRADER'S VIEW AND EXPERIENCE OF THE MARKET
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The market is not your problem. Your problem is that you see the market as your problem.

Once upon a time, people got together, swapped things, and traded. The trading of goods wasn't something they ana­ lyzed or fussed and fretted over; it was just something they did along with planting seeds in the spring, harvesting crops in the fall, and then trading with their neighbors for wild game, tools, or other necessities. If they had a trading problem, they sought advice from their parents and grandparents, great uncles, older brothers, and other people who were successful traders. In the past, these were the experts, and the practical advice they gave was based on real-life experiences.

Then came the sophistication of the second half of the 20th century. After World War II, there arose an entirely different class of traders: trading experts—the ones with degrees, great mahogany desks, and polished nameplates on their doors. Be­ fore long, rhetoric replaced reality as the primary shaper of trading practices. Nonsense replaced common sense. Our in­terest became centered around moving averages, stochastics, RSI, point and figures, oscillators, dmi, adx, cci, volatility, bullish consensus, momentum, roc, MACD, plus numerous other indicators. Then came the newsletters and books such as How I Made 40 Million Last Year Trading One Eurodollar Contract. In the early 1980s, a flurry of $3,000 black box systems sold at incredible rates. None proved profitable and all have been discarded.

Market profile hit the scene but was hampered because it used parametric statistics in a nonparametric world (the market). When the statistics proved useless, we looked back thousands of years and borrowed candlestick analysis from the Japanese. If they endured, they must be effective, right?

Now, we are in the midst of a psychological revolution for traders that features everything from psychobabble, sublimi­ nal messages, and hypnosis to NLP, usually taught in groups by nontraders or traders who will not trade while outsiders are watching.

Not surprisingly, aspiring traders become confused, disap­pointed, and baffled, and lose control of themselves. The vast majority of them join the ranks of the chronic losers.

Over the past 20 years, we have taken a practical and com- monsense job of trading, dressed it in fancy language, and turned it into something very abstract and difficult. What the experts haven't romanticized, sentimentalized, and idealized, they have scrutinized and analyzed to such an extent that we no longer are able to see the forest. We're too obsessed with the trees. The process of trading—or speculation, as it is now called—has been transformed into a pseudointellectual sci­ence; traders think they must strain their brains at it, in order to profit. Trading, however, is anything but an intellectual en­deavor. In fact, the more you brain-strain, the more likely you are to find yourself with a losing P & L statement. There is ample evidence that the smarter you consciously try to be, the more difficult it will be for you to make a profit in trading. (We will examine this concept in detail in Chapter 12.)

Good trading does not emanate primarily from the head; it comes from the gut and the heart. Rather than long hard thought, you will need intuition and sensitivity to your needs and the needs of the market, and a firm grounding in the soil of common sense.

Traders who think too much tend to say things like "Trad­ing is the hardest thing I've ever done." When they stop think­ ing so much about it, stop obsessing over all the little details, stop worrying about whether one decision will ruin their trad­ing for life, and start paying at least as much attention to their own internal operations as to the needs of the market—that's when trading becomes a relatively easy, low-stress way to earn a good living.

Because I have traded actively for over 35 years and have held trading workshops in 12 countries on 5 continents, I am sometimes labeled as an expert. It's an accurate label. I am an expert at trading my own account. I have become an expert trader through trial and error, which is the only way anyone ever becomes an expert trader. I am not an expert as a result of having obtained a degree in engineering and a doctorate in psychology. My formal schooling actually did more to hinder my ability to trade than to help it. Graduate school filled my head with a lot of abstractions and theory about human behav­ ior, but did nothing toward advancing my common sense. It caused me to think a lot about the "right way" to trade, and the harder I thought, the more I lost touch with my intuitive knowledge.

Trading is not so fundamentally difficult, but when the self-appointed gurus make it sound difficult, we make the mis­ take of believing them. They may have batches of degrees, but their rhetoric often conceals more than it reveals. Strip away their elegant intellectual language and you will discover some basic timeless truths that serve to make trading quite simple. The problem with these truths is that they are neither roman­tic nor sentimental. They are realistic, pragmatic, and hard- headed.

This book is all about returning to a commonsense vision of trading. Successful trading builds on knowledge of (1) the underlying structure of the market and (2) your own underly­ ing structure. The way your brain works makes you a winner or a loser. The old advice, "Know yourself first and then know the market," has stood the test of time. We misplace our "com­ mon (trading) sense" when we try to make a technological sci­ ence out of dealing with our own emotions.

When I first started full-time trading, I spent over $6,000 on subscriptions to newsletters. My actual cost was many times that amount, because I believed what these so-called experts were circulating. Then I did a little research and found out that these newsletter authors did not trade on their own recommen­ dations. I was paying them substantial fees and risking my own hard-earned dollars, and they were unwilling to rely on their own analysis! Have you heard the argument: "\ would lose my objectivity if I had my own money in there"? I call it B.S. excuse # 17.

Trading does not have to be difficult, and it can be very re­warding. Learn to depend on yourself in trading. You may not know it but you are an expert too, just like me. As you go through this book and learn the Profitunity approach to trad­ ing, you will begin to enjoy being a trader instead of worrying about becoming a trader.

WHAT ANIMAL MOST TYPIFIES THE MARKET TO YOU?

Before you read another sentence, please pause and answer this question: If the market were an animal, what animal

What Animal Most Typifies the Market to You?

would it be? In other words, what animal best captures for you the characteristics of the market? Take a quick mental trip through the zoo and then write your answer in the space below.

To me, the market is a(n) _________________ . (name of animal)

I'm asking you to actually write your answer because I want you to make the decision, have a written statement of your choice (no second thoughts, no looking back), and then have a concept of the market that you can visualize as we discuss it.

Now that you have conceptualized the market as your choice of an animal, I'll anticipate some of your questions:

1. What else is different about this approach?

A good question that deserves a serious answer. Let me suggest an experiment that you can do for yourself. Contact ev­ eryone you know who has traded commodities and quit for some reason (usually, couldn't win financially). Ask them why they quit—in other words, what prevented them from making a profit? I know what they will tell you: "I couldn't make money because I couldn't predict the market."

Know something? No one can! No one in the whole world knows what the bonds will do tomorrow. If you think you can learn to predict the market accurately, you'll take yourself out of the 10 percent who are successful financially.

This approach, using fractal analysis, is not primarily con­ cerned with long-range prediction. Comedian Flip Wilson used to describe his "Church of What's Happening Now." Fractals are the market's equivalent of the Church of What's Happen­ ing Now. Fractal analysis gives a much clearer and more accu­ rate picture of current market activity. In the Profitunity approach, we don't deal the deck; we just play the percentages.

While everyone else is using technical and fundamental analysis, we aren't. All technical analysis is built on the faulty premise that the future will be like the past. If there is one thing I have learned in over 35 years of trading, it is that the fu­ ture will not be like the past.

In the 1960s and early 1970s, traders made fortunes trading beans on a ten-period moving average. Try that today and see how long you last.

2. What's the secret behind success with the Profitunity approach?

The best kept secret in the trading world: Almost nothing turns out as expected. The best trading plans usually go wrong. Notice that I didn't say sometimes, or occasionally; I said usually.

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