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BELIEF SYSTEMS AND REALITY
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Let's start with a base that is as generic as possible. Let's describe reality as: what is at this moment. What is is that you are reading this paragraph. For our discussion, everything else is nonreality, at least to us at this moment. For generic purposes, let's call this what-is-right-now reality space 1. Everything else, we will label space 2. (See Figure 12-1.)

Space 1 is what is, or reality; space 2 is what isn't, or nonreality or fantasy. An important part of our culture is that few of us are interested in reality. Reality is usually too boring to be motivating. We become more motivated by fantasy. You are reading this book because you have a fantasy that by reading it you will learn what you need to improve your results in trad­ing and thereby be happier. Our mutual hope is that your fantasy will become reality, if it hasn't already.

Pepsi reportedly paid Michael Jackson over $28 million to make a few short TV commercials. Pepsi is a pretty smart com­pany and wouldn't be paying anyone $28 million for a few minutes of videotaped commercials unless there was a solid probability that it would pay off. Pepsi knows how people think and how fantasies motivate buyers.

Millions of people have watched these commercials, in which Jackson is dancing. What goes on unconsciously in viewers' minds is: "If I drink a Pepsi, I could dance like Jackson." That far-flung fantasy still sells billions of Pepsis.

Our lives seem too occupied with making up fantasies and then attempting to make them come true. Our fantasy of hav­ing more money runs our lives. We have a fantasy that if we buy bonds on the opening tomorrow, we may make some real profits. We tend to forget we are buying from someone who has just as strong a fantasy that the bonds are going down. Some­times a fantasy is wrong; but you already knew that.

One way to diagram life is as a constant effort to make our fantasies come true. We make up ideas, put them in space 2, and try to actualize them into space 1.

We now come to a crucial distinction: How do we make space 2 into space 1? Success in achieving our fantasies is dependent on the underlying structure of space 1, space 2, and the space between them. Let's make some statements about life and then apply them to trading.

Understand first that I probably don't have a thimbleful of missionary blood in my body. I am not trying to convince you of anything. Look at these concepts and if they help you, use them; if not, don't use them. They have been vital to the success of hundreds of real-time traders. The vocabulary I use is important here, and I have emphasized the key words. Each state­ment is followed by a short commentary.

1. Life is a GAME in which WE MAKE WHAT ISN'T more
important than WHAT IS.

I mean the word GAME in its biggest and most important sense. It is not denigrating in any respect. The words WE MAKE indicate this is our choice. Not all cultures in the world make up fantasies the way we do. WHAT ISN'T refers to our fantasy, and WHAT IS refers to the current reality.

2. The most important reason to play this GAME is to
FIND OUT WHO WE ARE.

For most traders, this game of trading is a very psychologi­cal primordial event. Our ego, our bragging rights, and usually our self-worth are all on the line. If our primary purpose for trading is to make a bunch of money and we lose, our ego suffers and our perspective is usually upset. The most important commodity you will ever manage is your own perspective. Above all else, it should be nurtured and protected. If your perspective is upset, you will try to "double up and catch up," do the "big one," and usually get creamed.

However, if your most important reason for trading is to find out who you are, another scenario will unfold. On a losing day, you can sit back and say, "Gee, isn't it interesting how I

react to losing $ _____ today." It may be tough, but you still

have your perspective intact and can come back and try again without your tools (brains) being distorted.

The primary reason for doing anything is to find out who you are. This book is intended to help you toward that personal knowledge.

3. The only way to play this game in such a way that you find out who you are is to realize that WHAT WAS —before you made WHAT ISN'T into WHAT IS— was totally OK.

By following this last statement, you ensure that you are using the Type Two structure that we discussed in Chapter 4. The key difference is that, in a Type One structure, you are making up your fantasy to solve a problem in space 1. In that sense, you are denying the current reality. In a Type Two structure, you are accepting the current reality and allowing that current reality to expand until it encompasses space 2. Let's walk through an example.

Oprah Winfrey is /was a fat lady. I am going out on a limb and attributing to her things that I don't really know; however, after dealing with thousands of patients in psychotherapy and growth situations, I do believe what I am saying is accurate. Oprah's space 1 was a fat lady and her space 2 (fantasy) was to be a skinny lady. Several years ago, she went on a diet and became skinny enough to make commercials for Guess jeans. A bit later, she ballooned up beyond her original weight. The crucial question: Why didn't she stay skinny? Because she was using the wrong underlying structure to make the journey from space 1 (what is) to space 2 (what isn't).

For whatever reasons, she did not want to be a fat lady. Maybe she thought that being skinny would create more

viewers for her TV show, or that she would have a better love life. The specific content of her desires is unimportant; the critical item is why was she making up the fantasy. If it was to "get rid of a problem" in space 1, the current reality, it sets up the back-and-forth pendulum model described in the struc­ture of structure in Chapter 4.

To get into a Type Two structure of structure, the current reality must be totally OK. Before Oprah can really become a skinny lady inside and outside and have no problem staying skinny, it must be OK for her to be a fat lady. The question immediately becomes: If it is OK to be a fat lady, why change? There is the paradox. Because there is no reason for change, there is also no reason not to change. We have arrived at choice.

Putting this into traders' terms, until it is totally OK for you to be a loser, you most likely will never be a consistent, easy trading winner. You hear this fact restated in several dif­ferent ways: "Scared money never wins," "Love your losses," and other proverbs. They never meant much to me until I understood the Type Two underlying structure. Being freely at choice is probably one of the best advantages you could acquire as a trader.

Here is the vital key. Whenever you are making up your fantasy in space 2, the most vital question you can ask is: Why am I creating this fantasy? If it is to solve a problem you are having in space 1, it will not work on any permanent, easy basis. It will set up a figure-eight pathway where solving a problem immediately creates another problem to bring you back where you started.

As represented in Figure 12-2, a pendulum, propelled by momentum, swings through dead center. As it leaves dead center, the momentum starts dying out as gravity becomes a greater and greater force. Finally, gravity takes over, and the pendulum reverses and starts moving in the opposite direction. Then momentum leads to gravity, which leads to momentum, which leads to gravity, and so on.

Figure 12-2 The pendulum and type one structure.

In the market, this behavior is often displayed by traders who decide they cannot afford a large loss. They set their stops tight. Their trade is triggered, and the market backtracks just enough to get them out of the market, then zooms off in the direction they thought it would go when they placed the trade in the first place. The traders decide, "The problem is that the stops are too close. The market needs room/' On the next trade, they set the stop far back, to give the market room. The trade is triggered and the market starts backtracking all the way to the distant stop. Disgusted and disappointed, they think to themselves, ''I can't take that kind of loss. I must tighten my stops again." This is probably the most common trading example I can give you of Type One structure. Whatever behavior you are exhibiting turns into the opposite behavior. The only constants are continual change in strategy and consistent losses.

Anyone on a yo-yo diet, anyone who quits smoking and still desires a cigarette, anyone who quits drugs and still desires them, and anyone who quits drinking and still wants a drink are trapped in this back-and-forth structure.

The main reason so many of us are stuck in the Type One structure is fully discussed in Chapter 4, where we examined our Aristotelian heritage as opposed to the Heraclitan heritage. Remember that the Heraclitan philosophical approach has given us the theory of relativity, quantum mechanics, and the science of chaos. To further emphasize this difference and its effects, go with me now on a Reader's Digest type of condensa­tion of what you would most likely learn if you spent some time in graduate school studying psychology.

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