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TYPE ONE STRUCTURE
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A Type One structure produces an action-reaction, back-and-forth, figure-eight type of behavior: one type of desired behavior leads into an opposite undesired behavior. A simple example is the pendulum. At the top of its arc, gravity changes its behavior to a downward direction. As it progresses, it builds up momentum. The momentum pushes it downward, past dead center, and toward the opposite side of its arc. Then gravity begins to slow it down. The pendulum loses all the built-up momentum, reaches the top, and begins movement in the opposite direction (Figure 4-1).

Most traders are captured by and operating in Type One structures. For example, suppose you put on a trade and decide to be very conservative with a tight stop. You tell yourself you need the tight stop so that if you are wrong it won't hurt too much. The market has a normal retracement which stops you out; then the market zooms in the direction you thought it would. You analyze your loss and decide that your stops are too close. You must give the market "room to move."

On the next trade, you place your stop unusually far away from your entry, to give the market plenty of "room." The mar­ket retreats and gives you a very large loss. You simply cannot withstand this big a loss. Again, in your analysis, you decide to "tighten up your stops."

Defining Your Underlying Structure

The vast majority of losing traders are trapped into this back-and-forth strategy of trading their last mistake. In a Type One structure, change is experienced from time to time but it doesn't last. Any progress turns out to be temporary. A Type One underlying structure makes us vacillate back and forth just like a pendulum. Any time you seem to be getting the same results over and over, you are enmeshed in this Type One structure. Someone once defined insanity as "doing the same thing over and over and expecting different results." If you find yourself on a yo-yo diet, or have quit smoking and still crave cigarettes, or have quit drinking and still want a drink, or want to win and you keep losing, you are in a Type One underlying structure.

If you seek the typical psychotherapist (remember, I have been one) at this point, you will hear words like "self-sabotage," "failure complex," "afraid of succeeding," and so on. The assumption is that inner states of being—emotions, inhibitions, fears—generate your dysfunctional behavior. All of these typical approaches insist that something is wrong with you. The underlying structure here is also Aristotelian and Newtonian: one looks for a "cause," finds a "solution," and brings about a different "effect."

If your underlying structure is one of oscillation, no solution will help because psychological solutions do not address the underlying structure that causes behavior. At times, some of these approaches appear to work, but their effects are temporary. Check out for yourself traders who have used this type of approach; evaluate what percentage of their change has been permanent. Our research clearly shows that the vast majority of traders fall back into their old losing habits. The only permanent change we have found is in those who have altered their underlying structure.

If you are in a pattern of oscillation (remember, all oscillators move around and always come back to zero), do not con­sider it a problem that you have to overcome. This structure is not adequate to get you to be a consistently winning trader. Fortunately, there is an alternative to this oscillating underlying structure.

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