You never know when the markets will do what you think they are supposed to do. Many times, like
God, the market does not deny, it just delays. Serious traders weave protection against this delay into the
fabric of their program. There is no greater rule to learn than that of money management. All the horror
stories you have heard about commodity trading are true. Good people have been totally wiped out by doing
the wrong thing. That wrong thing has never been the market, nor the fact the trader made a bad call. Indeed,
every successful trader will have bad calls, losing trades. And lots of them
The wipeouts you have heard about, every single one of them, have come from placing too large a bet
on a trade or holding on to a losing position too long. The sooner you learn to master your defeats, the
sooner you will be on your way to amass the wealth possible in this business. It is your failures, not your
successes that kill you in this business. Failures do not build character, they destroy your bank account.
The foundation to all your success is in the preceding paragraph. Psychics may or may not be able to
predict the market, value may or may not prevail. The world of speculation is about predicting the future
and that is difficult at best. The fabled United States military complex, which had supposedly bankrolled
the brightest of the bright, and thousands of intelligence officers, was not able to predict the fall of the
Berlin wall' So how can you and I hope to do better?
Our inability to see the future very well is proven yearly by such august sports magazines as Sports
Illustrated. In 1997, their oracles predicted Penn State would be the number one football team, ranking
Michigan number 18. By the end of the season, Michigan was number one and Penn State floundering.
Washington was supposed to be number three, but was beaten by lowly Washington State, a team not
mentioned in any top 20 list, that went on to win the Pac 10 championship and almost upset Michigan in
the Rose Bowl'
People who make their living looking into crystal balls are destined to eat a lot of broken glass.
But take heart: although neither you nor I can divine the future, especially price action, we can learn
to control our losses. That is a certainty, based on math, that will provide the building blocks for your
successes. Each and every one of them.
For years, I chased the prophets of profit, those financial soothsayers who claimed they, or their
indicators, could reveal the future. Eventually, I realized that God does not want us to see the future. It is
as simple as that.
If we could see "out there," we could all be millionaires many times over. We would bet the ponies,
spin the roulette wheel, and roll dice, except of course, no casino would back the other side of an
unwinnable wager. Besides, how thoroughly boring life would become if we could know today how every
day of our future would be. Who would want to live that way-- Where's the joy of discovery, the magic of
the unknown, the thrill of victory, the challenge of overcoming limitations?
If we were all be rich from our powers of foresight, who would work for us, grow wheat, raise cattle?
There would be no phone company, no movies, and no television, as no one would need to work. Worse
yet, who would hire us?
Like I said, God with infinite wisdom, does not want us to know much about the future and for sure
very little about the future of futures.
Would-be speculators think this is a game of knowing the future, of knowing that which cannot be known. It
is not. This is a game of developing strategies with winning advantages, getting the odds on your side,
working those odds, and staying alert to any potential changes in the game including new players or new
ideas and concepts.
The word speculate comes from the Latin specular, meaning "to observe," as in spectacle (your
glasses). We are not like gamblers, who enter a game they cannot win over time. All they can do is hope
chance will run their way, not that of the house. We speculators observe how things should happen in the
future, but because we know there are no guarantees, we protect our position with appropriate preservation
of capital techniques, so we can win at our game.
The art of speculation requires one part observation tossed together with one rather large dose of
preservation.
My Most Important Market Belief
Based on my research and experience, I have developed a powerful and profitable belief system:
I believe the current trade I am in will be a loser ... a big loser at that.
This may sound pretty negative to all you positive thinkers, but positive thinking can give way to
thinking you will win-a surefire formula for buying and selling too many contracts and holding on too long.
After all, if you are positive things will work out, you are certain to hold for a bounce or turn that never
comes.
I look at it this way, if you get all pumped up and glossed over with positive beliefs about your market
success, your conviction will lead you to mismanage losing trades. That is why belief systems are so
important to a trader. If your belief system tells you the current trade will be a winner-and it isn't-the need to
confirm that belief in your mind will literally force you to let losses run, to stay with losers, something no
successful trader ever does. An outrageously positive belief that the next trade or two will turn your account
around or make a small fortune for you is most dangerous.
Now let's look at my belief that the current trade I am in will be a loser, that I have no pact with God for
success on this trade. Indeed, I genuinely believe the market is not precisely perfect. Keep in mind the data
for this belief overwhelmingly supports it; 75 percent of mutual fund managers do not outperform the Dow,
80 percent of short-term traders lose their risk capital. On a personal note, many of my own trades do not
make money, and I can positively guarantee many of yours will not succeed.
No major loss I have ever had, and I have had more than my fair share of them, has been the market's
"fault." "They" were never out to get me. I got myself by believing my current trade would be a winner so
I did not follow the rules of the game.
I agree with those who say you are only as powerful as your belief system because that belief will give
you the power of taking an action with more certainty and less hesitation. We act out what we believe:
those mental beliefs are the scriptwriters for our play of life.
Adopt my belief that the current trade will most likely not work out and you sure as heck will protect
yourself with stops. You will control disasters, taking the first lifeboat possible instead of going down with
a sinking ship.
Adopt my belief that the current trade will most likely not work out and you sure as heck will not load
up on a trade, banking on it to ball out all your problems. A tiny loss can wipe you out when you have
taken a very large position or number of shares or contracts.
Positive beliefs about future results cause us to take on undue risk. Doing that in a game where the
odds are unfavorable to begin with is a sure invitation to disaster
