Mark Douglas Trading Psychology 3/7 Objective State of Mind

Summary

The speaker recounts his journey in the trading world, highlighting the missteps and psychological challenges faced by traders. He shares personal experiences, including a significant loss due to market fluctuations and the subsequent realization that led him to a career in teaching trading psychology. The narrative emphasizes the disconnect between market outcomes and individual trades, the influence of media on market behavior, and the importance of understanding the psychological aspects of trading to avoid common pitfalls.

Takeaways

• 📉 The speaker initially lacked knowledge about trading and ended up with a significant loss in the silver market due to following advice without understanding the strategy.
• 🌐 The broker's strategy of spreading positions between New York and Chicago and going short in Chicago did not prevent losses, but rather locked them in when the market moved against the speaker's position.
• 📈 The silver market's trading range between 9.50 and 9.75 led to repeated losses as the broker kept taking off and putting back on short contracts, locking in losses each time.
• 🚀 The speaker's realization of the repeated loss strategy prompted a decision to exit all positions, which coincided with a significant market breakout and the Hunt Brothers' silver market cornering attempt.
• 🏆 The Hunt Brothers' attempt to corner the silver market led to a massive price increase, but ultimately they faced losses due to exchange-imposed limits and their inability to deliver on futures contracts.
• 📊 The speaker's experience with trading and the market's behavior highlighted the importance of understanding market dynamics and not blindly following advice.
• 💡 The speaker's transition from a high-income earner to a commission-based job in the trading industry was driven by a desire to learn and understand trading from the inside.
• 📉 The speaker's lack of success in trading was not due to poor trading signals but rather the emotional and psychological impact of each loss, which affected subsequent trades.
• 💸 The pressure of maintaining an extravagant lifestyle on a commission-based income from trading led the speaker to the brink of bankruptcy.
• 🔄 The speaker's experiences with customers and their trading successes and failures reinforced the need for a deeper understanding of trading psychology.
• 📖 The speaker's eventual shift towards writing and teaching about trading psychology was sparked by personal experiences and the recognition of the psychological aspects of trading.

Q & A

What was the speaker's initial experience with trading?

The speaker's initial experience with trading involved buying silver at $975 per ounce and entering into two 5,000 ounce contracts, resulting in a long position of 10,000 ounces of silver. This led to a significant loss when the market dropped to $950.

How did the speaker's broker attempt to manage the loss on the silver trade?

The broker suggested spreading the position between New York and Chicago, going short on two contracts in Chicago. The idea was to take the short leg off when the market favored the long position again, but this strategy ended up locking in a $2,500 loss each time the market fluctuated within a certain range.

What significant event occurred in the silver market after the speaker decided to exit his positions?

After the speaker exited his positions, the silver market broke out of its trading range and experienced a significant upward trend due to the Hunt Brothers' attempt to corner the market, which led to a price spike that the speaker could have capitalized on had he not exited his positions.

What was the speaker's realization about the trading range and the market's behavior?

The speaker realized that he did not understand what a trading range was and that the market had gone into a two-week trading range between $9.50 and $9.75. He also realized that his broker probably did not understand it either, and that the market's behavior was not straightforward or easily predictable.

How did the Hunt Brothers' actions impact the silver market?

The Hunt Brothers attempted to corner the silver market by accumulating large amounts of cash silver and futures contracts. Their actions led to a price spike, but ultimately they faced losses when the exchange imposed limits and they were forced to deliver silver, causing the market price to rise even further.

What was the speaker's emotional state during the period of trading losses?

The speaker was in a state of extreme distress due to the continuous losses and the inability to open his broker statements. He reached a breaking point where he decided to exit all his positions, which coincided with the market breaking out of its trading range.

What did the speaker do after his trading experience?

After his trading experience, the speaker decided to go to Chicago and apply for a position as a trainee at Merrill Lynch, leaving behind a significant income for a $20,000 a year draw against commissions.

What did the speaker learn about trading and the market from his experiences?

The speaker learned that trading involves a deep understanding of market dynamics, and that success is not solely based on having the right predictions. He also realized the importance of managing risk and the psychological aspects of trading, which led him to focus on training and psychology in trading.

How did the speaker's approach to trading change after his initial losses?

After his initial losses, the speaker began to focus more on learning about trading and the markets. He spent time learning technical analysis and started to see the market differently, realizing that he needed to understand the reasons behind market movements rather than just reacting to them.

What was the speaker's reaction to the lack of trading knowledge among his colleagues at Merrill Lynch?

The speaker was outraged and enraged to find out that his colleagues at Merrill Lynch did not know how to trade effectively. He was disappointed to learn that the training provided was more about sales and less about actual trading strategies.