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.

Outlines

00:00

🎵 Market Misfortunes and Trading银

The speaker recounts a personal story of trading silver, where they ended up with a significant loss due to market fluctuations and poor advice from their broker. They explain how their broker's strategy of spreading their position between New York and Chicago, and going short in Chicago, led to repeated losses. The speaker also discusses the impact of the Hunt Brothers' attempt to corner the silver market and the subsequent price limits imposed by the exchange, which affected their trading experience.

05:00

📈 The Silver Market Frenzy

The speaker delves deeper into the silver market's behavior during the Hunt Brothers' attempt to corner the market, describing how the market's price limits led to a series of limit up and limit down days. They explain the concept of a perfect trending market and how the lack of retracements can be both advantageous and indicative of market manipulation. The story concludes with the speaker's realization of the market's potential for significant gains and losses, and their decision to exit the market due to the extreme stress it caused.

10:04

💸 From Success to Bankruptcy

The speaker shares their journey from a high-income earner to facing bankruptcy due to poor trading decisions and an extravagant lifestyle. They describe the emotional turmoil of losing possessions and the realization that they were more than their material wealth. This experience led to a profound change in perspective, allowing the speaker to view the market objectively and without fear, which ultimately improved their trading outcomes.

15:05

📚 Writing a Book on Trading Psychology

The speaker discusses their decision to write a book on trading psychology after being fired from their job at Merrill Lynch for doing so. They recount an interaction with a management consultant who was excited about the book's potential but led to their dismissal. The speaker reflects on their experiences with various trading systems and the common mistakes made by their clients, which reinforced their belief in the need for education on trading psychology.

20:07

📉 Market Anomalies and the Pitfalls of Trading

The speaker provides examples of market anomalies and the disconnect between trading signals and actual market movements. They describe instances where local news and pit activity influenced trading decisions, leading to losses for their clients. The speaker emphasizes the importance of understanding the reasons behind market movements and the risks of following trading systems without fully comprehending their principles.

Keywords

💡Silver Trading

The act of buying and selling silver, often in the form of futures contracts. In the video, the speaker recounts his experience of trading silver, where he ended up with a significant loss due to market fluctuations and poor advice from his broker.

💡Spreading Position

A trading strategy where a position is spread between different markets or exchanges to manage risk. The speaker's broker suggested spreading his silver position between New York and Chicago to mitigate the loss, but this ultimately locked in the loss instead of recovering from it.

💡Trading Range

The price range within which a market moves over a certain period, indicating a period of consolidation before a potential breakout. The speaker was unaware of this concept, which contributed to his lack of understanding of market behavior.

💡Hunt Brothers

Refers to Nelson Bunker Hunt and William Herbert Hunt, who were involved in a famous attempt to corner the silver market in the early 1980s. Their actions led to significant price increases and subsequent regulatory intervention.

💡Price Limits

Restrictions set by exchanges on the maximum price change that can occur for a security or commodity within a single trading day. The speaker discusses how price limits were imposed during the Hunt Brothers' attempt to corner the silver market, preventing unlimited price increases.

💡Market Psychology

The study of how psychological factors influence the behavior of market participants, including traders and investors. The speaker eventually realizes the importance of understanding market psychology after his own trading experiences and the lack of training in this area.

💡Fear and Greed

Emotions that can significantly impact trading decisions, often leading to irrational behavior. The speaker discusses how fear can cause traders to avoid taking profitable trades or to exit too early, while greed can lead to holding onto losing trades or taking excessive risk.

💡Risk Management

The process of identifying, assessing, and prioritizing the risks faced by individuals or organizations, with the goal of minimizing adverse effects. The speaker's story highlights the importance of risk management in trading, as his lack of it led to significant financial loss.

💡Market Efficiency

The concept that all available information is already reflected in the price of securities, making it difficult to consistently achieve higher returns than the average market return on a risk-adjusted basis. The speaker's experiences suggest that market efficiency is not always perfect, as he was able to identify patterns and make profitable trades.

💡Technical Analysis

A method of evaluating securities by analyzing historical price and volume data to forecast future price movements. The speaker used technical analysis to develop trading systems and provide advice to his customers.

💡Broker

A person or firm that arranges transactions between a buyer and a seller for a commission when the deal is executed. In the video, the speaker's broker provided poor advice that led to significant losses in his silver trading.

Highlights

The individual's experience with trading began without prior knowledge, leading to significant losses.

A broker's advice resulted in the purchase of silver contracts, which initially led to a $2500 loss.

The strategy of spreading positions between New York and Chicago was used to mitigate losses.

The market's fluctuation within a trading range led to repeated locking in of losses.

The individual's distress over the situation eventually led to the decision to exit all positions.

The silver market's perfect trending market scenario due to the Hunt Brothers' attempt to corner the market.

The imposition of price limits by the exchange due to rapid market increases.

The individual's realization of the psychological aspects of trading and the importance of understanding market behavior.

The transition from a high-income job to a lower-income position with the hope of learning to trade.

The lack of substantive trading education provided by the brokerage firm.

The individual's dedication to learning technical analysis through the use of a computer terminal.

The emotional impact of trading losses and the pressure to maintain a perfect trading record.

The financial strain caused by an extravagant lifestyle and the fear of bankruptcy.

The importance of maintaining flawless credit and the individual's extreme measures to preserve it.

The turning point where the individual realized they were more than their possessions after losing everything.

The individual's unique position of having tapped out as a trader but still being connected to the industry.

The decision to write a book or seminar on the psychology of trading after being fired from Merrill Lynch.

Illustration of how news and media can influence market behavior and individual trading decisions.

Transcripts

[Music]

thank you

so anyway what happened to me was um

[Music]

I was with my shirts and broker didn't

know anything about trading and uh

I ended up I don't remember why why he

told me I should do this but I did it uh

well I you know I just did it because I

thought he knew what he was doing but

you know I don't remember the reasons

why he told me to do it I ended up

buying uh silver at uh it was around 975

ounce

and uh I bought two two five thousand

ounce contracts I was I was long ten

thousand ounces of silver

and shortly after I got into the

position uh the the solar Market went

down to about uh 950.

and so I was I was looking at 2500 loss

so what he says to me is that you know

what

we'll take care of the situation

well since I was long to uh comex silver

contracts what we'll do is we'll spread

your position between New York and

Chicago and we will go short to

contracts in Chicago

so if I did is he put on ten thousand

two contracts another a 280 Buck

commission by the way so he put on two

contracts in uh in Chicago so I was

along uh New York short Chicago at this

price and he said when the market goes

back in your favor we'll take the short

leg off because the whole idea

originally was to be long silver okay so

we'll take the short leg off when the

market goes back into favor so the

market data went back in my favor and he

got he took these two short contracts

off but in essence locked in what a 2500

loss when he did right okay that was a

realized loss but then what happened is

that the market went back down to 9.50

and he put the two back on

[Music]

what now this this now what I'm about to

show you is in essence the silver market

went into about a two-week trading range

between 9 50 and 9.75. I didn't know

what a trading range was I didn't even

see a chart okay and I would say that he

probably didn't either go looking back

on the situation he didn't know what a

trading range was either but what he did

do is that every time it went back to

975 he took the short leg off and locked

in another 2500 loss it went back down

again to 950. he put him back on and it

went back up to say put them on so so he

he did this over two week period several

times and finally you know it got to the

point where I couldn't open up my broker

statements and I was in an extreme

straight of this an extreme state of

distress

and uh until I got to the point where I

just woke up one morning I said I can't

take this anymore and I you know I I

went into my office I called on the

buses get just get out of them just get

out of everything right now

this this is probably the reason why I'm

here today okay I'm not kidding

in fact it is

because about uh oh I'd say 20 minutes

or half an hour after making this call

to get out of everything

the market finally broke out of this

trading range and of course we never saw

this price again because shortly

thereafter within a couple of weeks you

remember the Hunt Brothers debacle

foreign

okay I was in what you'd call the

perfect trending Market they couldn't

and I say the perfect trending Market I

mean it was absolutely because what's a

perfect trending Market one that

virtually goes straight up right okay no

retracements well the market couldn't go

straight up because the exchange imposed

price limits in other words The Exchange

says that the price of anything can't go

can't it can't deviate by more than

let's say in silver I think it was 50

cents a day I think it started out you

know 50 cents or a dollar a day I don't

remember what it was anybody remember

solos

with the price symbol was on so Tony do

you remember back in back in the early

80s or late Summer with the price limit

on Exchange imposed pricing on Silver

Wells today was about 50 cents or a buck

it had to be a buck but

yeah okay so so you know what I mean by

limit move everyone knows I need to live

at all okay in other words if once the

price when the price went to uh let's

say uh 10 10 25 we started at 9.75. we

just started out at night instead of

9.75. if the price went to 10

uh 25 that's a 50 Cent move and the

exchange says okay uh no we're not going

to execute any more buy orders it

doesn't matter unless there's enough

sell orders enough to sell orders of

course to take the other side but if

there aren't enough sell loaders We're

not gonna we're not going to execute you

know in other words We're not gonna let

the price go any further than 10 25

today

okay now we don't know what's going to

happen tomorrow morning when the Market

opens but in this case what instead of

having a bar chart that looked like this

because a bar chart would imply that

there were trades within those bars the

silver market in our charts the silver

market looked like this they were dots

this would be a day this would be a day

this would be a day this would be a day

they were dots because there were no

trades because there wasn't anybody

willing wasn't anybody willing to take

the other side of these buy orders

because we had a flood of buy orders

into the market without any inventory to

take the sell side so the exchange had

to move it up the limit for the next day

and then there weren't enough there

weren't any cell orders limit up again

limit up again this would be a perfect

trending Market because you don't have

to deal with retracements

okay and then it went all went all the

way up to 49 an ounce

basically

I was like that close to in my mind

anyway I'd have never hung out before

you know but at least at the time I was

I was like that close to what I thought

was four hundred thousand dollars

on a two lot

and it didn't take long and no it took

30 days it's a little bit over 30 days

now what the reason why this happened is

because these Hunt Brothers The Hunt

Brothers were Texas uh Texas uh oil

millionaires or billionaires or whatever

they got the idea that they're going to

call to the silver market and the way

you Corner a market is one you start

buying up as much cash silver as you can

you'll start accumulating a huge

inventory of cash silver silver bars

whatever okay and then what they did is

they went into the Futures market and

bought and bought as many Futures

contracts as the exchange imposed limits

would allow them to however that was

quite a few Futures contracts but see

let's see what they did and the reason

why they they end up taking you know

taking a huge hit on this whole deal is

because the exchange said that what they

did is they bought more than the limit

through other entities that they said

they had no relationship with but the

reality is they did so here's the deal

here's how here's how a market gets

record is that

is that if if we if there's a buyer for

a seller and a seller for every buyer

and uh at some point Futures contracts

expire

and when they expire if we're not out of

our side of the contract we have to we

have to execute the contract so if I'm

on the buy side of this Futures Contract

and I don't get out when the contract

expires I have to deliver 5 000 ounces

of silver to whoever's on the sell side

at the particular grade that the

contract specifies at the price that at

the price that that I got into the

contract with

anybody with me on this okay

and as a seller if if I have to take if

I'm not out I have to take delivery well

what ends up happening is that as

contracts come to expiration everyone

starts unwinding their trades meaning

the buyers sell the sellers buy and and

what once existed as open interest

starts reducing down to very little if

almost nothing and the few that are left

are the ones that want to take delivery

or make delivery everyone else had no

intention of taking or making delivery

but with what the Hunt Brothers decided

to do was they wouldn't let they

wouldn't let the sellers they wouldn't

let the sellers on their contract and

others what they did is they've

accumulated tens of thousands of buy

contracts with no intention whatsoever

of taking of unwinding that that

contract but taking actually selling it

before expiration forcing all the

sellers on the other side to go into the

where cash market and deliver silver to

the Hunt Brothers

and at that point the Hunt Brothers have

so much silver they're basically having

to buy the cast Silver from The Hunt

Brothers to deliver silver on their

Futures contracts

forcing the price of silver

they're about 40 bucks an ounce is

everyone with me on this

and then when the Commack said hey you

know what

you know maybe

Comics said they they said no uh no more

buy orders or whatever anyway what what

went up limit up uh 40 some days in a

row would limit down

40 some days in a row and the hot

Brothers took the gas on it they end up

losing all that money

is that what they did Adam I don't

remember what they did exactly

so yeah right they said they're only

taking cell owners right

yeah well whatever it was yeah

you need the mic

brother with with someone

the chairman of the CME Jack sander

had a hard position

[Music]

and the report was very important things

the chairman of the Chicago Bulls game

and yeah

pretty much though yeah yeah

walked out of the exchange

something else especially in these

markets today something else can go on

anybody that affected by that because

it's here

comes in case

the market can go wherever

and just don't don't think that you

can't yeah and I'll do it one more thing

out there and

in uh in 1987 during the crash if you

were if you were short but as a people

you obviously

yeah all right all right

so I've been on the wrong side of one of

those the Market's going in my favor and

because I because I shorted the footstep

it was in the D mark and the Mark was

screaming in my favor and I'm losing

money because of the volatility right

yeah I didn't think I mean I knew

theoretically it could happen would it

really happened it's like oh okay this

really happens

during the crash and they have one you

know they put all the public friends you

know we'll go I mean yeah

you know I know my husband's cheating on

me

hold on okay just just a little off but

just just because because you're on the

floor do you know if you personally know

anybody that did a real decent air trade

is

what do you think what do you think it

would be

no no it would be it would be some

Trader Floor Trader who's no he's ready

to tap out he knows he's ready to tap

out now keep in mind this is at a time

before electronic exchanges before

electronic trading cards were the four

Traders didn't have to turn their

trading cards in other words all the

trades they made during the day they

didn't have to turn it in till the end

of the day and so the clearing firm that

the firm the Brokers from that cleared

their trades didn't know where these

guys were at I mean they didn't know how

much money they would have won or lost

until all these trades are reconciled

with all the other brokerage firms that

they that they traded with and so what

they would do is if I'm ready to tap out

and so I'm going to put on this huge

position that I can't afford and so what

they do before they close just before

the clothes they put on a huge position

let's say they go long two bonds okay

they do a thousand t-bomb contracts and

at the same time they buy a ticket to

Rio De Janeiro

and then and then what they do before

they open they go to O'Hara O'Hare

Airport and then wait for the open and

at the market and hope it's in their

favor they come back and and if it

doesn't they get on the plane and

actually and actually the way I heard it

is

housing contracts right before our

employees right before oh yeah whatever

yeah yeah

they take a huge guess another yeah yeah

to go to the airport and at 7 30 seconds

and they call up there's the bombs yeah

uh I'll be back I'll be right back

okay goodbye and I've gotta I've got a

crash of 87th story of my own now

the clerk coming up going where's your

cards here you guys don't worry get away

from oh yeah all right get away

wow

okay so you guys kind of get getting the

idea here this is this this business is

is a lot different what people most

people think that it is okay it really

is and you know and the implications are

that that if you don't know the reasons

why other Traders are are extending

their orders into the exchange

and then you then you don't know why

you're running or losing

and there isn't any way to find out

just think about the implication that

you don't know why you're winning or

losing it which means the whole idea of

being right is irrelevant

your predictions can be right but your

reasons for making the prediction are

you don't know you can ever verify you

can't ever verify if they're actually

correct

they might be but if you can't verify it

then what's the point of even thinking

that's a right

they only gets into a lot of trouble

because thinking that you know if I'm

right it must have mean that I know and

if I know it means I can eliminate the

risk the next time

and the risk can never be eliminated

so what happened to me is that I I

missed out on what I thought was 400. it

just really hated me I mean I I can't

tell you just just how anguished I was

when this happened and so it didn't it

wasn't really it didn't really take much

for me to say you know what I'm going to

Chicago

thank you

and you know so the first thing I did I

thought you know I I checked things out

and I found out that mirror Lynch uh the

retail brokerage office Maryland's

Commodities they're on the second floor

of the Chicago Board of Trade and uh

they had three positions that are

opening they're going to be open for

trainees and uh and my understanding is

they had over a thousand people applying

for those positions and so like how is I

going to be one of those guys that done

the three what I did because I lived in

the Detroit area I went and applied for

a Merrill Lynch position and another at

another at a branch office in the

Detroit area went through the whole

process because they had you know they

had um

uh

um

aptitude tests so you had to get through

tests and you know and but the most

important part of it the most important

part of the process I thought anyway

was that at there's a multi-page

application because because of the tests

but otherwise there was this box at the

back at the last page and in this box

you had to spontaneously write some so

there was a question that was asked it

was somewhat philosophical some of the

philosophical answer because they wanted

to know probably you know how focused

and how well you could you could write

something like that under the pressure

of being in a job interview so anyway uh

uh what I did is I I assumed that the

whole process would be the same as the

Chicago Board of Trade and it was and

but what I did do is I spent probably

two or three weeks

it was agonizing over every single word

of that answer I mean and by the time I

was done I even had to admit it was

somewhat brilliant okay

and and uh so I've written applied at

the Board of Trade and of course I ASAP

the two tests because I've already taken

it and then if the branch manager

thought that I wrote that answer just

sitting there spontaneously okay because

I had it on a three by five card he's

got to thank this guy hey I'm gonna hire

this guy and that's okay that's all I

got that's how I got the position at

Merrill Lynch

so so then uh people you know it's like

no what did I get myself into I got

myself into a twenty thousand dollar a

year draw on commissions that's it the

twenty thousand dollar you're drawing

commissions

I left see I left 360 thousand dollars

for a twenty thousand dollar a year draw

against commissions and there wasn't

anybody in my life that didn't think I

was absolutely Stark waving out of my

mind

like how could I do it

was easy in my mind I wasn't giving up

anything

that wasn't a Revenge trade I just

thought look I didn't know anything

about trading and I and I got myself

into a trade that had a potential of 400

000 on two contracts what did I know

about the markets virtually nothing what

do I know about trading virtually

nothing so in my mind did I give up 360

000 not really I'm gonna go make this

when I get to Chicago

I'm gonna be on the inside of the

business

and as a result I'm going to learn how

to trade

only to find out that especially back

then there wasn't anybody at Maryland

Heights who knew how to trade seriously

I'm not kidding uh I'm really not I'm

not saying that facetiously in any way

they didn't know how to trade they know

how to talk about trading

they know how to open accounts and teach

you how to open accounts in fact I went

through a 30-day training uh training

session uh in Manhattan and uh not one

moment of that session was spent on

teaching us how to trade

it was all about how to sell your

customer and how to talk about trading

in a way that made it seem like you want

to trade

so when I got on the inside of the

business I was outraged seriously I was

I was I was enraged I really was it's

just like and it took me it took me a

while to get over that too but

um but anyway the problem is that is

that uh here uh you know I gave up all

this income and I had money but it was

like you know I also had an extravagant

lifestyle I still had a house in in some

of the Detroit I had a really nice you

know apartment in downtown Chicago not

not that far from Leo the Board of Trade

I had a Porsche you know I had a

girlfriend and you know the Detroit area

and uh you know going back and forth

every weekend and you know the whole

works right I mean just like you know

just my lifestyle My Lifestyle could

only be supported if I made money as a

Trader

yeah exactly

that ain't gonna happen

at the back I'm in the back of my mind

it's like you right after I get there it

is this is too long for me to start

figuring out you know what this this

isn't adding up this is not adding up

it's like nobody knows what the hell

they're doing with respect to trading

anyway I started making friends with

four Traders thinking they knew what was

going on they they they're in a

completely different world I mean you

know floor trainers and Direction

related Traders like what we do screen

based traders who recall each of the

four Traders are called what they did as

training We call we did as training

we're a completely different world

they did not make you know most cases

did not make Direction based decisions

they made scalping decisions that turned

into Direction related trades

I'm not even going to get into how that

works this is not necessary all I'm

saying is that and not only that they're

also boom and Busters too

so all this is like you know it's like

whoa uh you know and so let's get to the

point where you know as things are going

on you know and I'm and I'm doing I mean

not only I mean one of the good things

about being at the board of Edna

Maryland's office is that they had a

they had a uh a a computer or a terminal

actually that was uh that had a direct

that had a direct phone line to a

Mainframe computer in Boston I think at

MIT that that uh uh I could I could call

up a tick chart even on anything at any

time in other words if this would have

been in like 1981 if I wanted a tick

chart of wheat on Wednesday uh you know

uh Wednesday March 14th of 1951 it would

give me one if I'd build a tick chart

you know all you know all the way to to

the present moment and at the time I was

doing point and figure charts so like I

could I could I could build up pointing

figure charts you know anytime you know

not they're not based on time but you

know any box any any reversal size and

it would go back as as far as the

contract went back

so and I spent almost all my time at

that terminal learning learning

technical analysis whereas there were

like almost what they're over 40 brokers

in that office I was the only one who

used it

I wasn't let me use it

so anyway like I said things aren't

adding up and it gets to a point where

uh I'm running out of money because of

my lifestyle and you know uh to the

point where you know it looks like I'm

I'm gonna file bankruptcy because I

don't have another the other thing that

was so important in my life even at the

time probably one of the most important

things in my life was my credit I would

do anything to maintain Flawless credit

I mean whatever it took anything so the

idea of not being able to pay my bills

was completely unacceptable to me it was

like I believed that that if I had to do

something like that I would fall through

the cracks of society and never

re-emerge I mean you you might think I'm

just saying that these are these are not

words these These are these were a

reality in my mind I could not fathom

what that would be like just couldn't

but in in essence that's essentially

what it came to now if you're thinking

to yourself okay as you realized that

you know that that you're running out of

money and I wasn't running out of money

because my training because trading

losses either I was trading and you know

and uh uh and it wasn't because I didn't

take big losses my problem as a Trader

was because of all the pressure that I

had of having to be successful of having

to prove that I didn't make the family

friends whatever but I didn't make this

asinine decision of leaving 360

000 for a 20 000 a year to draw against

emissions that every trade took on the

significance of took out just a degree

of importance that was just way off the

chart

and so if I if I took a losing trade

every trade had to work I was looking

off a level of 100 Perfection every

trade had to work and if it didn't it

would set me into an emotional tail step

to the point where it took me days if

not allegedly almost like weeks to

recover now in the meantime you know so

to recover to the point where I didn't

want to even have anything to do with

the market I didn't want to watch the

markets it was so traumatic but as a

broker I was in a position of

maintaining my customers a customer

accounts and giving them recommendations

so what would end up happening is that

as I'm as I'm keeping in touch with the

market for the sake of my my customers

you know I'm I'm giving them my best

interest

which which in many cases are really

good but when I talked to them it's like

it always came with a disclaimer like

you know this train might not work

and so you know it resonated as a truth

but I said it to them but in my mind it

was just lip service seriously just like

you know I'm gonna get into a trade

that's going to work or that's it

so what ended up happening is that I

would take a loss

[Applause]

position where I'm giving my customers

my best edges

and they're getting and all I had to do

was fill out a ticket for me but I

couldn't do it it was I was paralyzed

because and this was the hard like the

situation with John about about you know

realizing that he was a hero cycle my

cycle was that by taking a loss I didn't

deserve the next trade you know I mean

it's like I was punishing myself

I didn't deserve to participate in the

next trade

and when that next trade was a winner it

would like put me into a state of

Anguish that was so painful that it had

actually the positive benefit of

knocking me out of it because it's just

like the sense of self-preservation

would kick in you know like knocking me

out of the sense of angers that that you

know not wanting to go through that kind

of pain again I would I would be

determined to take the next trade

especially with that next trade that I

didn't take was a winner and that must

always learned so here my customers were

benefiting from these winning trades and

what I needed so desperately I wasn't

even participating in

well in any case it was a real bad way

to trade so I ended up losing I didn't

say like I said I didn't end up having

the file because of losses it was the

fact that that I wasn't making the kind

of money but I made it I made it as a

Trader so if you think to yourself well

okay has your expenses you were way out

of sync with with your lifestyle why

don't you cut back on your expenses well

think about that for a moment if I come

back on my expenses I'm admitting to

myself and I'm failing

even thinking about it would be putting

me into a mode that I'm admitting that

I'm failing and what made it even doubly

more difficult to make that admission is

the fact that

I had a really good win percentage I

can't I came up with good trades

if I could execute I might have been all

right

so so just always seemed like I was only

two or three trades away from everything

being all right

so how can I admit that I'm failing

the dog literally did not have

any more money to pay my bills

and then I called you know credit cards

and even called the GE Credit who you

know uh had the Porsche and that wasn't

even late wasn't even late I said hey

come and pick up the car I can't pay for

it

mayron Bloomington Illinois

and what was really interesting about

that you want to hear this I don't know

that's a cool story the guy they told to

come pick it up and let him out in front

of the apartment building

and uh I can't use the exact language

the supervisor use but I'm thinking you

know what this guy's picking up my car

or let's blows my car and I want a note

that says it what condition it's in in

other words you know I go back and make

things right I don't want the car you

know going back to GE Credit Dan it up

or whatever that you know any kind of

situation that I didn't occur I said I

wanted to know and he said I'm not going

to give you one I said you're not going

to get the car and so you know we went

back and forth on this so finally he

walked into the lobby and um and called

the supervisor and I could hear his

supervisor on the other hand I said if

you have to blah blah blah this guy's

whatever you you know you get whatever

you you do whatever you have to do to

get those keys you're screaming at them

so anyway yeah I I can't use a language

but it's like you can you can imagine

what I said so um

but yeah so so what ended up happening

is that is that I I lost all my

possessions other than the fact that

that uh

um I still had my job at Merrill Lynch

when I filed I did so in the Detroit

area because I had a legal residence so

nobody available

fired me immediately and uh and I was in

the unique position now here's here's

what's really critical about all this I

was in the unique position of

legitimately having tapped out as a

Trader

they're still able to train

still being connected with Americans

and I had also the added benefit of just

just always sort of knowing right from

the very very beginning that training

was about psychology as a matter of fact

the very first book I ever bought as a

trainer the very first training book I

ever bought was Jake Bernstein's

investors culture it was published by

Wiley in 1980. it was more more on the

clinical level but that was the very

first trading book I ever bought it was

on psychology the only one actually like

I said the very first I don't consider

reminisce as a stock Trader like a real

psychologist training book so Jakes was

the very first one actually the district

was only the second

the this one trailer came out in 19 1990

yeah at that time it was only the second

book ever written on a psychology

training after Jake and even at that

time uh there weren't any Universities

that had behavioral Finance uh

behavioral Finance programs it just you

know the whole idea of training

psychology in the industry was

completely like like you know this this

is not this doesn't have anything to do

with anything

so anyway so what ended up happening is

that it was real cathartic because I

ended up realizing that I was more than

my possessions like after I don't know

how many weeks it took well I was

starting to reassess my identity when

you have when you have all these

possessions you know that that are on

the outside of you reflecting what's on

the inside of you and then all those

possessions are gone it's like you've

gotta you've got to reassess who you are

and then I came to the realization that

you know like I'm more than my stuff and

I'm gonna be all right and it's when I

really genuinely came to the conclusion

I was going to be all right that that I

didn't have anything to lose anymore and

I saw a different Market I come in and

it's like there was this was like almost

like things became self-evident when I

didn't have anything to lose

is like I was completely detached from

the outcomes and was being completely

detached from the outcomes I was in an

objective state of mind and it all

became easy

if you really did someone have a story

here I don't remember your name sir oh

you guys didn't have a tag on Scott you

want to say your story

and you've got 15 seconds

[Laughter]

foreign

[Music]

foreign

[Music]

foreign

[Music]

started apologies

thanks Scott appreciate it thank you

forgot to put it up there sorry

before you break the lunch there's

there's some stories that I want to go

through they'll illustrate illustrate

these points when I was at rail Edge

um first of all if you're interested

want to leave Maryland

yes all right I got fired uh and no the

reason why I got fired is because in uh

in the summer of 1982 this this whole uh

this whole situation was at like around

April of 1982 by July of 1982 I'm

thinking you know what uh as I

experience a different Market because my

perception my my perspective had changed

I thought you know what I got I got to

write a book about this or a seminar I

didn't think about really a book but I

felt more like in a seminar and I

actually started writing it in July of

1982 in the boardroom overlooking

LaSalle Street there was a huge picture

window there you know and the second

floor of Merrill Lynch okay your second

floor Skyward trade anyway

um about uh nine months later nine nine

or ten months later uh some um

Management Consultant from New York came

to the came to our office uh she had

some agenda I don't remember exactly

what it was but she was interviewing all

the Brokers and she got to me and I told

her that I was writing this book in a

psychology of training she lit up I mean

she honest guys she just she just lit up

and we talked for about an hour and I

told her what I was doing so this is

exactly what we need boy this is great

and so you know when we were done she

went right into the manager's office she

was in there for about 15 15 minutes or

so manager came out and said pack this

up and get out of here

did not want anybody on the inside of

the industry writing a book no you know

not that he didn't know what I was

writing about he didn't want to take the

chance he just said get out that was it

right then and there so I said my Tobias

everybody had left and uh and but anyway

um

uh

uh here's here's some things that

illustrate some of the points that I

learned while I was a barrel watch one

um

uh there was a book A book that I bought

a new Technical and that do technical

like well I don't know about anyway all

it was was about five or six technical

rudimentary by today's standards very

rudimentary Technical Systems that that

that Wells Wilder the author of the book

actually gave you a spreadsheet for so

you could actually you know do all the

additions multiplications and and

divisions all by hand because we didn't

have computers and and based on daily

charts and um

some of these singles are really quite

accurate I mean they really were they're

based on like the daily charts they're

really quite accurate and uh uh and so I

started using them for my customers and

um uh

and so one of the things that that that

that surprised me is because I was

making friends with a lot of four

Traders is that when I got a signal in

some cases it was absolutely perfect

because like get me in a get me in a

trade that you know that I didn't take

any heat on whatsoever and I'm thinking

you know like I remember exactly

thinking like is this the reason why the

Market's going in my favor but I do if

you do have a recollection like if it

was a bond trade of going out to going

out to have some beers after the market

with Bond Traders and they're telling me

if what the activity in the pit who's

buying who's selling volume I'm thinking

there is no connection whatsoever

between my winning trade and why the

market went my favor I mean zero because

I mean were those four Traders using

this system absolutely not

zero connection

the next one

um

sophisticated financial news channels

didn't exist back then but we did have

this

this cable channel in Chicago that

during the day they had financial news

or whatever stories and it was like it's

a really rudimentary by today's

standards so the TV would be on

constantly so you could watch it if you

wanted and uh we also had like uh CNBC

like what they called like in the

morning they called squat box well you

everyone know what a squat box actually

is because they really exist now swapbox

was an open phone line between all the

different pits of that that you know

that would be traded that we would you

know would have a speaker located in

various parts of the office so everyone

could hear it and there would also be an

open phone line and like you know the

Hog Pit the uh uh uh the the bellies the

t-bonds the S PS you name it the

currencies whatever and there would be

Merrill Lynch employees whose job it was

to go to these various pits throughout

the day and report about who was buying

and who was selling and how much you

know like okay someone's always doing

this so-and-so's doing that and um so

I'm watching I'm watching this local

local channel

and uh

[Music]

and they're interviewing some vice

president behind-hold Commodities

einhold Commodities I don't think they

exempts or they don't exist anymore but

they used to be uh one of the biggest

hog uh producers in the world at the

time and so their vice president was

being interviewed by the guy uh on this

cable channel and he's just talking up

by Hogs by melons

you know and it's like in the office was

relatively quiet at the time then then

all of a sudden the phone started

lighting up literally and lighting up

because you had a lot of a lot of

Commodities local commodity Traders Off

the Floor Traders in the Chicago area

who watched the station and so what are

they doing they're buying Hogs they're

they're sending orders to their

brokerage firm in this case you know in

this case Merrill Lynch buying Hawks or

buying pork bellies and so but it just

this is a coincidence it just so

happened because the guy the Merrill

Lynch Maryland's employee on the floor

whose job it was the report was going on

in the pits he wasn't watching that

station he wasn't watching the local

news cable station he didn't have any

idea that there was some hindhold vice

president on TV telling telling the

basically retail sale retail customers

to buy Hogs

but he just happened to walk into the

Hog Pit because he hears all this

activity he sees all this activity

flowing into the pit from especially

into the retail brokerage a Deck holders

and um he wants you know he'll go report

on what's Happening so he goes on the

pit and say yeah all these retail owners

insurance in Maryland and guess who's on

the other side taking guess who's on the

other side taking the taking the sell

side of those orders pie hole

they needed inventory they needed buy

inventory to to absorb their heads

without affecting the price of the

market

this happened a lot this was not an

isolated incident this is the kind of

stuff that goes on all the time or did

this probably still does I don't know

and so and and and and and the next one

the last one that that really like like

I had where I really for sure had to

write a seminars because when I'm when I

was at Merrill Lynch I mean I what I saw

in all of our customers making all the

same kind of mistakes over and over and

over again I mean it was just like it

was just the typical thing is that that

we all basically had the same problems

and and making the same kind of mistakes

and um

and uh I inherited this guy as a

customer he was uh he was from Indian

had a hairy heavy a real heavy Indian

accent and he was uh uh he was the

main com he he ran the state of

Illinois's main computer banks in other

words the mainframe computers and as a

result says he had access to to these

computers he was also uh uh developing

Training Systems using the computer and

so like I said I inherited him as a

customer he didn't have an active

trading account because his wife

wouldn't let him trade anymore but if he

did have an open account so so he would

call me every day and he was not a lot

he's not a very personal guy because I'd

pick up the phone and say give me data

okay so you know I give him the data he

needs and and eventually what he did is

he came up with a system that was really

quite accurate in other words at least

entries anyway he had really accurate uh

entries on a daily trading system like

on the open on the close kind of thing

what he didn't have was

um uh uh exits on a law sign and profit

objectives and so I worked with him for

about a month on this and came up with a

really viable system it was working and

it was and Not only was it working it

was starting to take notice people

Airlines management because my customers

were making money

literally I mean that's not something

that really happened in a retail

brokerage firm so uh you know

um and then it got so good that he

talked his wife into putting five

thousand dollars in his account

and it was like whoa

it was gone in the day I have

it was like he called me with the

signals but but and they said but then

he'd say well do this I said well no our

signal we're going to do this for his

account no no no do this so no the

signal is to do this is that I know it's

going to happen do this and he lost the

five grand like that just like that not

following one rule of this we had a

track record we had a legitimate track

record that was working and he couldn't

take one trade from his own training

system

he pissed away the 5 000 a little under

two days and his wife said that's it no

more

and that was it for me too because you

know he closed the account I never heard

from him again

he says we didn't have mainframe

computers in order to have access to you

know access to what variables he used to

call for the signals those done

it was those kinds of experiences like

you know what and I got to do something

to you know get people get people in

tune with what's really going on here

first of all don't let me forget

tomorrow I'm going to start out showing

how fear causes us to the fear acts on

our perception of information and our

behavior in a way that causes us to

actually experience the very thing we

fear the most and then we're going to

put it all in within a context of a

step-by-step methodology of how to

actually instill these principles in

your mind as core trading beliefs so

that you're not afraid anymore right but

here's a story about uh newscasters

[Music]

what do you mean what are you saying

in response

okay but what does that have to do with

what the story about yourself yeah he

did that because he did he did oh he he

went on TV to tell people to do that so

there were orders to take the other side

of his trade

he needed inventory in other words

remember but twice prices moved based on

an imbalance between the number of buy

and sell orders that come into the pit

but he's a hedger he doesn't want the

price he doesn't want his sell order to

cause the price to go down because it

reduces his average price he wants to

sell at the highest price possible the

only way to get his price at the highest

price possible if there are a number if

there are enough buy orders to take the

inventory of the amount of sell orders

he has to sell so he went on TV

encouraging people to be buyers so that

there were enough orders to fill his his

Hedge

thank you

he didn't want the market to move

that

oh in this case yeah yeah that's

annoying yeah see remember I didn't I

didn't say that was an absolute I didn't

say it was an absolute because the

Merrill Lynch the Merrill Lynch employee

was right in the pit seeing who put the

order in he still didn't know why did

the middle oh Merrill Lynch employee

said hey you know what high and hold is

selling here's how many he didn't know

that they were putting on a hedge

oh it wasn't a good bet at all actually

no it was it was a complete scam

what do you mean

I mean full place of eye order or sell

order okay they're putting violence

right looks like

oh absolutely yes in this case I would

say because The Coincidence of the phone

of him being on TV and the phone's

lighting up yes I could say in this

instance that probably the reason why

those buy orders are falling into the

fit yes did I know what that yeah that I

yeah the probability is yes yeah I yeah

it seemed like I contradicted myself but

I really didn't because because as

screen based Traders remember I was on

the inside I was in a brokerage firm

with access to information that we don't

have as a screen based Trader

now if I qualified it by saying yes

screen-based Traders there's no way to

know

is that part of your question

yeah remember I was on the inside

so I could see the correlation

go ahead did you ever ask

Ed any or all of the students who never

did any body

what are you going back about a quarter

of the way of your presentation to talk

about it no no no I normally well no I

wouldn't ask that's not something no I I

kind of know why I can extrapolate why

but no I wouldn't ask what I really I

really wouldn't want to say actually you

know I don't I don't want you guys to

not do it okay so you know what well you

might not want to if I gave you the

answer

it's what you're going to learn

step into what they're going to find out

about themselves

that's right now yeah not everyone's

gonna not everyone's gonna want to know

what they're what they're stepping into

and what they're gonna learn about

themselves because the implications are

pretty powerful you know it takes away a

lot of people's excuses for being

unhappy and a lot of a lot of negative

things that go on in their lives that

they'll learn they can do something

about because if you can change one

belief you can change any belief

so there I answer the question

that was a good question by the way

yeah oh one other thing oh one okay

another thing okay

um because I don't think I finished this

yeah another example there was uh there

was one one particular example where uh

the market had the bond market had

really established uh uh uh support and

resistance Zone okay and this was this

was an intraday trade and the market

came down to support and bounced right

back up off came down to support again

bounced right back and now it's coming

back down again right

okay and so like the third time well I'm

getting everyone in this trade

and what does the market do it just just

blows right through it now it's like in

a normal circumstances I wouldn't have

the slightest idea of what happened it

just so happened that because again I

was having beers with guys in the bond

pit that you know who were in the pit

that day uh asking them hey you know

what when the market when Michael's at

this price and it bounced I'm not going

to this price and it bouncing it didn't

hit it again in like you know an hour or

so later and it'll go right through what

happened oh well there were there were

four or five really big Bond traders who

were supporting the price here in other

words more buy inventory than sell

inventory they did the same thing again

here they were out to lunch here they

went to lunch

I lost money because or that my

customers lost money because they went

to lunch

that's why the trade was a loser

hey see you tomorrow