Mark Douglas Trading Psychology 3/7 Objective State of Mind
Summary
TLDRThe 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
🎵 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.
📈 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.
💸 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.
📚 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.
📉 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.
Mindmap
Keywords
💡Silver Trading
💡Spreading Position
💡Trading Range
💡Hunt Brothers
💡Price Limits
💡Market Psychology
💡Fear and Greed
💡Risk Management
💡Market Efficiency
💡Technical Analysis
💡Broker
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
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