Riding The Tiger Trade — Part 5 — Courage, Confidence And Discipline

• February 17, 2003
• Selwyn Gishen

If
many people have made fortunes from the stock market (true also for
the commodities and currency markets), and if they have accomplished their
fortunes in different times and in different ways, then clearly it is not the
methodology that they employed, nor is it the circumstance when they executed
their trades that was the common denominator for their achievements. Obviously,
circumstance and methodology were critical components of their success, but
neither of them was the common denominator.

Execution is the ability to plan a trade and then to trade the plan in such a
skillful way that there is a positive outcome. All markets exhibit
three powers or forces that need to be harnessed and understood in order for a
trader to execute his or her plan properly. Firstly, there is motive which is
governed by price. Price is the motivator,
is it cheap or expensive? Should I be buying or selling? Then there is pressure,
governed by volume. Who else is buying or
selling and how strong is the consensus? Finally there is resistance or
circumstance governed by time. Time is the
circumstance of the trade. “When,” is answered by the question, “Is this the
appropriate circumstance?”

Money always chases the twin
forces of “safety and yield.” That is, money will very quickly flow towards the
safest haven offering the highest yield. This flow will be governed by the
“prevailing perception” of the circumstances surrounding the flows of money.

As long as the same perception
prevails, we will have a trend and therefore there is a natural tendency to stay
with or conform to the prevailing perception. Our tendencies are governed by the
phenomenon of a “crowd mind,” which is a mind that is made up of the sum total
of all the individuals making up the crowd yet which displays its own unique
characteristics. By conjoining with the crowd thought we
believe we will find safety and yield. Thus it is said that “the
trend is our friend.”

To move out of the trend is to
recognize changing circumstances that will
cause the trend or “prevailing circumstance” to alter its direction. Recognizing
this seed of change early enough and positioning ourselves for the change takes
courage, confidence and discipline and are indeed the common characteristics of
all the traders or investors who have made fortunes in the market.

Thus, “the trend is our friend
— until it ends.”

So if success is the ability to
recognize the seeds of change early enough and to have the courage, confidence
and discipline to act accordingly, it behooves us to assemble these qualities
within our own psyche. Our total psyche is a combination of head (rational
thought), heart (conviction of feeling) and gut (intuitive confidence born out
of experience). Melding these three qualities together takes technique and
discipline. Discipline is what is needed to practice these techniques. The good
thing is that there are techniques to
practice which will accomplish this goal and each one of us can do so at our own
pace and according to our own temperament and intensity of desire, i.e., how
much do we really want it?

Here is a truism that sticks
well in my mind.

“Sow a thought
— reap an action,

Sow an action — reap a habit,

Sow a habit — reap a character,

Sow a character — reap a destiny.”

It seems to me that that we
need to explore our habits and, if necessary. change them if we wish to achieve
the success that is available to us in the markets or, for that matter, in any
aspect of our lives. Habits endure since they have been formed since we were
born and some say before that, as a result of many lifetimes of accumulation.
Whatever the reason, they definitely endure. Hence, we need techniques to help
us change our habits and we need the desire to do so. The question is, where do
we get this desire?

Desire is built from
motivation. Motive is of course the synergy of:

a) having a target

b) a passion to reach that target because of

c) an ideal greater than the target itself and

d) an urgency to arrive at the target.

Picture a table with four legs.
Each leg is a symbol of one of the above four qualities. Leg 1 is “passion”.
Being all fired up.

Leg 2 is “target,” a clearly
defined objective. (Being fired up with no clearly defined objective, one runs
the risk of wasting or dissipating one’s energy.) A target focuses energy.

Leg 3 is an ideal greater than
the target itself. If the target is money or profit, then the ideal is the
reason for acquiring the money or profit. There must be some higher good that
makes having the money all the worth while. Finally leg 4 is “Urgency”. There is
only NOW. Now is the only time to propel yourself
to the target. The past is history and the future does not exist. Plant the seed
now.

So the first technique is to
build motivation by defining your target, being truthful enough with yourself to
know if you have passion for that target, align yourself with a higher purpose
than just money and recognize that now may be the only chance you will ever have
to do it.

Once we are motivated we have
to adopt a realistic approach to our thinking. We have to find clarity or
otherwise be faced with confusion. In our second technique we have 3 objectives:

a) to establish our position or
belief system based on research and experience or in other words to determine
what we stand for. (If we don’t stand for something, we will fall for anything)

b) align ourselves with the flow of the market

c) manage our emotions.

In this regard I would like to
refer you to one of the best sources of techniques for accomplishing theses
objectives. Please do yourselves the favor of studying Dr. Richard McCall’s book
called

The Way of the Warrior Trader. Although Dr. McCall is a trained
psychologist, he is also a highly trained Samurai fighter who also teaches
Samurai philosophy to traders. What he does so well in his book is to introduce
his students to other forces than the intellect for making trading decisions and
reaching clarity. Clarity means getting into the zone. Proper posture and
breathing techniques and the control of the Ki energy are aspects of all martial
arts. In trading, as with martial arts, one needs to bring these factors into
account when training oneself to change one’s habits.

The conflict is not with some
other person on the other side of the trade who is out to get you but it is with
your own habits deeply ingrained within yourself that inevitably will “get” you.

So practicing yoga or martial
art techniques to balance one’s energy and shape one’s thought patterns becomes
the basis to restructure our habit molds and thereby recondition ourselves for a
different outcome. This will occur quickly or slowly depending on the
individual. Unfortunately, this column cannot be the forum for all those
details. Suffice is it to say that building a strong and balanced posture both
physically and mentally, calming the mind through proper exercise and breathing
techniques and employing a tool to help the mind keep focused can be very very
helpful.

A helpful tool that Dr. McCall
uses is the acronym A.C.T.I.O.N.

A – stands for
ACCEPT — accept your loss upfront so that you
can be free of it. If you know you can only lose 2% of your equity and you have
truly accepted that fact before you enter the trade, you will not have to focus
on losing during the trade. You will be able to focus on executing your plan or
strategy instead. You will not fall victim to the problem of dollar counting.

C – stands for
CENTER — center yourself so that your
strategy, your energy and your belief system are all in balance. Do this with
correct posture and breathing, a single strategy and repetition.

T – stands for
TRUST. Trust your strategy. Trust yourself to
execute your strategy, which you will be able to do if you have tested it enough
to calculate an expectancy ratio. Without completing this step you will never
have the confidence that is required to catch big tigers.

I – stands for IMAGINATION or
better yet IMAGE-IN-ACTION. Visualization
informs the subconscious with new feelings and thoughts which will replace old
feelings and thoughts. The subconscious does not differentiate between something
done or something visualized, as long as what is visualized is done so with the
same intensity as if it was an actual experience. Therefore practice positive
visualization, not positive thinking.

O – stands for
ONLY. Only focus on managing the trade you are
in. Watch the Tiger carefully. If you lose your focus (bad habit) he will get
you.

N – stands for
NEVER look back. Let old Tigers go away. That
is, NEVER dwell on a past loss, it will erode your confidence and rob you of any
courage. Have discipline. Just as in fishing when you bait a hook you will
sometimes lose some of your bait. Trading is no different and to catch a tiger
you will have to use live bait.

So in the end it seems to me
that to be successful at trading, especially at finding and catching the big
“Tiger-trades,” one has to assemble a total strategy based on defining one’s
objectives, researching and understanding a strategy or methodology, putting it
to work in a suitable time frame or at the appropriate time and then finally
committing resources in a controlled and thoughtfully managed way.

For me it has come down to the
development of courage, confidence and discipline on a personal level and the
modification of bad habits which ultimately must be replaced with the correct
habits for success. This is an ongoing process and one which can take many
years. Markets change their dynamics and even if there are patterns that repeat
themselves, the circumstances are usually different. Individuals change too and
in the final analysis, success will come from the aligning of one’s individual
dynamics with that of the market. This aligning process is never ending. How
well we do it will determine our success and define our own special “holy
grail.”

All I can say is that I have
found Tiger Trading a very enriching experience, sometimes even at the expense
of making money. Hopefully, though I will endure and become an expert at
Catching the Tiger Trade and my wishes are that you will too. Trading Markets
has provided a forum for me to express my overall approach for which I am
grateful, the objective of which has been a learning experience for me as well.
I wish all of you therefore “Happy Trails.” ( In the words of Arlo Guthrie, I
don’t wanna die, just wanna ride on my Uni-cy-cle).

Bye.

Selwyn Gishen

Click here for

Tiger Trade: An Introduction.

Part
1 — Setting Objectives

Part
2 – Choosing Your Time Frame

Part
3 – Why Time Frame Controls Everything

Part 4 – How To Bag The Big Tiger