Market Manifesto

We speak here of plan­ning, and antic­i­pa­tion, and con­sis­ten­cy.

We speak also of per­fec­tion­ism and the sin of pride.

At this point, you should be ready to antic­i­pate the mar­ket at every step.
You have the infor­ma­tion you need to know what should be unfold­ing, and the infor­ma­tion you need to tell you if what you antic­i­pate is actu­al­ly com­ing to pass. The next Lessons will put frost­ing on the cake.

Your chal­lenges will be to devel­op aware­ness and the abil­i­ty to exe­cute well. You will need to be alert so you can see what is hap­pen­ing, and clear-mind­ed so you can under­stand what you see. You will need to be com­fort­able with your abil­i­ty to take action enter­ing and exit­ing the mar­ket.

You may be work­ing on con­sis­ten­cy, and at bring­ing order­li­ness and reg­u­lar­i­ty to your trad­ing. You ana­lyt­i­cal skills will be deep­en­ing, and in all like­li­hood your trad­ing results will reflect your grow­ing skill lev­el.

Because trad­ing is such a per­son­al activ­i­ty, your approach might vary con­sid­er­able at dif­fer­ent points in your life. A young trad­er with lim­it­ed cap­i­tal may trade quite dif­fer­ent­ly than a mid­dle-aged trad­er. A young trad­er may be will­ing to assume very large risk, as he is young and has many years to recov­er if he los­es his stake. An old­er trad­er may have a much more con­ser­v­a­tive atti­tude towards risk and towards the con­ser­va­tion of cap­i­tal. Or their atti­tudes may be reversed, for what­ev­er rea­son. The point is that the approach to trad­ing can vary con­sid­er­ably from per­son to per­son.

And yet the virtues of con­sis­ten­cy and reg­u­lar­i­ty in approach tran­scend the dif­fer­ences in age, risk accep­tance or risk aver­sion, cap­i­tal, time­frame pref­er­ence, and expe­ri­ence.

As we pro­ceed in trad­ing, we gath­er expe­ri­ence in analy­sis and exe­cu­tion. We estab­lish meth­ods and pro­ce­dures. We set up guide­lines and pro­to­cols so that we can repeat our suc­cess­ful efforts by act­ing the same way each time we make a trade. In short, we learn to pro­fes­sion­al­ize our work. Like physi­cians, like accoun­tants, like attor­neys, like engi­neers, like archi­tects, we devel­op meth­ods that help us pro­duce reli­able results.

When we plan, and when we prac­tice, and when we pro­fes­sion­al­ize, we can become very good at some­thing. We devel­op con­sis­ten­cy. We become excel­lent prog­nos­ti­ca­tors and pre­dic­tors. We start to think we know what will hap­pen every time, and thus we devel­op pride. We are proud of our accom­plish­ments and proud of our skills. And we are proud of our finan­cial results, which may be far greater than one com­mon­ly sees in the run-of-the-mill trad­er com­mu­ni­ty.

But pride is not a virtue. It is list­ed among the sev­en dead­ly sins. And it resides in that com­pa­ny for a very good rea­son.

Pride will blind us to see­ing the alter­nate case. When we expe­ri­ence pride we are pleased with the way things are. We can­not rec­og­nize oth­er ways of doing things, oth­er ways of see­ing the mar­ket, oth­er ways of under­stand­ing a pos­si­ble trade out­come. Why should we, we proud­ly say, when our way is clear­ly the best?

But the trad­er who can­not see and does not know he can­not see is set­ting him­self up for one whale of a big bad trade. Pride kills aware­ness and as we have said again and again in these Lessons, aware­ness is the name of the game in trad­ing.

What is aware­ness?

You are aware when you know exact­ly who you are, and where you are. You know exact­ly what needs to be done, and how to do it. You know what is going on around you, and you are alert, and ready to act.

Aware­ness and pride can­not coex­ist in the same moment.

Pride is the feel­ing that we are so love­ly and so expert that sure­ly every­one must notice. Pride goeth before the fall, we say. The proud per­son has his nose so high in the air he can­not see where he steps and so steps in dog drop­pings or worse, and stum­bles over his own feet. If he is car­ry­ing a big trade at the time, like a wait­er with a tray full of din­ner orders, the result­ing fall can be spec­tac­u­lar.

The aware per­son car­ries him­self with humil­i­ty and knows that his human­i­ty links him with the ever-present pos­si­bil­i­ty of error, so he is vig­i­lant. The aware per­son makes a case for both sides of a ques­tion and waits to see which side is cor­rect. He does not assume one sce­nario is nec­es­sar­i­ly right at any giv­en time. The aware per­son is con­fi­dent but always a lit­tle cau­tious because he knows that not every­thing in the world has a good out­come every time.

Pride can lead to per­fec­tion­ism and that is not a good place to be.

Per­fec­tion­ism is not the same as try­ing to do doing your best, con­stant­ly see­ing if improve­ments can be made. When we are in a relaxed and focused state of mind, we are look­ing to per­form as well as we can. We look for ways to improve and enhance our per­for­mance, and we are always work­ing on get­ting bet­ter. This is a healthy state, and it keeps us from falling back into sta­sis and stag­na­tion.

Per­fec­tion­ism implies inter­nal harsh­ness and a feel­ing of shame when we fall short. It is an attempt to reach that sin­gle lone­some goal of per­fec­tion where no fur­ther improve­ments are pos­si­ble. It is the view of a con­di­tion that is ice-cold and unchang­ing. It is the feel­ing that when we are not in or approach­ing per­fec­tion that we are defi­cient as humans and that we must redou­ble our efforts or be clas­si­fied as a fail­ure.

Per­fec­tion­ism mea­sures per­for­mance against an exter­nal stan­dard (though we may car­ry that stan­dard inside, close to our heart), and thus sub­jects us to sham­ing and guilt when we do not meet the spec­i­fied lev­el of per­for­mance. Work­ing towards an exter­nal stan­dard of per­fec­tion is unhealthy and mit­i­gates against full pro­duc­tiv­i­ty.

We advo­cate an easy, com­fort­able state of mind where we are free from anx­i­ety and able to focus our atten­tion. We are not wor­ried about falling short because if we do, then we mere­ly say “That’s OK, we’ll try again tomorrow,” in a non-sham­ing, non-anx­ious, non-blam­ing sort of way.

Trad­ing is a men­tal game, where every­thing depends on per­cep­tion. We rely on our abil­i­ty to see and iden­ti­fy evolv­ing sit­u­a­tions as they emerge from the back­ground. We will often be either too ear­ly and think we see things that are not real­ly there yet, or we will be too late, and not see things that have already devel­oped into a more obvi­ous pat­tern that many can rec­og­nize.

This evanes­cent task – rec­og­niz­ing the emerg­ing pat­tern – is fraught with psy­chic dan­gers for traders. Dur­ing our edu­ca­tion, and dur­ing the course of our trad­ing, we will make many errors. The per­fect will elude us and at times we will feel like we are par­tic­u­lar­ly unskilled, par­tic­u­lar­ly stu­pid, par­tic­u­lar­ly blind to the emerg­ing real­i­ty in front of our eyes. Some­times we might be tempt­ed to blame our­selves because the emerg­ing sit­u­a­tion may seem ambigu­ous or uncer­tain as it evolves but look to be per­fect­ly clear and obvi­ous in hind­sight, once the pat­tern is ful­ly devel­oped.

If we take a harsh atti­tude toward errors and pun­ish our­selves when we fall short of our desired goal, then we are mak­ing life very tough for our­selves indeed. We stand in the way of our own progress. We block the road we need to take when we pun­ish our own self. If you think about the process of learn­ing, and about our progress as a trad­er, there is no one to pun­ish, there is no falling short, and there is no fail­ure than can­not be used to build the foun­da­tions of future suc­cess.

We like the mod­el of cer­tain great ath­letes as they devel­oped and refined their skills. Michael Jor­dan is a favorite because he was an abject “failure” as a young man, cut from the high school bas­ket­ball team and told that he was not good enough and would nev­er be good enough to make the grade. But … by estab­lish­ing a men­tal envi­ron­ment that wel­comed chal­lenge and growth, by nev­er giv­ing up and always try­ing to do bet­ter, by treat­ing him­self as a part­ner not an ene­my in the process of improve­ment, Michael Jor­dan became the great­est bas­ket­ball play­er of all time.

From time to time Jor­dan has writ­ten or talked of his men­tal method­ol­o­gy. At that lev­el of per­son­al accom­plish­ment the dif­fer­ence between the best and the also-ran is a mat­ter of atti­tude. When Jor­dan stepped to the free-throw line in high-pres­sure games, he pushed out of his mind the con­se­quences of fail­ure. He called into play the relaxed but open men­tal stance that we are talk­ing about here. The chal­lenge is not to become per­fect but to do things the same way each and every time. He would relax into the moment, and just exe­cute. Above all he would avoid plac­ing him­self up against an impos­si­ble stan­dard of per­fec­tion­ism.

Indi­vid­u­als who expe­ri­ence high lev­els of per­son­al suc­cess have made peace with their own inter­nal stan­dard. They have cre­at­ed a men­tal envi­ron­ment that per­mits them to bring their best effort to each chal­lenge, but which does not com­pel them to become per­fect. Their high stan­dards do not trans­late into harsh self-crit­i­cism and pun­ish­ment, but into an atmos­phere for improve­ment where plea­sure in learn­ing and joy in the task pre­dom­i­nate. As long as we are open to improve­ment, and do not demand its appear­ance, improve­ment will come.

Con­sis­ten­cy is more impor­tant than per­fec­tion.

It is amaz­ing how much mon­ey you can make when you are con­sis­tent. You don’t have to be per­fect. You just have to fol­low your own rules of the game, and exe­cute the same way each and every time you take a trade.

Con­sis­ten­cy depends on being ready to make the trade when the trade presents itself to you. Readi­ness depends on plan­ning. And plan­ning depends on under­stand­ing sequence, the types of trad­ing, and the tech­niques of antic­i­pa­tion. When you can rec­og­nize the well-researched pat­terns that come attached to each type of trad­ing, you are on your way to suc­cess.

If you were to some­how become a per­fect trad­er, you would take all the mon­ey that the mar­ket has to offer, leav­ing none for any­one else. How long do you think that would go on?

But if you are mere­ly con­sis­tent, you may become wild­ly suc­cess­ful, but leave enough mon­ey on the table so that the mar­kets will go on for­ev­er.

That’s plen­ty good enough for us.