The Way to Trade. John Piper
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to read and take newsletters, but our research has only scratched the surface. We still have no real idea what we are involved with.
14. Our technique scores a major success (the ‘87 Crash), but our lack of trading skills means that we do not profit from it as we might.
15. The market begins to instill a little fear but we have yet to learn the first key lesson.
16. We keep trading in size. We are overtrading and clearly act as a fugitive from the law of averages. It is only a matter of time.
17. We make a big profit. It is all going well, we start to get overconfident.
18. We suffer a big loss. Psychological problems start to develop.
19. We buy a computer and start to monitor many more indicators.
20. We look at other techniques and other markets.
21. We get wiped out.
22. It becomes clear this is not at all as easy as it looks.
23. We become impossible to live with.
24. It also becomes clear that the information available (in 1987/88) is not much use to those seeking to make money from trading.
25. We determine to fill this void and look to create a newsletter telling it how it is.
26. We work with an analyst in the USA. Note how inappropriate this is for someone who wants to trade. Much better to work with a trader!
27. We continue to trade, but in a much reduced manner.
28. We start our newsletter which is an immediate success.
29. This requires a lot of research plus a lot of self analysis, but it is still not clear that trading is a psychological issue and that the externals (systems/software/computers/ brokers/advisers, etc.) are almost completely irrelevant until the internal is set up right.
30. We are plagued with fear and have no clear methodology.
31. It becomes clear that judgmental trading (without a clear methodology) is a dead end.
32. We start to look for a suitable methodology.
33. Those available on the market do not seem to be suitable and so we design our own.
34. We start to trade using a clear methodology. This is not easy but some things start to become obvious.
35. We find ourselves trading for no good reason (something that was impossible to detect before we had a clear methodology), but then realize that it is due to an argument earlier. Self esteem clearly plays a role.
36. We realize that the key element in trading is our own mentality.
Now we can start to make some real progress.
37. We improve our systems and start to make some money on a one contract basis.
38. But we are still fearful and this remains a big problem. We learnt, some time ago, the necessity of cutting losses, we cannot get to the second secret until we deal with the fear.
39. We keep trading and we continue to do OK, we start to get more confident and the fear starts to dissipate.
40. We take another big hit.
41. We feel awful and think we should perhaps give up, should perhaps have given up some years ago when it all went wrong the first time.
42. We keep trading and determine not to get overconfident again. We reinforce the stress management systems we had to learn in the early days and keep meditating (essential to trading success). We realize the importance of remaining humble and also of being an “empty vessel.” If you are full of yourself there is no room to learn anything else.
43. We meet another trader who becomes a mentor. He introduces a new (to us) technique (Market Profile) which immediately “fits.” This is because we now have the right attitude.
44. We build on our successes. Systems improve, results improve, and our mental attitude improves, fear becomes less of a problem.
45. We decide to see a trading coach/psychologist (Adrienne Toghraie) and have an initial meeting in Switzerland.
46. We make a big profit by letting profits run. We have managed to do what every successful trader must. Can we repeat this trick?
47. We start to move away from fear, and start to become risk orientated.
48. We realize that mental attitude is all. We see that it is vital to be relaxed, we reduce position size, again!
49. We spend a few days in the USA working in a group with our trading coach/psychologist.
50. We begin to make money with consistency.
51. We get a little overconfident, again! But this time we realize the fact and the damage is limited. But we learn, again, to remain humble.
52. We start to trade almost subconsciously some of the time. We are becoming expert.
53. We know there are still many challenges ahead but we are confident that we will deal with them.
54. Money ceases to be a problem, we truly live in a world of abundance.
55. We find that our lives improve across the board and that we are achieving in a wide range of areas.
SUMMARY
Two different ways of looking at the same journey: the Trader’s Evolution and the 55 Steps.
Greed orientation to fear orientation to risk orientation; greed orientation leads to losses and traders become fearful. They then need to persevere and develop the skills to become risk orientated.
The 55 Steps (every mistake in the book) depict a stylised journey which John Piper has undergone to get where he is today.
Chapter 3: THE HUMAN BRAIN
This chapter looks at two brain models which are useful when considering the way traders react to markets and why.
In 1996 I published a series of articles by Tony Plummer entitled “The Troubled Trader” (see Appendix 2). These articles were based on the concept of the “triune” brain. I also read the book Trading Chaos by Bill Williams which proposed another “three part” brain model. Both of these models are useful for the consideration of traders because they identify trading problems and trading solutions.
Actually Bill Williams would say that is the wrong way of looking at it. Problems do not require solutions they require transcendence. Personally I would say that these models are essential and they have allowed me to go one step further and produce the Trading Pyramid. Perhaps that is a form of transcendence.
Background reading to this chapter is The Disciplined Trader by Mark Douglas, the series of articles by Tony Plummer (see Appendix 2) and Trading Chaos by Bill Williams.
First let me explain some of the concepts from the book Trading Chaos. Traditional “problem” solving can create a pendulum effect. A simple example is the discipline loop which traders often go through. We acquire the discipline to follow our trading methodology, we start to make good money, we then get over-confident, we start to diverge from the discipline, we start to do badly, we are humbled, we re-learn the discipline once again, we start to do well, we again become over-confident, and so it goes. This pendulum effect is seen in the real world again and again. To succeed we have to go beyond that state, this means we have to transcend that state. Bill Williams calls this “problem solving” process a “Type One Structure,” transcendence he calls a “Type Two Structure.”
He likens the comparison between these two structures to the difference between Euclidean geometry and the new “Chaos” approach to the world. I have to say I find the links to Chaos Theory in his book somewhat