There are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.
1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts.
2) The statistical models of time series are more robust , when they apply to the entity MARKET as a whole and are better as non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks.
3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price.
4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression, cluster analysis , goal programming e.t.c., are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory.
5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it.
6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.
1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts.
2) The statistical models of time series are more robust , when they apply to the entity MARKET as a whole and are better as non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks.
3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price.
4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression, cluster analysis , goal programming e.t.c., are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory.
5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it.
6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.
To the naive novice trader, it seems that the goal is to Have the desired profits and he goes directly there. But it turns out that before the Have, it is necessary to Do, and before Do it is necessary to Think, and before Think it is necessary to Be. So 1st Be then Think, then Do, and finally Have. For a blog devoted entirely on the psychological keys of Personal Development in general, see the link psychologicalkeys.blogspot.com
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure of fear of temporary failure and memory of past failure.
1. The law of spherical reflection.
This law draws the attention to the often fact that during trading, all that you project to the global market somehow returns on to you again. If you think that the market must be beaten, you shall be beaten by the market. If you believe that the market is a bunch of fraudsters that take advantage of the traders, sooner or latter you shall result in doing the same. If you believe that the market is a multitude of systems and individuals, many different and coupled populations in financial activities, that is essentially your friend that can leverage you, you shall be leveraged and favored. If you consider that you are counter-fighting the market movements the growth of your account will be counter-fight. If you believe that as an investor you help the enterprises to grow, your account will grow. If you consider that as a trader you are offering liquidity services and you contribute to the re-balancing, soothing and reduction of the excess volatility of the markets your account will grow with not much volatility. Some how in believing and thinking about the market you create a model of it in yourself. The law of spherical reflection guarantees that whatever we project to the growth and dynamics of of the global markets and global economy, it will reflect back to the growth of our own account or household nano-economics. So it is better to think that you are dancing with the market in a benevolent dance. This law may involve also reconsideration and possible change of what is our ego and self.
2. The law of creation (and emotion).
Trading is not just an execution of a recipe. It is creating your own freedom, and wealth for other people too. It has a meaning. It resides both in the past and in the future, through goals. The financial activities of the global markets do not just happen. They require your participation. And participation, from he point of view of the individual trader, is mainly perceiving in the right way, not influencing financially. Your trading is a creativity which is part of the creativity of the global financial activities. It is also creative in choosing 1) intentions and goals, 2) ways of interaction with the world, 3) beliefs, 4) philosophical principles, 5) attitudes towards other people in general, 6) socio-political principles, 7) emotions 8) subjective values, 9) temples of the imagination, 10) rhythms, 11) evolution patterns, 12) patterns of anticipation of action, 13) personal practical conduction norms, 14) intended experiencing. Practical conduction unites spiritual intuition through feelings and emotions, with the technical intellect and the physical reality. You intend, you create through thought and emotion your plan and then you experience through consciousness . Not vice-versa. You need to focus in the future as well as in the past to create the necessary meaning for it. It is also necessary to clear the counter-intentions of the subconscious that may sabotage the conscious intentions. Therefore trading as a creation must fit to the global financial activities as a creation. It must also fit to life in biosphere as a divine creation and our physical bodies and non-physical consciousness. It must be benevolent to the feelings too and physical health, and health of connected other persons, not only to our bank account. Emotion is a central factor of the creation and as trading is part of a creation, trading has to be based on emotion. It is not only a technical algorithm. It must be progressive not regressive. If in your subconscious are hidden negative fixations as beliefs like "Money is the root of all evil", "To make money, you must become dirty and take advantage of other people", "Trading money is something for nothing", then these are counter-intentions that will sabotage your trading. To deal with them, and clear them out honestly (not by just counter-denial) you must bring them first to the light of the conscious. Then you must analyse them, think and feel about their truth or not. Utilize forgiveness and gratitude, and then create and state the new truth. It may require search and mentoring from other successful traders to find the right thinking and feeling of the new truth. It is not easy. But if it has not been done , trading will be a failure. Then let the new truth to be absorbed in to the subconscious. You will need your subconscious to be creative and successful in trading, even if trading seems only the conduction of an algorithm. You must become a "loving detective of your own mental activity" to clear the counter intentions of your subconscious beliefs.
In sports and athletics it was though, for a long time, that running a mile in less than 4 minutes it was humanly impossible. It was only when in 1954, Roger Bannister succeeded in running 1 mile in less than 4 minutes, that a cascade phenomenon occurred of other people succeeding in this goal right after him. We have here the psychological factor. Once it is realized that a human being did it, other humans succeed in persuading their subconscious that it is possible and probable for them too, and so they do actually succeed in doing it. It is the same in trading. From the moment it was published in the web that doubling the funds in forex in a month was a consistently repeatable achievement, a cascade phenomenon occurred of other traders succeeding on that. Of course utilising the law of correspondence of n^(1/2) and the many years records of successful trading systems applied on daily bars, it was possible to deduce that such a monthly doubling was theoretically possible, (or even higher scores), if say the system was applied on 15 minutes bars rather than daily bars. But this was entirely intellectual information to many. It did not persuade their subconscious. Instead they were persuaded by the publication of the actual performance of a trader. I dare say that some of the first publications of the consistently repeatable monthly doubling was rather fake. But even so, some people did believed it as real, and starting from that, they did manage themselves to succeed in consistently repeatable way double their funds per month. So strong is the effect of persuading the subconscious.
Succeeding in creating an unlimited growing wealth from the global markets, is a great achievement, and the moment you do, you joint and get connected with all the other that they have already done so. But at the same time you start carrying the burden of all the other that have not or tried and failed. And you can understand it is no small burden.
So for the trading to be a real powerful successful reality as you dreamed and planned it, as all other created realities too, it must be successful in the planetary activities level, in the social level, in the intellectual level, in the emotional level, and the physical activities level.
In sports and athletics it was though, for a long time, that running a mile in less than 4 minutes it was humanly impossible. It was only when in 1954, Roger Bannister succeeded in running 1 mile in less than 4 minutes, that a cascade phenomenon occurred of other people succeeding in this goal right after him. We have here the psychological factor. Once it is realized that a human being did it, other humans succeed in persuading their subconscious that it is possible and probable for them too, and so they do actually succeed in doing it. It is the same in trading. From the moment it was published in the web that doubling the funds in forex in a month was a consistently repeatable achievement, a cascade phenomenon occurred of other traders succeeding on that. Of course utilising the law of correspondence of n^(1/2) and the many years records of successful trading systems applied on daily bars, it was possible to deduce that such a monthly doubling was theoretically possible, (or even higher scores), if say the system was applied on 15 minutes bars rather than daily bars. But this was entirely intellectual information to many. It did not persuade their subconscious. Instead they were persuaded by the publication of the actual performance of a trader. I dare say that some of the first publications of the consistently repeatable monthly doubling was rather fake. But even so, some people did believed it as real, and starting from that, they did manage themselves to succeed in consistently repeatable way double their funds per month. So strong is the effect of persuading the subconscious.
Succeeding in creating an unlimited growing wealth from the global markets, is a great achievement, and the moment you do, you joint and get connected with all the other that they have already done so. But at the same time you start carrying the burden of all the other that have not or tried and failed. And you can understand it is no small burden.
So for the trading to be a real powerful successful reality as you dreamed and planned it, as all other created realities too, it must be successful in the planetary activities level, in the social level, in the intellectual level, in the emotional level, and the physical activities level.
3. The law of humility.
When we refuse to accept the continuing repeated losses, they will continue for us. If we do not learn from history we tend to repeat it. We need to eliminate and dissolve and transmute the losing behavioral pattern to a winning behavioral pattern. We usually think of the price patterns but we forget the underlying emotional, and inner dialogue behavioral patterns. Again this law may involve the reconsideration and change of what we think is our ego, and what the self. We must remember that a trader who gets upset at losses is like a surgeon who faints at the sight of blood. Do not get overexcited either at gains; soon some losses will come too. What is effectual is the statistical result not the individual trade result. And furthermore what is even more effectual is the overall internal and external behavioral pattern that creates the statistical effect. Invincibility does exist but it is statistical not deterministic. And at a deeper level, it is rather a subjective behavioral pattern than a simple algorithm. If we see the losses only as an enemy and not as a creative valuable opportunity for learning and improvements, then we are not focused on a higher level of existence, intention, intelligence, and perception of the world, and not focused on a higher self.
4. The law of growth.
In order to become free from the need of money in the household economics, we must grow ourselves as consciousness and intention in micro-economics, not only grow our bank account. We will not be able to unlock easily the vault of the personal financial freedom through trading , without also growing in social consciousness and deserving the power of surplus capital, that trading can create, for the benefit of other people too. Growing the bank account must be connected to the general financial growth. So in order to master the freedom of the household nano-economic scale, we must become at first valuable in micro-economic scale. Good wealth creation comes from progressive not regressive social change (=growth), and so it creates progressive not regressive social change(=growth). Also all of the money management of the account (which is not the anticipation of the action of the global markets) and rather the risk management of the account, is essential a household or nano-economics growth management. It is not essentially different that the growth management of an enterprise or a whole domestic economy. In this money management we must avoid the fatal and very common mistake of overexposure and also the common mistake of setting takeprofit smaller than the stoploss. It is also a better tactic to vary the size of the position so that at higher uncertainty it is smaller and at greater certainty larger. Following also in general the volumes with the size of the position and not only the trend is a good tactic. Finally the reinvestment should always be to a small fraction of the accumulated gains, as a profitable system can be turned it to losing by over-reinvestment but not vice-versa. Obviously the growth here is also relevant to the growth of the self and possibly ego, that is why it may require that we intended a new order for them by the other laws.
5. The law of responsibility.
We cannot blame the market for our losses. We can only consider our selves responsible both for the losses and gains. It is on ourselves that we have more control rather than on the market. And it may require to reconsider what is the role and effect of the ego in that.
6. The law of connection.
When we are trading we are subconsciously connected with some aspects of the global financial activities. We are not necessarily connected with the attitudes that are presented in the news about the markets, but with a part of the truth about the markets through the charts. The charts do not lie. We are also connected with other traders that have similar tactics and beliefs. And obviously we are connected with the people in our proximity, family, friends, and other employees, if in a job. All our trading decisions must be also connected in a single trading philosophy. While trading we are connected to our subconscious, our feelings and our state of mind. And the subconscious is connected to the functions of our physical body and its cells. And this is one of the reasons that successful manual trading is so difficult: Appropriation of our subconscious means eventually changing our relation with our body. As the individuals subconscious is essentially uncontrollable from the conscious and connected in an "underground" way with the collective subconscious, many of the individuals counter intentions for his goals and many negative beliefs come from other people. This uncontrollable influence may often be the basic reason for systematic loosing. For many people, comes some day, a turning point that transforms their systematic loosing trading to a systematic winning trading. But it is not due to a new technique or indicator, of a new statistical principle or a new law. All the tools and indicators and the principles that they now use in the successful trading, were already available and known before also, when they were loosing. What is different is that somehow they eventually manage to be free and get clean and clear and let go, and not so much be overwhelmed, and emotionally and intellectually disturbed, by the negative subconscious influences and counter intentions and counter values of their socially local or global collective subconscious.
7. The law of focus.
When we have open positions as much as our funds and exposure rules permit, and other acceptable opportunities appear, we do not emotionalise on them , or feel them as missed opportunities. Be impeccable by focusing on the well chosen decision and the feasible conduction. In what ever you expose only there you are. This does no mean that we may not analyse other parallel opportunities for future exposure, but mainly focus your attention on the currently open positions.
8. The law of integrity and consistency.
If we believe in some things to be true, then a moment will come that you will be called to demonstrate that truth. If we believe that if conditions A,B,C occur then we act in trading, and conditions A,B,C occur then we should consider seriously in acting. If we do not, maybe due to some subconscious feeling, then in the next time we should add condition D=feeling subconsciously comfortable. Awareness is the way that consciousness is developed and success attained.
9. The law of here and now (quality and the happy flow).
When we are conducting trading, we do not focus on past performance or future goals. We focus on the now and here. Focus on here and now and if it is in a "flow", it is happiness too. Opportunities are now-here not nowhere. When we are conducting trading the phases of putting goals and developing and choosing and testing our trading system, must have been complete. Furthermore when we are conducting trading we focus on the best quality of each trade here and now, not on the most profit. We do not emotionalise on the money changes of the account during the trading and we do not emotionalise to the market going up or down. We emotionalise on the quality of our conduction. While focusing on quality as a first priority can have direct success here and now for each single trade, if focusing on the profit we will never have direct success here and now on every single trade. So quality, and not quantity of money, is the key to happiness here and now.
10. The law of change.
Since trading is creative it may come a moment that we feel that we should or want to change our trading system. If the trading system is not sufficient abstract, and universal for all markets, then as markets change from decade to decade, we may feel that we want to change and improve the system. Nevertheless the less changes we make to our system, the higher our confidence and easiness with which we trade. It is better not to change the systems earlier than 5-6 years of conduction of them. Violation of this very low speed of change may lead to disaster. It is common in traders, that they start with a funds, running e.g. a particular automated or manual system. At the fist time a funds became 1.3*a funds and all is happy. In the process nevertheless after some more months they discover some significant imperfections and new ideas and techniques.So they start developing the new indicators and tools, or start learning the new system. Meanwhile they lose interest, confidence and focus of the initial system, that now it goes to 0.8*a funds as a result. They abandon it, and start running the new that somehow covers the old too. But as usually the newly developed systems at the beginning have always something to correct either in the tools or in the conduction, which makes the 0.8*a funds to 0.3*a funds. Now with 0.3*a funds and the given minimum lots size of the broker, not even the new system can be run at all. So the matter is closed as a disaster, in spite the improvement of the tools and methods. Changing continuously the trading system is like planting a tree seed, and then continuously digging out the seed to put a better seed. No tree will grow in the right time.We conclude therefore that success requires that we do not make essential and radical changes to the system earlier than 5-6 years.
11. The law of patience and reward.
The reward of trading is at least two-fold: The joy and satisfaction while trading before the profits , and the profits as well. We will not succeed to have the rewards of the profits without discovering and feeling first the rewards of trading as a conduction, that we like to perform. The profits require patience but the joy and "flow" of trading for various hidden reasons does not. Some people like trading because they make them feel that are special people in this way. Some people like trading for the joy of anticipating the markets. Some people like trading because they feel they are free from all the complications of running a company or business. Find the reasons that give you joy in trading that is not simply the expected profits, and get in touch with them. This liberates us from emotionalising solely on the account profits or losses, and liberates us from letting losses run and cutting in a premature way profits. Only the law of rhythms and the joy of trading and anticipating the markets gives the correct behavior. As the emotion is the primary reward of trading, do not think that a trading system that, for example, is hitherto conducted on daily bars, can be automatically and easily conducted for example on 15 minutes bars or faster. Even if the trading systems statistically is successful on daily bars and on 15 minutes bars as well, the emotional dimension of it and its appropriate patience are entirely different. While we may have the appropriate patience and compulsive behavior for a trade at daily bars, we may not have the appropriate patience and compulsive behavior for the same pattern of trade, on the 15 minutes bars. The subconscious is also involved which requires appropriation.
12. The law of significance and inspiration.
Trading is very difficult at the beginning so as to reach at the level of successful trading that will last, but becomes rapidly easy as we go on performing it. The initial effort put is different from individual to individual. For some it may take only some months, for other years, even decades. According to what we have put in it, we will get back, and this will not be only money. If we have put much in to it, then we will not get back only, money. It will give us back many more things of significance. It will inspire us and others for much more than money. Maybe external intellectual scientific knowledge, maybe internal spiritual knowledge, maybe existential up-lift, maybe more social relations, maybe family, maybe intuitive enhancement.
The right psychology is indispensable in manual trading compared to the 100% automated trading.
See post 44.
The right psychology is indispensable in manual trading compared to the 100% automated trading.
See post 44.
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