Forex Trading Philosophy

Your Brain, Trading and Finding ‘The Zone’

What It Takes to Become A Master

"Ever heard of the name Anders Ericsson? Perhaps not, but i’m guessing you heard of the name Malcolm Gladwell, author of the bestselling books Blink and Outliers. Gladwell in his last book Outliers was trying to figure out what separates highly successful people from the rest in any field. In it, he discussed the 10k hour rule, which was actually from the research of Anders Ericsson at Florida State University.

Anders conducted a critical research project whereby he found it normally takes 10,000 hours of practice at a skill to become an expert in any discipline. During this time, your central nervous system will string together new circuits and connections that eventually give you the tools and abilities to execute your skill with mastery. Ironically, he also found it was done without a conscious consideration of the action – the athlete or performer was just doing.

What he discovered in his research was a Zen-like intense concentration, whereby the experts completely focused on the activity. It was in these moments that the experts in their field were achieving peak performance by entering a state called ‘the flow‘, originally characterized by Csikszentmihalyi in the 1970′s.

10,000hrs to Become an Expert Trader?
I know, many of you are saying, ‘10,000 hours would take me years, perhaps a decade to get to that‘. In response to that, I have a few questions;
-What if you could accelerate your learning curve and learn how to enter that state before 10,000 hours?
-What if you could enter that state every day while trading?
-What do you think this would do to your trading?
-Would you put in the effort to develop this?
We are going to talk about what you can do to leap-frog the 10,000hr process in this article and take years of your learning curve.
Before we talk about what you need to do to enter the state of flow and effortless concentration, we are going to discuss the four key features that characterize the state of flow. They are;

1) An intense and focused absorption that makes you lose all sense of time
2) Autotelicity – a sense that the activity you are engaging in is rewarding for its own sake
3) The ‘Sweet Spot’ – this is where the task at hand in relationship to your skills are perfectly matched
4) Automaticity – the ability to do something automatically

Let’s get into each one and see how we can relate them to trading. Then we will talk about what you can do to shortcut this process and decrease the number of hours you need to be studying charts to become an expert in reading the charts.

#1 An Intense and Focused Absorption
One would almost think this would be enough to enter that flow, but all four are required to enter this zen-like state in trading. If you train in yoga and meditation consistently day in day out, then this will come a lot more naturally because you are already practicing the craft of focus and concentration. But if you are not, many things will come into play and affect your concentration.
For example;
-Did you have an argument with your partner, spouse or child lately?
-Did you completely process everything from yesterday and are totally present with what you are doing today?
-Did you wake up and properly stimulate your central nervous system to be prepared for your trading day?
-Are you still focused on a recent loss or mistake?
-Did you drink coffee earlier that morning, or alcohol the night before?
-Are you taking phone calls or talking with others while trading?
-Are you checking email or watching TV during the trading session?

If you answered yes to any of these, it’s highly likely your mind is not 100% absorbed in the markets as they will all inhibit your ability to concentrate.
But lets say you have not had any of these come up. Do you really think you are totally focused and absorbed in concentration? If so, then take a simple test:

Sit in a chair with your spine upright, in a very relaxed and quiet room, no music or tv or anything going on, just you sitting in a chair with your eyes gently focused forward, and try to concentrate solely on your breath. Just follow the inhales and exhales completely. Try and see if you can follow 20 breaths (one inhale and exhale = one breath) without having a single thought other than your breath. Try and see if you can follow them so perfectly you are never once taken off the focus of your breath, that you are so immersed in the experience of your breath, nothing diverts your attention.

Go ahead and try and let me know how far you got (take a moment here).

Finished? How did you do?
I would be willing to bet most of you did not get past 5 breaths. Yep, 5 breaths without;
a thought about your experience
without moving to scratch an itch
or have a question about whether you are doing it right
about whether you can do it or not
without hearing that song in your head
or thinking about the one thing that person said which bothered you
or that one thing you got to do later today
or that bill you have to pay
or the money you need
or whatever…

In fact, I’d be willing to bet many of you did not even make it to 20 without losing count, let alone make it to 5 breaths, perhaps even 2 or 3.
Remember, all you were asked to do is focus on your breath (inhales and exhales) solely for 20 breaths.
Now ask yourself the following questions;

-If you cannot focus on your breath while sitting in a quiet room by yourself with no noise or stimulation going on, how can you be absorbed or concentrated on the markets?
-How could you be totally focused and not let those emotions interfere with your trading?
-If you could not stop the radio of your mind and its constant stream of thinking while sitting still trying to do one task, how could you spot the subtleties in the price action communicating to you the market is going to turn or make a big move?

Of all the 4 characteristics, the first one is the hardest. The most common misconception of the whole 10,000hr rule is not just to absorb enough information so you become a master. It’s to develop the concentration needed, along with the repetition of a task that leads to confidence and allows one to relax their mind. All of this is to develop that zen-like absorption and penetrating concentration to achieve peak performance.

But what if you practiced something which solely focused on developing that concentration? What if you practiced yoga, meditation, or any activity which developed this skill set? Wouldn’t that cut down the time you needed since your concentration and awareness would be sharper?

Someone recently shared a great Abraham Lincoln quote where he said, ‘If I have 8hrs to chop down a tree, I’m spending 6hrs sharpening my axe‘.

If the markets are a tree, your mind is the axe, so sharpening this tool will help you reach your goal faster than anything else. In fact, awareness, focus and concentration are the three things which will accelerate any skill, task or endeavor you engage in. They will reveal information faster to you, help you take in more, focus on the key things and yield insight more naturally. To learn a few techniques which can help you with this, click on my article Building A Successful Trading Mentality.

#2 Autotelicity
This refers to doing something for its intrinsic value, and not so much for the external rewards it may provide. For example, do you play football so you can become a multimillionaire, or do you play the game because you love it so much, you’d play it for free if you had all you needed to make a living? Simply put, if one pursues an action for intrinsic reasons, then one’s actions are intrinsically valuable because one is motivated to pursue the action as its own means to an end, or for its own enjoyment – not for what it brings.

To put this in a question – do you trade because you absolutely love it, that you really want to learn it inside and out? Or do you trade to become financially abundant and independent – who doesn’t? Therefore, the latter is an inferior motivation since it is something you’d want naturally (financial independence). Are you really wanting to be a professional trader, or are you trying to escape your financial situation and state of existence? The former is ideal, the later is less helpful, but still can be used.

Doing it for the latter reasons will translate into the experience, that when you run into obstacles or excuses why you did (or did not do something), you will accept those excuses as reality instead of doing something to change them.

It will mean your motivation for doing something is not the love of it, but hating (or disliking) something in your life you want to change, avoid or make sure doesn’t happen.

Ask yourself which of these two is why you are wanting to trade. Are you doing it because you really believe deep down inside you can do this, that you have to do this, regardless if you are successful or not? Think about which of the two you will put more focus, effort and attention to? Then ask yourself which of the two you are. Nothing will be more important than being honest with yourself here. If you find in all honesty the latter is your answer, you can still become successful, but either a) you will have to trade with that intention in your mind (via aversion to your current financial state) or b) your motivation will have to evolve into an more subtle appreciation for trading.

#3 The ‘Sweet Spot’
This comes out of the work by Csikszentmihalyi where he discovered a person was most likely to enter this state of ‘flow’ and masterful play if the task at hand was challenging enough in direct relation to their abilities. So, if the task is too hard for your current level, then it will be mentally frustrating and you will get emotional during the experience. If it is too easy, you will get bored and not stimulate your brain and potential fully.

This is actually critical in terms of your trading. If you are an absolute beginner, I do not recommend live trading, nor trading ultra short time frames (less than 15mins). Why? Because you will need to read subtle price action clues with very little time, make decisions really fast, have precision in your execution, while having little or no room for error. Sound like something a beginner should start with in any field or craft? I didn’t think so. Do you start learning how to be a professional archer by shooting at 18meters, 70meters, or 3? With that being said, I recommend starting at the 1hr, 4hr and daily time frames to hone your skill-set.

First things first – build your skillset, learn how to read price action, get hundreds of trades under your belt, then decide what type of trading you want to do. If you challenge yourself too hard in the beginning beyond your abilities, you will likely incur some big losses, or many in a row, then get frustrated, and be unable to enter any ‘sweet spot’. You want to be able to stretch yourself, but only in a controlled growth fashion. This will allow you to enter that flow as your concentration will be challenged, yet you will have the ability to do the task successfully.

#4 Automaticity
This is the ability to do something automatically, to the point where it requires none of your mental resources (or so little) that you can use the rest of your mind for finding the best trading opportunities. Your brain is like a computer processor, and if you are using resources for one or two other tasks, then you will have less processing speed for the task at hand. That is why multi-tasking is the worst thing you can do when trading as it actually reduces your overall IQ.

So shut off the email, turn off the cell-phone, unplug the landline, close your email program, and just focus on the markets when trading. Give all your energy and focus to that so you can have your full natural intelligence dedicated to trading. This will help you spot the best trading opportunities and make the best trading decisions.

What Else Can I Do?

If you have all four of these characteristics present, then you can more naturally enter the ‘zone’ or zen-like concentration. But there are some additional things which will help you get there.

While studying experts, Csikszentmihalyi found something unique in their brain activity. First, he noticed less activity in their pre-frontal cortex. This is the part of the brain typically associated with higher cognitive processes such as working memory and verbalization.

Although that may seem like something you want highly active, what it really pointed out was during their states of zen-like concentration, the experts across all fields were able to silence their self-critical thoughts which allowed automaticity to take hold and thus have more resources dedicated to their craft.

As traders, we have actually had this direct experience. Ever had the experience of ’analysis paralysis‘? This is your pre-frontal cortex working overtime – criticizing every idea and thought to the point it paralyzes you. Ever had a perfect trade come up, but your mind came up with all kinds of ‘reasons‘ and ‘excuses‘ or ‘ideas from other experts‘ about how the market was going the other way? This is exactly that kind of pre-frontal activity which actually inhibits your trading.

Complimentary to this, Chris Berka looked at the brain-waves of olympic archers and professional golfers. What they noticed was a few seconds before the archer released the arrow, or the golfer hit the ball, they observed a small spike in the ‘Alpha Band‘ = 8-12hz frequencies, and ‘Theta Band‘ = 3-7hz frequencies.

Alpha band frequencies are linked to a lower heart rate and a greater sense of calmness and relaxation, while Theta band frequencies are associated with deeper levels of concentration, meditative absorption, a heightened awareness of the sensory field, and a shift in the relationship to thoughts, feelings and the experience of self.

As Berka noticed in her studies, the spike in the alpha waves represented more focused attention on the activity, while other sensory inputs are suppressed, accompanied by a slower breathing and lower pulse rate, all leading to greater concentration.

To compliment this, Gabriele Wulf (a kinesiologist at UNLV) examined the way athletes move. She noticed that if swimmers focused on an external stimuli, like how the water moves around them, instead of how their limbs are moving, their performance, speed and technique increased because the conscious thought of the pre-frontal cortex was turned down or off, and thus didn’t interfere with the process.

It allowed the automaticity to take over what it could so one could have more resources to doing the task with grace, effortlessness and creativity. It should be noted, that it takes time to produce consistent alpha waves in the brain. How much time? A lot less than the 10,000hours needed to achieve a sense of mastery and flow of your craft.

In fact, if you can learn how to develop consistently stable alpha waves, you simply short-circuit the need to have 10,000hrs of chart time. This is because your focus, concentration and awareness will all be sharper than usual. You will spot more details in the price action, find better opportunities out there, and be less inhibited by emotions and critical thoughts.

In other words, you are removing all the obstacles for having the same mindset as an expert in any field does, thus shortening your learning curve to successful, effortless and masterful trading. It is spending the first 6hrs sharpening your axe to chop down the tree in two hours, instead of hacking away at the tree for all eight. Which path do you think requires more effort? Which path helps you cut down the obstacles to your success faster and will lead to more successful trading?"

http://2ndskiesforex.com/strategies-...-and-the-zone/

past, present, future. TIME. why do I keep coming back to this topic again and again?
Because it is not only one of the most important key concepts in trading but in our whole life.
it is amazing that understanding of NOW - present among representatives of different believe systems, including science is almost the same.
try to understand those speeches. they have the power of changing your world.

Look to Mother Nature for Financial Solutions

Nassim Taleb Criticizes Forecasters and Value at Risk

Statistics, Probability, Randomness

tash - great thread mate. keep up the good work. patterns in randomness do exist

lately i have been in discussions with some people about the predictability and randomness of the market.
people who claim they can predict the market - the future price usually are hard-core followers of Elliott wave principle. the essence of EWP is that market moves in waves and these waves can be predicted before they occur. despite i accept that market moves in waves (what does not? frequencies form vibrations, vibrations form waves. light, sound and anything you can think of behaves the same way) i find it very difficult to believe that future price can be predicted. however that does not exclude that one may consider specific setup at specific point high probable trade per his subjective belief.
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” i think EWP is quite adaptable to change and can be interpreted variously. because of it's flexibility you can always find a proof where EWP stays intact.
on of the brightest minds of the century, Mandelbrot stated that some theories are built on unreliable assumptions like people are rational, all traders think the same way, price changes are continuous, standard deviation is a good indicator of risk/volatility. Here is his opinion on EWP: "Wave prediction is a very uncertain business. It is an art to which the subjective judgement of the chartists matters more than the objective, replicable verdict of the numbers. The record of this, as of most technical analysis, is at best mixed". Mandelbrot's student Nassim Taleb takes his ideas further with his "fooled by randomness" and "black swan". Taleb's trading philosophy is based on anti-fragility, risk control and catching as much "black swan" as possible with minimal risk exposure.
I finish the post with a quote from Mandelbrot: "forecasting prices may be perilous, but you can estimate the odds of future volatility."

indeed..
"All through time, people have basically acted and reacted the same way in the market
as a result of: greed, fear, ignorance, and hope.
That is why the numerical formations and patterns recur on a constant basis.”
—Jesse Livermore

hence..
"favorably repeating the same experiment again and again should lead to an increased comfort
with the notion that "it works".
then the first rare event ravaging a trading room." -Nassim Taleb

because..
"there are times when the normal rules do not apply, and the abnormal becomes normal." -George soros

Coffee-Talks with CrucialPoint: The Discipline debate

So the great debate is that once you have a successful system, you won't need discipline to execute the system. The great debate whether you need discipline when it comes to trading. The forums are littered with both sides of the arguments. And anyone who is trying to find their own way will surely get lost or confused. Or worst, believe the wrong idea/argument which sounds like the right answer.

As always, I'll come out with my guns blazing and tell you all, that you need discipline to trade and thinking the opposite (not needing discipline to trade) is completely wrong Imagine you have a proven system, a winning system that will make you millions. It as been proven to you objectively in every way possible. All you have to do is trade the system. Surely, why would you need discipline to execute an objectively-proven-money-making system?

What people don't know is that there are countless of proven studies about the human mind and its psychology. And the scientific and evidence based facts are simply: humans are predictably irrational. Humans are not rational. Humans are unpredictable with great certainty. The only certain truth are that humans are predictably irrational. Meaning, though you may think you are a rational being, you are simply very irrational. Even if you think you're making a logical and rational decisions, most of the time you don't and without realizing it. When it comes to trading, you've heard it before; the human mind is not designed for trading. The typical human behavior is not designed for trading.

In my opinion, anyone who proclaim that you don't need discipline is simply not a successful trader, someone who has never walked the path of a real successful trader. They've never been in those shoes, thus really doesn't know what is going on. And that is quite of a statement I just made. Surely, why would you need discipline when you have a proven system? (it appears to be a paradox).

Here is the best way to explain it without going all Freudian. I think it is pretty safe to say we all know how to lose weight. The answer is to exercise, restrict calories, eat the right food, etc... (please don't give me the "genetics" bullshit argument. I don't recall seeing a fat person during the war in concentration camps/prisoners of war in camps. So, you can throw the genetic argument out the window). So we have a proven system of losing weight... the question, why don't you do it? why is it a struggle? Surely, you don't need discipline when you have a proven system

And the metaphoric analogies will go on and on... Why you gamble in the lottery or gamble in the casino. Why you fall in love or fall in infatuation. Why you buy the things you don't need and then regret it later on. Why you choose a cake over a fruit. Why you get involve in risky sex or why you want the things you can't have. Etc, etc, etc... Yes, these are addictions and irrational behaviors. And yes, they are no different when it comes to trading.

Trading has the same thrill when you buy expensive clothes or expensive gadgets. Trading has the same rush when you press the mouse just like pressing a button of a slot machine. The ideal ego trip of a seductive status which is no different from the ideal hot and sexy alpha male and females. Trading has the same level of happiness and excitement as with expensive and shiny things, chocolate cake and sex. Trading has the same level of emotional content of a suicidal mind longing for attention. It is no different from an emotional teenager or adult (Emo's) who gets satisfaction from pessimistic behavior, low esteem and/or negativity that they get satisfaction when they lose and gets satisfaction playing the victim card(role) or always losing. All of these irrational, impulsive, or typical human behavior are clearly evident under the MRI scan of the brain. I can safely say that these are not CrucialPoint's own mental diarrhea with no substance, but objectively and scientifically proven facts.

Here is a simple system: Do not open the box.
Do you know how much you have to fight and control yourself to follow this simple system alone? Here is a box. It is given you to. It is yours to keep forever.

I got more for you... "Don't play with it.","Do your homework.", "Don't do it.", "Don't touch it or you'll get burnt."
When a proven system is handed to you, guess what it also comes with?..... it comes with a big sign to your subconscious mind that says "Don't deviate from the system.", "Don't change the system." And guess what your mind will do?
And not just that from a system telling you "not to". You also have the trading chart/market that is seducing you to enter the market, every single point of a second you look at it. A trading chart is as seductive as a hot and sexy man/woman.

It is a funny thing here in FF (and any other forum) that the need to reply (and being provoked by) to idiots and/or highly emotional posts (which has nothing to do with the thread). It's very funny how people condemn me (here at FF), even say that I'm a man with very little reply, someone who runs away from a debate or being called out. I have a simple rule: If you and I are not of the same page, I don't want to waste my time with anyone not being on the same page with me. Here is my point: "SELF CONTROL"

Even with a proven system, Self control and discipline is always part of the game. There are thousands of reasons lurking around the corner in every single second. One thousand reasons why you must enter the market, one thousand reasons why you should open the box and one thousand reason why not to follow the proven system.

What people don't know is that we have 2 minds (one brain). We have the 1. logical/analytical mind and we also have the 2. irrational/emotional mind. Let's call these mind 1: man (logical) and mind 2: monkey (emotional). The monkey is actually more stronger than the man. Most of the time, the monkey always get what it wants. It requires a trained mind to control the monkey and help the man to have a stronger control.

Whenever you make ANY decisions, you have 2 minds that constantly in battle against each other. The man will say "don't eat the cake because it will make you fat" while the monkey will say "eat the cake and it will make you happy". With an untrained mind, 8 out of 10 the monkey will always get its way. Without a trained mind, you will deviate from a proven system 8 out of 10 times. That is enough to put you in negative/loser territory. And this also answer the great debate of taking opposite trades: the monkey will still deviate from ANY system 8/10.

I can go on regarding discipline and mental peak performance required in trading, but I don't intend to convince anyone. I've read Mark Douglas book: Trading in the zone. I also have heard him speak. It doesn't even come close to the real professional trading. I have nothing against Mark and you can't cover everything in one book. It also takes years to understand and implement psychology and learn how the mind works.

I've compiled a reading list (I've personally read each book (on the list) at least 5 times) and can personally vouched that these books have made a big difference in my trading. The things I've discussed in this post (and other of my posts) can be referenced within the book list I've provided. 26 books on psychology are on list, I've read them at least 5x (and there are some more that I haven't added). Think about that for a second. You are trading against someone who have read, practiced and trained mind. Every time you trade you are against with people of such caliber and much higher... You better step up your game

Thank you CrucialPoint for your book recommendations and great post about discipline (I found it one of the most valuable post ever written here in FF)! I'm currently reading Thinking fast and slow and it's truly fascinating. Knowing yourself and being disciplined is the most crucial step and on-going process to long-term profitable trading.

while most of us are too concerned with the issues of technicality, once more you have directed our attention to the soul of the trading and I thank you for that.
I am becoming more and more convinced that the core of success is proper understanding of the philosophy and psychology of trading upon which has to be built any profitable system. without these the system would look like a body without soul, a building without foundation or a tree without roots.
the list of great books you have in your attachment. issues of decision making process, discipline, subconscious mind etc. all critically important topics for self-development and to success in life.
I started with D.Kahneman's book and Nassim Taleb's "Antifragile" is in the queue.

Daniel Kahneman on Thinking, Fast and Slow

on discipline with religious context. some may find useful.

I personally consider that the worst disadvantage of a trader is himself. His emotions.
This is why I prefer to develop solid automated strategy and keep control on it.

What is trend?
How and when can you notice that a trend start to form?

synchronization...
how important is this word in terms of trading?

"Those who cant do teach"

Approaching Trading With an Empty Mind
Brett N. Steenbarger, Ph.D.
www.brettsteenbarger.com

Note: A version of this article appeared on the Trading Markets site, 8/7/06

I recently accompanied my father to a real estate sale in the southern part of Florida. That market for homes and condos had been among the hottest in the country. When we looked at the number of properties on the market at present, however, and the (paltry) number that were selling, we could see that most million-dollar units would have to be priced $200,000 or more below their recent, peak values. Nonetheless, sellers, for the most part, were keeping their asking prices fixed, despite the clear reality that they were generating no traffic and certainly no offers. Quite simply, they were slow to update their perceptions in a changing reality.

Cognitive psychologists emphasize that we see what we want to see: we are all prisoners of the mental maps we create. Once a trader forms an opinion, he or she is more likely to overweight information consistent with this view than information that is contradictory. In one behavioral finance experiment, subjects have the opportunity to offer an item for sale. In one condition, the subjects have won that item in a contest. In the other condition, the subjects price the item for sale, but it hasn’t been given to them. As you might guess, the subjects who owned the item demanded much more money for the item than those who had no ownership. It was the same item: only the fact of ownership made it valuable. So it is with our market opinions: once we own it, we overvalue it.

Other studies suggest that we see only what we expect to see, and thus become blind to new realities -- much like the Florida sellers.

Laurence Gonzales, in his fascinating book "Deep Survival: Who Lives, Who Dies, and Why", describes a research study from Harvard psychologists. They showed people a film of basketball players passing the ball to each other. During the film, a man in a gorilla costume walks into the middle of the action and stays visible on the screen for about five seconds. One group of subjects was asked to count the number of passes among the players; the other group was simply asked to watch the film. Incredibly, 56% of the subjects who counted the passes didn't ever see the gorilla. Of course, everyone asked to simply watch the film noticed the gorilla man on the basketball court.

The point is that the brain is a kind of search engine: a Googler of reality. If we program our search to look for passes among basketball players, that's the output we receive from the brain. What is extraneous to our search (gorillas) is eliminated. When we conduct a broad search, we receive a wider range of outputs. Focused searches work well if we're looking for a specific item, such as lost car keys. They don't work so well when we need to process all of the information needed to survive in an environment of risk and uncertainty.

It is very easy to approach the markets in focused search mode. We develop a hypothesis about the market (bullish or bearish) and we prime ourselves to look for certain chart patterns or indicator readings. In our haste to find what we're looking for, we can miss the gorillas in the market. Afterwards, we might look back on market action and think, "How in the *^#@ could I have missed that??!!"

Gonzales writes, "The practice of Zen teaches that it is impossible to add anything more to a cup that is already full. If you pour in more tea, it simply spills over and is wasted. The same is true of the mind. A closed attitude, an attitude that says, 'I already know', may cause you to miss important information. Zen teaches openness. Survival instructors refer to that quality of openness as 'humility'. In my experience, elite performers, such as high-angle rescue professionals, who risk their lives to save others, have an exceptional balance of boldness and humility..." (p. 91).

Gonzales has provided a concise formula for trading success: boldness and humility. The exemplary trader has the boldness to act with conviction, and the humility to realize that what is apparent may not be all that is there.

Notice how so many of the excellent market bloggers -- Charles Kirk and Trader Mike come readily to mind--track a variety of sectors and indices, examining the market from multiple angles. They're not just looking for the passes on the basketball court; they want to make sure they're not missing any market gorillas.

As I recently emphasized on my research blog, TraderFeed, the dominant themes of the equity markets have changed. Everywhere we look, there is evidence of risk-aversion. Look at which sector funds are growing assets and which are losing them. Look at which sectors have outperformed the market, and which have not. Value is trumping growth, and large caps are outperforming the small and Midcaps. This is no longer 2003 and 2004.

We can fail to update our mental models, like those Florida homeowners, and miss the gorilla in the market, or we can have the humility to accept and work within changing realities. When it comes to the markets, an empty mind goes a long way toward ensuring a full pocketbook.

Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders. An active trader of the stock indexes, Brett utilizes statistically based pattern recognition for intraday trading. Brett does not offer commercial services to traders, but maintains an archive of articles and a trading blog at www.brettsteenbarger.com and a blog of market analytics at www.traderfeed.blogspot.com. His book, Enhancing Trader Performance, is due for publication this fall (Wiley).

Such strategies can be managed and applied to this type of business in the network, which can become a good way to do business on the net , taking into account every circumstance to apply to reality

Trader Risk Management Lore: Taleb's Major Rules of Thumb

Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.

Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.

Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week. (Learned name: the small sample properties of the Sharpe ratio).

Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on.

Rule No. 6- Never let a day go by without studying the changes in the prices of all available trading instruments. You will build an instinctive inference that is more powerful than conventional statistics.

Rule No. 7- The greatest inferential mistake: "This event never happens in my market." Most of what never happened before in one market has happened in another. The fact that someone never died before does not make him immortal. (Learned name: Hume's problem of induction).

Rule No. 8- Never cross a river because it is on average 4 feet deep.

Rule No. 9- Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.