ABOUT A LOSER..

LOSERS ANONYMOUS

A social drinker enjoys an occasional drink, but an alcoholic craves alcohol. - until he reaches a per- He denies that alcohol controls and destroys his life sonal crisis. It may be a life-threatening illness, unemployment, desertion by AA calls it "hitting a family member, or another unbearably painful event. " rock bottom.The pain of hitting rock bottom punctures an alcoholic's denial. He sees a - to drown or to turn and swim up for air. His first step to recov- stark choiceery is to admit that he is powerless over alcohol. A recovering alcoholic can never drink again. - Loss is to a loser what alcohol is to an alcoholic. A small loss is like a single drink. A big loss is like a bender. A series of losses is like an alcoholic binge. A loser keeps switching between different markets, gurus, and trading -create the pleasurable systems. His equity shrinks while he is trying to resensation of winning. Losing traders think and act like alcoholics, except that their speech is not slurred. The two groups are so much alike that you can predict what a loser will do by using alcoholics as a model. -and so is losing. Losers can change if Alcoholism is a curable diseasethey start using the principles of Alcoholics Anonymous.


The Urge to Trade

Successful traders treat drawdowns the way social drinkers treat alcohol. They have a little and stop. If they take several losses in a row, they take that as a signal that something is wrong: It is time to stop and rethink their analy- sis or methods. Losers cannot stop- they keep trading because they are addicted to the excitement of the game and keep hoping for a big win. One prominent trading advisor wrote that the pleasure of trading was higher than that of sex or flying jet aircraft. Just as an alcoholic proceeds from social drinking to drunkenness, losers take bigger and bigger risks. They cross the line between taking a business risk and gambling. Many losers do not even know that line exists. Losers feel the urge to trade, just as alcoholics feel the urge to drink. They make impulsive trades, go on trading binges, and try to trade their way out of a hole. Losers bleed money from their accounts. Most of them bust out, but some turn to managing other people's money after they lose their own; still others -out drunks who wash glasses in a bar. sell advisory services, like burnedMost losers hide their losses from themselves and from everyone else. They keep shuffling money, keep poor records, and throw away brokerage A loser is like an alcoholic who does not want to know how many slips. ounces of liquor he drank.


Into the Hole

A loser never knows why he loses. If he knew, he would have done some- thing about it and become a winner. He keeps trading in a fog. A loser tries to manage his trading the way an alcoholic tries to manage his drinking. Losers try to trade their way out of a hole. They switch trading systems, buy new software, or take tips from a new guru. They act out a rescue fan- tasy - a charming belief in Santa Claus. Their desperate belief in magic solu- tions helps many advisors sell their services to the public. When losses mount and equity shrinks, a loser acts like an alcoholic threatened with an eviction or a firing. A loser grows desperate and converts outright positions into spreads, doubles up on losing positions, reverses and as much good from trades in the opposite direction, and so on. Losers get these maneuvers as an alcoholic who switches from hard liquor to wine. A losing trader careens out of control, trying to manage the unmanage- able. Alcoholics die prematurely, and most traders bust out of the markets and never come back. New trading methods, hot tips, and improved software cannot help you until you learn to handle yourself. You have to change how you think in order to stop losing and begin your recovery as a trader. Losers get drunk on losses; they're addicted to losses. Traders prefer prof- its, but even losses provide plenty of excitement. The pleasure of trading is - but then few alcoholics are very high. Few losers are actively trying to lose consciously trying to end up in the gutter. A loser keeps getting high from trading while his equity shrinks. Trying to tell him that he is a loser is like trying to take a bottle away from a drunk. A loser has to hit rock bottom before he can begin to recover.

Individual Psychology

WHY TRADE?

Trading appears deceptively easy. When a beginner wins, he feels brilliant and invincible. Then he takes wild risks and loses everything. -some rational and many irrational. People trade for many reasonsTrading offers an opportunity to make a lot of money in a hurry. Money symbolizes freedom to many people, even though they often do not know what to do with their freedom. If you know how to trade, you can make your own hours, live and work wherever you please, and never answer to a boss. Trading is a fascinating intellectual pursuit: chess, poker, and a crossword rolled in one. Trading attracts people who love puzzles and brainteasers. -takers and repels those who avoid risk. An average Trading attracts riskperson gets up in the morning, goes to work, has a lunch break, returns TV, and goes to sleep. If he makes a home, has a beer and dinner, watches A trader keeps odd few extra dollars, he puts them into a savings account. hours and puts his capital at risk. Many traders are loners who abandon the certainty of the present and take a leap into the unknown.


Trade with Your Eyes Open

Every winner needs to master three essential components of trading: a sound individual psychology, a logical trading system, and a good money manage- ment plan. These essentials are like three legs of a stool-remove one and the stool will fall, .together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.


The Undercapitalization Myth

Many losers think that they would be successful if they could trade a bigger - account. All losers get knocked out of the game by a string of losses or a single abysmally bad trade. Often, after the amateur is sold out, the market reverses and moves in the direction he expected. The loser is ready to kick either himself or his broker: Had he survived another week, he might have made a small fortune! Losers take this reversal as a confirmation of their methods. They earn, save, or borrow enough money to open another small account. The story "proves" the loser repeats: The loser gets wiped out, the market reverses and - he has been sold out again. That's when the fantasy right, but only too late "If only I had a bigger account, I could have stayed in the market a is born: " little longer and won.Some losers raise money from relatives and friends by showing them a paper track record. It seems to prove that they would have won big, if only they had had more money to work with. But if they raise more money, they - it is as if the market were laughing at them! lose that, too A loser is not undercapitalized - his mind is underdeveloped. A loser can destroy a big account almost as quickly as a small one. He overtrades, and his money management is sloppy. He takes risks that are too big, whatever the size of his account. No matter how good his system is, a streak of bad trades is sure to put him out of business. Traders often ask me how much money they need to begin trading. They want to be able to withstand a drawdown, a temporary drop in the account equity. They expect to lose a large amount of money before making any! They sound like an engineer who plans to build several bridges that collapse before erecting his masterpiece. Would a surgeon plan on killing several taking out an appendix? patients while becoming an expert at A trader who wants to survive and prosper must control his losses. You do that by risking only a tiny fraction of your equity on any single trade. Amateurs neither expect to lose nor are in any way prepared for it. The -out that helps them avoid two notion of being undercapitalized is a coppainful truths: their lack of trading discipline, and their lack of a realistic money management plan.