In part 2, I discussed how Richard Dennis, the legendary commodity trader, proved to all of us that trader can be trained to become successful; he/she doesn’t need to be born with the talent. We have much to thank Richard Dennis for this very insightful experiment he conducted. The experiment also taught us that the key to trading success is the temporary restrain of the chest-thumping gorilla inside us (in which I postulated in part 1). Richard Dennis imposed discipline (external imposition) by threatening the survivability of the trading trainees. This external imposition of discipline forced the trading trainees to put aside their chest-thumping gorilla and gave themselves the opportunity to witness and experience the strengths and weaknesses of the long-trend trading strategies taught by Richard Dennis. After knowing that the trading systems worked, some of the trading trainees learned to trust the systems and went on to become famous money managers on their own.
So, how do we follow the same path without the benefit of a benevolent trader like Richard Dennis to coach us? One of the key element of external imposition of discipline is that the trading trainees were willing to set aside their chest-thumping gorilla in favor of an external guidance. The trainees knew that Richard Dennis was a bona fide trading legend and therefore trusted him totally.
In the same token, we are going to find something we can trust totally so that we can control our gorilla better. And what better way than to trust our very own hunting instinct that we are all born with? We will let our hunter mind guide our action instead of relying solely on our chest-thumping gorilla. Think about it, our ancestors did not survive this long without our inborn hunting instinct. Yes, we have two very important characteristic traits that sustained our survival- the chest-thumping gorilla for protection against predator and the hunting instinct for foods.
Due to our advancement in modern science that pretty much eliminated the need for hunting; we somehow “forgot” about our talent for hunting! And as a child, we weren’t taught the skills and discipline that are compatible with our hunting instinct inside us. Nevertheless, deep inside us, we are always yearning to hunt.
Try this one for size, our stock market is our own creation as a way to establish a “virtual” hunting ground to fulfill our desire to hunt! There, there, if you accept this premise, you are ready for the next step to utilize our inborn hunting instinct to control the chest-thumping gorilla inside us.
What does hunter do to capture their prey? First thing a child learns from the hunter father is to understand the prey they are hunting. The child is taught the nuance and habit of the prey- from their eating habit to where they prefer to sleep.
Light bulb light up yet! Yes, understand the stock you are trading! Know how your stock price action moved in different market environment. Understand the fundamental behind it.
Next, the child is taught the hunting skills. There are many hunting skills to learn since different prey required different skill set and weapon for the kill.
Learn all the technical analysis (chart reading and/or tape reading) and becomes an expert at it. Learn to know which technical settings are more appropriate for long-term trading as opposed to short-term trading. Learn the basic financial/accounting skill so you can decipher the fundamental information provided by the 10K reports.
Next, the child is taught that patience is required for the hunt. A steadfast and calm demeanor are required so as not to alert the prey.
One must be patience to wait for the proper signal before taking a trade. The stock must trigger the parameter in your trading system before you take a trade.
Next, the child is taught to summon the chest-thumping gorilla inside to go for the kill when the moment is right.
When your trading signal is triggered, you must summon your inborn strength to take the trade.
Next, the child is taught that if the kill was not successful, he/she must retreat immediately to save him/herself first so they can hunt another day.
If your trade was not successful, take your loss immediately so you can move on to the next setup for trading opportunity.
Finally, the child is taught to be humble and be thankful for the kill since an arrogant hunter will eventually become “careless” and mauled by the prey. This is more to remind themselves that their chest-thumping gorilla inside them must be contained after the kill.
By focusing on the hunt and all its intricacies, we are putting our chest-thumping gorilla to the sideline and only called out for trade execution- from entry to exit to cut losses or to take profits.
In summary, direct all your energy not at the stock market but as a hunter scouting the stock market. The focus of energy is different- at the market, you can get carry away by the mob mentality and forget to take your profit or cut your loss; as a hunter, you are focusing on the hunt itself and that put you in a position to “observe” the mob mentality instead of being part of it. Thus, you are more likely to take profit or cut loss before the trend changed direction in a big way.
We,as human, have two very powerful characteristic traits that we passed on from generation to generation- the chest-thumping gorilla trait and the hunting instinct. Brush off the dust and bring your hunting instinct back up so as to balance against your gorilla trait. Both are needed for the success of the hunt.
Now, you know why I always sign off with…
Link to Part 1 & 2:
Understanding Discipline- a new perspective (part 1)
Understanding Discipline- Turtle trader approach (part 2)Comments »