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• Fear, inability to initiate, and/or the perfect trader syndrome. The flip side to greed and euphoria are fear and an inability to take trading signals. This can occur due to an unwillingness to fade the crowd, fear of losses, or fear of relinquishing profits. Here the key to transformation is nonattachment, to act without attachment to the results of our actions. We must forget about whether the trade will result in a profit or loss, because the result of that action only exists in an unknowable future. Instead we must focus on the present moment; now in this present moment we have received an entry signal based on either a high probability of a superior profit/loss ratio (trend trading) or an
MECHANICAL TRADING SYSTEMS
attractive winning percentage ratio (mean reversion system). We must embrace the fear and then release it through nonattachment to the results of our actions.
TRANSFORMATIONAL PROCESS: IN LIFE AND THE MARKETS
Throughout this book, I have put forth the theory of resonance. Although a book about success in the markets is, in and of itself, a worthwhile endeavor, my reason for writing this book was intimately linked with this concept of resonance between the markets and the human experience in general.
It is my firm belief that what holds true in microcosmic spheres such as the trading realm often resonate with higher truths regarding the macro-cosmic aspects of life in general. This belief forced me to continue trading despite early experiences of failure and self-doubt. I was certain that such losses and professional turmoil in my trading career somehow resonated with a greater spiritual disharmony that required resolution. Of course I could have simply stopped trading, but I had always felt that “what we resist, persists.” Therefore, issues raised by trading such as lack of discipline, inconsistency, fear, and greed would resurface in one form or another until I had mastered them.
So I continued to strive toward self-mastery and success in the trading realm despite losses and frustration. Finally, after years of struggling, eventually I was able to employ a consistent, disciplined approach to trading. As I had expected, the mastery of my emotions in this particular endeavor lead to greater harmony in all other aspects of my life.
When I first mastered the discipline and consistency required for success as a trader, I erroneously assumed that trading would become easy. Instead I discovered that although I now had the experience and discipline to stay with my systems irrespective of a particular trade’s outcome, my emotional response toward the practice of sticking with any particular trade periodically shifted from effortless adherence to an almost unbearable temptation to abandon my discipline. Although the severity of these emotional shifts has diminished over time, to this day they remain an integral aspect of my experience as a trader.
Such emotional shifts from temptation to abandon discipline to near-effortless adherence reminded me of a particular aspect of market behavior: retracements within the trend (see Chapter 1). Just as the market shifts from near-parabolic moves in the direction of the long-term trend, then pulls back as that trend temporarily overextends itself, I believe that our consciousness evolves through similar cycles of growth and contraction.
Psychology of Mechanical Trading
Some philosophical and religious traditions compare this process to a circle (or wheel) in which growth is followed by contraction ad infinitum.
Instead, I contend that the evolutionary process only “feels” like a circle as we perpetually shift from one end of the spectrum to its opposite. In fact, the process is more like a spiral, in which we revisit variations of these same struggles over and again, yet each successive test of our consciousness with these same behavioral archetypes is in fact occurring at ever higher octaves of consciousness until the experiences eventually culminate in a paradigm shift beyond these polar opposites of the human experience that Eastern religions call enlightenment.
What is the catalyst leading to this paradigm shift? Conscious effort. This book has been dedicated to explaining various practices and techniques, all intended to strengthen our resolve to act with single-minded consciousness in pursuit of success in trading. Furthermore, I believe that this process of strengthening our will through the consistent employment of mindfulness and conscious effort in this one area of life affects all other realms of our consciousness.
How does this catalyst of conscious effort actualize the paradigm shift from dualism to even-mindedness and nonattachment to the results of our actions? When employed with discipline and consistency, conscious effort eventually leads to the maturation and ascendancy of what Eastern religions call witness consciousness. Witness consciousness is that part of us which can objectively “witness” our conscious mind’s shift from dualistic poles of success and failure, mania and depression, without attraction or repulsion to either extreme. Witness consciousness is that part of us that, through mindfulness and conscious effort, enables us to transcend dualism in favor of single-mindedness and nonattachment.