Home > Classic Prechter
Key To Trading Success: Ignore Nature's Laws?
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By Editorial Staff
Fri, 13 Nov 2009 19:30:00 ET |
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The following is excerpted from Robert Prechter’s Independent Investor eBook. The 118-page eBook is a compilation of Prechter’s writings that challenge conventional financial market assumptions. You may download the eBook here for free.
The natural tendency of people to apply physics to finance explains why successful traders are so rare and why they are so immensely rewarded for their skills.
There is no such thing as a “born trader,” because people are born — or learn very early — to respect the laws of physics. This respect is so strong that they apply these laws even in inappropriate situations. Most people who follow the market closely act as if the market is a physical force aimed at their heads. Buying during rallies and selling during declines is akin to ducking when a rock is hurtling toward you.
Successful traders learn to do something that almost no one else can do. They sell near the emotional extreme of a rally and buy near the emotional extreme of a decline. The mental discipline that a successful trader shows in buying low and selling high is akin to that of a person who sees a rock thrown at his head and refuses to duck. He thinks, I’m betting that the rock will veer away at the last moment, of its own accord. In this endeavor, he must ignore the laws of physics to which his mind naturally defaults. In the physical world, this would be insane behavior; in finance, it makes him rich.
Unfortunately, sometimes the rock does not veer. It hits the trader in the head. All he has to rely upon is percentages. He knows from long study that most of the time, the rock coming at him will veer away, but he also must take the consequences when it doesn’t.
The emotional fortitude required to stand in the way of a hurtling stone when you might get hurt is immense, and few people possess it. It is, of course, a great paradox that people who can’t perform this feat get hurt over and over in financial markets and endure a serious stoning, sometimes to death. Many great truths about life are paradoxical, and so is this one.
Read Robert Prechter's Free Independent Investor eBook
The Independent Investor eBook is a 118-page resource that teaches you to think independently by challenging conventional financial market assumptions. Learn more and download the free Independent Investor eBook here.
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