The following is excerpted from Robert Prechter’s Independent Investor eBook. The 75-page eBook is a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.
By Robert Prechter, CMT
…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.
For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.
Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979
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good stuff to read, download the book. Thx Tiger.
ReplyDeleteBTW, do you use wave counts for your trading? I found it is more for prediction but hard to use. Also, what's your take on Gann's, so mysterious and confusion to me.
thx as always
bokchoy
bokchoy,
ReplyDeleteFor my trading I use my own methods, some are disclosed here already.
I agree with you that wave counting is more for prediction but hard to use. They are just great theories. I think,if we want to use it, we need one more step, namely, to extract something very useful for our trading from it (by ourselves).
For example:
1. Wave theory tells us the market always up follows down and down follows up. So we can draw several useful applications on it:
A. Buy at the end of the down wave
B. Sell at the end of the UP wave
2. Wave theory tells us how to tell a major bull market from a bear market rally. Namely, 5 waves vs. 3 waves
Take the current US stock market as an application example: Since march's low up to date, there have been a two waves up and one minor correction wave in June and July. So keep these in mind and see how the market develops, We will have a clear picture of the market's direction.
With regard to Gann, I think he is a talented trader and market timer.
The market is complex, but there are rules under it. So, there will be somebody to be able to make BIG money from the market if he/she can deeply and clearly understand how the market works. That's for sure.
Being right is rare. Sit tight when you are right is very very uncommon. But, still, some body can make BIG money from the market. No doubt about it at all.
Enjoy the trading and reading.
Tiger