“He who thinks he knows, doesn't know. He who knows that...

“He who thinks he knows, doesn't know.

He who knows that he doesn't know, knows.”

Lao Tzu, 6th Century BCE

Curt Hostetter

•  Read “How To Make Money In Stocks” 2006

•  Began investing 2008

•  Part-time investor with CAN SLIM advantage

•  Attended Level I, II, Chart School, Market School

•  Co-organizer NY IBD Meetup since 2011

•  Member Naperville IBD Meetup since 2010

Psychology

The mental make-up or structure of an individual that causes him or her to think or act in the way he or she does.

Behavior dictated by the relationship of mind, emotion and circumstance.

Who says Psychology is important? Jack%Schwager,%author%

“Market(Wizards(never(talked(about(indicators(or(techniques,(but(rather(about(such(things(as(discipline,(emotional(control,(patience,(and(mental(attitude(toward(losing.(The(message(is(clear:(The(key(to(winning(in(the(markets(is(internal,(not(external.”((

Jesse Livermore

“I(believe(that(uncontrolled(basic(emotions(are(the(true(and(deadly(enemy(of(the(speculator;(that(hope,(fear,(and(greed(are(always(present,(sitting(on(the(edge(of(the(psyche,(waiting(on(the(sidelines,(waiting(to(jump(into(the(action,(plow(into(the(game.”((

Alexander%Elder,%trader,%author%and%psychologist%

“Whatever(your(psychological(flaws(and(fears,(whatever(your(inner(demons,(whatever(your(hidden(weaknesses(and(obsessions,(the(market(will(seek(them(out,(find(them,(and(use(them(against(you.”((

Know Thyself

What kind of trader are you?

•  Home run hitter–classic O’Neil style Model Book Stock trader

•  Singles hitter–intermediate trader who sells on the way up

•  Hybrid (usually unintentional)

What is your experience?

How$does$it$feel$during$a$Bull$Run?$

What is your experience?

What$happens$when$the$Bears$are$out?$

Why is Trading so Difficult? •  Competition •  The Teases -  unlimited potential for profit and loss -  stocks that can “change your life” -  unrealistic expectations

•  Counterintuitive -  good news – disastrous results -  bad news – upside surprises

•  No skill needed for a successful trade

•  Effort vs. Reward – -  traditional work rules do not apply -  There Are No Rules! -  Nothing we do in society prepares us to function effectively in

this "boundary-less" environment.

•  It can be maddening -  “Mr. Market” becomes personal

Why is CAN SLIM so difficult?

•  Most of us work very hard and finally learn how to buy correctly, taking many small losses along the way.

•  Most of us try to buy and hold the potential “big winner” only to give back huge portions of our gains when the stock corrects

•  Many of us sell out defensively as a stock sells off aggressively through the 50 day moving average

•  This creates a yo-yo cycle of gains and losses

Why Do We Trade CAN SLIM?

•  To Be like Bill -  Unlimited potential -  We manage ourselves and our destiny -  We alone are responsible for our achievements and failures -  He says, “You can do it”

•  Change our lives with that one Monster Stock

•  Can you do it? Can you hold that Model Stock?

What is your drawdown?

•  $50k investment

•  $150k (200%) in 10 months

•  Base corrects 27%

•  That’s $40k in 3 weeks

•  Is that the bottom of the base?

113% gain

232% gain

$56k gain

$116k gain

Without a rule, I would have sold

Psychological pain

Another Personal Example

and more psychological pain

I´m Down 6.7%

I sold here at $35.12

It was out to get me!

What did I do wrong?

The Solutions: Rules 1.  The essential rule of trading is a belief that anything can

happen

2.  We have to be rigid in our rules and flexible in our expectations

3.  Uncertainty is the only certainty in the Market

4.  Rules are based on our tested, proven edge (CAN SLIM)

5.  Efforts to understand and decipher the rules of the Market are folly

6.  Hard work and dedication is essential to understanding the rules and discipline of our edge (CAN SLIM)

The Solutions: The Edge

1.  An edge is simply an indication that there is a higher probability that the market (or stock) will move in one direction over the other

2.  A person who doesn’t know his edge does not have it and will lose

3.  You must define it, study it and trust it

4.  If your edge puts the odds in your favor, then every loss puts you that much closer to a win.

The Best Traders

1.  Have eliminated the effects of fear and recklessness from their trading

2.  Accept TOTAL responsibility for their results

3.  Are completely comfortable with uncertainty

4.  Can be Modeled – what are their common beliefs? -  Money is not important -  It is OK to lose in the markets -  Trading is a game -  Mental rehearsal important -  They’ve won before they start (full commitment to their edge)

Van Tharp in Market Wizards, p422

5.  Have a winning attitude

Tools For Change •  The Desire for Change

•  Accept that the consistency you seek is in your mind, not in the markets.

•  Self Examination

•  Design a plan that fits your personality

5 Fundamental Truths of Probability Trading

1. Anything can happen.

2. You don't need to know what is going to happen next in order to make money.

3. There is a random distribution between wins and losses for any given set of variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

5. Every moment in the market is unique.

Mark%Douglas,%Trading(in(the(Zone,(p121%$

7 Principals of Consistency

1. I objectively identify my edges.

2. I predefine the risk of every trade.

3. I completely accept risk or I am willing to let go of the trade.

4. I act on my edges without reservation or hesitation.

5. I pay myself as the market makes money available to me.

6. I continually monitor my susceptibility for making errors.

7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

Mark%Douglas,%Trading(in(the(Zone,(p185%%

My Personal Approach

•  The stock market is human nature and crowd psychology on daily display

- William O’Neil

•  Trading is one of the most difficult endeavors you could choose to undertake and certainly one of the most mysterious to master

•  My goal is to trade well—money is a result

•  I strive for “A Winning Attitude”

A Winning Attitude

•  Definition: “A positive expectation of your efforts, with an acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to do better.”

--Mark Douglas, Trading in the Zone, p55

•  Is the key to success

•  Taking responsibility is the cornerstone

Must Read

•  Special Thanks to Ken Kocher at Naperville Meetup

Take

Resources •  Mark Douglas

Trading in the Zone The Disciplined Trader

•  Brett Steenbarger The Daily Trading Coach

•  Van K. Tharp Trade Your Way to Financial Freedom Super Trader

•  Alexander Elder Trading for a Living Come Into My Trading Room

•  Jack D. Schwager selected chapters in Market Wizards books