1 The probability of six correct numbers in the German lottery is around 0.000007 percent.

2 Please note that on the performance die there are no preferences (higher probabilities) for either positive or negative performance points.

Original Edition copyright © 2006 by FinanzBuch Verlag. All rights reserved. The original edition has been published in 2006 under the title »Die Kunst des erfolgreichen Tradens: So werden Sie ein Master Trader!«.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of the publisher, nor be otherwise circulated in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

1.3 Condition yourself for success! Only those who reward themselves directly for good performance will be in a position to repeat this performance

1.4 Formulate your goals properly! Important rules that you should observe when you formulate your goals

3.2.4 Specify how you organize your trading and what equipment you need for this

5.1 Moods determine our behavior. If you can handle your emotions, you can handle trading.

5.2 How do moods arise? There’s a link between an event, our internal mental representation of this event, the mood that arises from this internal mental representation and our behavior

8.8 Where should you enter, or this is how you wait and watch for the optimal entry

8.14 Be aggressive with the first position and reload as soon as it runs in your favor

9.1 The fundamental law of trading and why so many exit strategies contravene this law

13.1.4 Trading systems aren’t implemented consistently anymore and trading rules are flouted

14.4 Trading tactic 3: Don’t try to maximize the profit from one single trade but, instead, maximize the profits from the sum of all the trades

14.6 Trading tactic 5: Always gamble if the expectation value of taking a gamble is positive

14.7 Trading tactic 6: As traders, we always have to incur a risk and it should be incurred as early as possible

14.9 Trading tactic 8: Those who have an advantage shouldn’t give it away again

Acknowledgements

I’d like to express my thanks to my beloved wife Christina, who not only worked for hours proofreading this book but who also shows a great deal of understanding for the huge amount of time that my profession requires.

I’d also like to thank my parents who brought me up to believe that freedom and justice are important values. I became a trader not least for this reason.

I’m also indebted to my friend Karsten who, with his helpful daily support in my trading operation, provided me, among other things, with the freedom to write this book.

Foreword

The quest for the key to financial freedom through trading - successful investing and top performance - leads most people to embark on a long, expensive and frequently endless odyssey. Dozens of trading strategies are tried out, widely varying indicators are tested, gurus are consulted and research reports are carefully studied. Naturally, this aimless wandering also includes the search for the holy grail, for “the” method or for “the” trading system that promises reliable and long-term gains.

Only a very small number of traders realize their goal of generating top performance continuously. Many drop out along the way. Maybe they run out of funds, maybe they lose interest or the belief that it will ever be possible to achieve this goal. Studies show that only around 5 percent of all futures traders achieve long-term success.

Why is it that there are so few winners in this game of games? Is successful trading a question of talent, perhaps? Is it maybe just the luck of the draw if, year after year, someone earns millions by trading on the capital markets of this world? Or could it really be the case that these chosen ones have discovered a secret trading system that turns them into super traders?

It’s nothing of the kind. Experienced traders and investors know that neither talent, nor luck nor the trading system is the key to financial freedom, to top performance.

The sole determinant of a trader’s success is the priceless ability to implement INTERNAL CONTROL and to manage risks.

Internal control is the equivalent of checking the status, which is also known as discipline. This is the key to infinite profits. Discipline is not the ability to follow rules. Discipline means more.

Discipline is the ability to put yourself, at any time, in an optimal productive mood for tackling the task at hand. Here’s an example: Each of us knows the traffic regulations but we frequently break these rules. Why? Because we just happen to be tired, not concentrating, angry, aggressive, nervous or in some other unproductive mood. It’s the same with trading. We know exactly which rules lead us to success. However, frequently, we’re not in a position, or in a mood to follow these rules. We’re anxious, greedy, impatient, nervous and, thus, not in an optimal state for the task ahead of us. Anxious traders, for example, will take profits too quickly when they’re trading.

Those who are in a position to put themselves in any desired mood, at any time, will always be able to create the ideal conditions for tackling the task at hand. It’s only when we’re in the right mood that we can also achieve the best possible output when solving a problem.

Imagine that you have to hold a speech in front of important people. What would be better: holding this speech in a nervous mood or with confidence? The answer is obvious.

For each task that has to be tackled there are productive and unproductive moods. The art is to put yourself in the optimal productive state before you tackle each task. With trading there are various tasks that have to be accomplished during the different phases. In this book, I’m going to show you which tasks you have to accomplish when you’re trading and how you can put yourself in an optimal productive mood for every second of your trading.

Up to now, many traders have assumed that they don’t have control over their moods and that their state of mind is, thus, determined by external events or randomly. In the following chapters you’ll learn that precisely the opposite is the case. It’s we ourselves who have control over our moods.

For example, a trader is in a bad mood and aggressive because he’s had to take the sixth loss in a row. After so many setbacks you can’t blame him for not being in a good mood. Nonetheless, it will be clear to everyone that the trading outcome will suffer considerably as a result of this aggressive state. Instead of being aggressive and bad tempered the trader could also put himself in a confident, relaxed state. The impact on his trading behavior and trading outcome would be huge.

An aggressive trader will tend to fight the market constantly. He’ll increase his risk and only profits will be able to appease him in his anger. By contrast, those who are confident will be able to continue trading in accordance with their trading rules.

In order to understand how we can control our moods and our state, first of all, I’m going to talk about how moods come about. In my seminars, I keep on meeting people who, initially, wonder what all of this has to do with trading.

I’m going to show you that in trading there are various problems that need to be solved. You have to develop a trading idea (a low risk idea), you have to complete a mental ability test and you have to monitor your trade as well as many other things.

Each of these tasks requires a different mood. The better you can put yourself into a state that you determine, the better will be the outcome of the problem that needs to be solved. If you solve all problems in an optimal state then you’ll easily achieve your objective of excellent trading.

People fail at trading because they attach great importance to external control. With external controls it’s a matter of tackling problems such as the question of when is the best time to open a position, or what is the best trading system, or the best method of analysis.

In this book, I’m going to show you that external control doesn’t help us in our trading. External control is an illusion, to a large extent, and can even hinder us in trading.

However, there is one issue that we can and have to control externally. This issue, which no trader can get around, is risk control. Besides internal control, it’s the only factor that will make you a successful trader. The words “risk control” are the best definition of trading. If I’m asked what it is that I do in my job, I usually reply that I manage risk.

In order to be able to control risk we have to know what possibilities and instruments are available for this. Here, it’s not just a matter of stops but, instead also, for example, money management functions. Money management is a crucial factor in trading. Money management doesn’t mean “where do I set my stop?” but, instead, how much money should I risk with this position, hence, what size should the position be?

Despite having a successful strategy you can still ruin your account if you don’t practice any, or the wrong sort of money management. In my seminars, I let the participants trade in a simulation with a predetermined trading system. Here, the entry into and exit from a position are determined by the system. The traders only have to decide how much money they want to allocate to the position. Do they buy 100 shares, 1,000 shares or some other number? After some of the simulations we compare the account balances. Every participant has a different account balance. Some have halved their accounts, others have doubled then, although all of them applied the same trading strategy. The only difference between their approaches was through money management.

There are typical human behaviors that result in us increasing our risk when we’re making losses. Humans have a natural affinity for risk with regard to losses and are risk-averse with regard to profits. In keeping with the old adage that a bird in the hand is worth two in the bush, we’re too mean when it comes to profits. However, we also say: “Hope springs eternal”, so that we’re frequently too generous if we have to accept losses. In this book, I explain which human instincts encourage this behavior and how you can protect yourself from them.

When it comes to trading, we always have to bear in mind that human nature and human instincts are frequently of no help to us in trading but, instead, hinder us. In short, this book is about two things, therefore: self-control and risk control.

Self-control means mastering the right way of communicating with your own subconscious, the ability to know what you want, how you can achieve this and how to put yourself into an optimal state for this. First off, you’ll be thinking that this is no easy task. However, it’s a task that many successful traders before you have already mastered. This book will help you to achieve trading excellence.

Risk control is the ability to develop money management strategies and to implement low risk ideas, which will enable you, day by day, month by month and year by year, to generate outperformance and to earn multi-digit returns. In this book, I show you my strategies that have helped not only me, but also many other investment professionals and super traders, to achieve absolute success in trading. You’re going to learn what distinguishes a low risk idea and how you can develop these yourself.

1.
Chapter 1

What traders really want and how they achieve it. Find out the purpose behind your goals and decide what you want specifically.

1.1 Find out what you want

Bunker Hunt, a Texan oil millionaire, was once asked how can you attain success.

He said that there was a simple answer to that. “First, you decide what you want specifically; and second, you decide you’re willing to pay the price to make it happen, and then you pay that price. Success is that simple.”

Most people are unsuccessful because they’ve already omitted the first step to success. They simply don’t know what they want. The same can be said of many traders. When I ask, “What do you want to achieve with your trading?” time and again, I get the reply: “Quite a bit. Earn lots and lots of money.” Most of the time, I then say to these individuals that they should imagine that they’re now going to get a lot of money from me, let’s say Euros 1,000.000, however, only on condition that they have to spend all of it again. For this they have one minute to write a list of all the things that they would buy. The only rule here is that they’re not allowed to invest the money, nor are they allowed to buy real estate with it, thus, it has to be spent entirely on consumption. I hand over a slip of paper and a pen to them and most of them start to write avidly: a luxury car, Armani suits, a gold watch, expensive electronic devices, a luxury trip and so on. Hardly anyone manages to spend the million. After the first three or four wishes the writing frenzy grinds to a halt. What else would I need, what do I want and what for?

The traders quickly realize that “a lot of money” is a very unspecific goal that doesn’t help them because they don’t know what they want to do with the money. However, in order to be successful you have to decide what you want specifically. Money is a product that is generated in trading but it’s not your real goal.

That’s why I ask the traders another question. They should imagine that they have as much money as they could wish for. What would they do with it? Would they buy a house with it, or a sports car, all the same? If they want to buy a house, then why exactly a house? Maybe so that they never have to pay rent again? Why are they concerned about paying rent? Do they feel more secure if they own a house that has been paid off? If they want to buy themselves a sports car, I ask them why it has to be a sports car precisely and not an antique car. Maybe because fast driving is fun, or because the car provides them with a young and successful image?

I try to find out what the traders really want. And actually, it’s not goods that they’re after but, instead, values such as security, recognition, fun, independence and freedom. These values determine our actions. Nobody wants a sports car because it can get him or her from A to B. In fact, behind this wish is a yearning for a feeling. The goal is to achieve the experience of this feeling. Behind every goal there’s a purpose, which needs to be identified.

If you don’t know exactly what you want, then it will also be impossible for you to attain your goal. Or, would you set out on a journey without a destination? Without knowing it, the probability of you landing up at the destination that you wanted to reach is very low. It would be a lucky coincidence. However, we don’t trade in the hope of a lucky coincidence but, instead, in order to achieve a very specific goal. Yet, frequently, we haven’t figured this out.

Already as a little boy, I had the goal of becoming a millionaire, at the latest, by the age of 30. I achieved this goal much earlier. I made my first million at the age of 22, while I was still studying. Although, I didn’t have a clue as to why I wanted to be a millionaire and I certainly didn’t know what I wanted to do with the money. So, I left the money in my account and continued to trade. I was a millionaire but the feeling of happiness at having achieved my goal only lasted for a few days. After that I was somehow dissatisfied even though I had so much money in my account.

This dissatisfaction grew stronger day by day and, at that time, I didn’t know why. I was now a millionaire and I had achieved my supposed goal. However, as the money was still in my trading account and I didn’t indulge myself with anything at all really (why should I, I wanted the money for money’s sake and had no idea what I wanted to use it for, or how I wanted to feel), after a few days already, the money had no significance for me anymore. It was only a number.

I was living in my student house share, in a small room with a coal stove and an unheated bathroom. The million was just a number in my account. The money didn’t provoke any feelings in me and that’s why it was meaningless for me. I didn’t appreciate it because what else could this million give me? In my subconscious, like anyone else, I was striving for particular values. Among other things, I eagerly wanted to have a feeling of fun and excitement. If you act in a very disciplined way, then fun and excitement are the last things that you’ll feel. That’s exactly what it was like as I arduously made the first million. But I wanted to have fun.

Now, what’s the best way of generating fun and excitement with a million when you’re not aware of this yearning and the subconscious has taken over command? It’s really simple - aged 22, you call up your banker and buy a short term DAX option for an amount that is ten times this man’s annual salary. Every one-point change in the market now means multiples of Marks 10,000. Your account begins a roller coaster ride. In the space of minutes you earn or lose amounts that are the equivalent of the price of a luxury sports car.

I was now having my fun and the excitement that I had wished for. However, this wasn’t good for my account. Within just three months the entire million was gambled away and I was back to where I’d started - with zero!

It was only much later that I learned why I had lost the hard-earned money again so quickly. I didn’t know what my goal was; I hadn’t decided what I wanted specifically. It wasn’t until I became aware of this that I was also in a position to earn money continuously and to use the profits that I generated to achieve my goals.

You can be certain that you will never achieve lasting success as a trader if you don’t really know why you’re trading, what goal you’re pursuing and why you want to achieve this goal at all costs. Knowledge of your goal is crucial information in order not to let your journey turn into an odyssey.

1.2 Ask yourself what values do you strive for in your life

Trading will determine a large part of your life. It’s only when your value concept is reflected in your vocation as a trader that you’ll be in a state in which you’ll be able to achieve top performance in the long term.

As a trader you have to decide what feeling and what values you strive for. This will be different for each person and changes over the course of life. When I was in my early 20s, I wasn’t interested in values such as security. What I wanted was fun, recognition and excitement. Ten years later - when I’d started my family - security was a very important feeling for me, which I wanted to experience in order to be contented. As you can imagine, you’ll display completely different behavior if you’re striving for security, or for recognition and excitement. Those who strive for security as the ultimate goal will buy a house, those who strive for recognition and excitement will prefer a sports car.

Of course, we always strive for several values. Nevertheless, there is one value that dominates our actions, one value - if we had to choose - that we would prefer over all the others. You can find this out really easily by writing down all the values that are important for you, one below the other, in a list. Next, search for priorities among the values that you would like for your life. You do this by comparing two values in your list in terms of which one is more important for you. The best way is to imagine that in your life you could only achieve one of these values. Which one would you then give up in favor of the other?

Your list could include values such as: harmony, success, health, honesty and security. Now, ask yourself what’s more important for you: harmony or success? Let’s assume that the answer is success then, after that, compare success with health. If health is more important, then compare this value with honesty. If health is more important to you than honesty and also security, then you’ve found the value that is at the top of your scale of values.

In order to find out the further sequence, you should now do the same again, as described above, with the remaining values.

As soon as you have compiled your scale of values, for each value you should ask yourself the question how will you be able to tell that you have attained this value. What would your life be like if it was completely in accordance with the desired value? What would your environment have to be like? What would be the course of events of a so-called perfect day?

This exercise is very time-consuming and can take several days, but it helps you to identify your personal goal. And that’s necessary in order to be able to achieve it at all. Remember the Texan oil millionaire: “First, find out what you want.”

It’s only when you know what your personal goal is that you can prepare a plan of how trading can help you to achieve this goal. In the course of this, you could also come to the conclusion that trading won’t help you much to achieve your goal. In that case, you should think very carefully about whether or not you do, indeed, want to continue risking your money, your time and your nerves in the markets, every day, if this doesn’t enable you to enhance your wellbeing. In that case, trading isn’t your vocation.

In order to trade successfully you have to know what you want. When you know your goal it’ll be easier for you to achieve this goal. Your brain, the consciousness and the subconscious, will now know what you want. We know from psychology that with the help of our brain we can achieve almost anything that we want. But it’s only when we realize what we want that we can undertake the necessary steps in order to achieve it, too. To trade successfully is a big challenge for each of us, which we can only solve successfully if we know why we trade and what goals we’re pursuing in this way. Knowing your own goal is one of the most important things that you have to find out in order to be successful. However, as most traders have never explicitly asked themselves this question, they’re unsuccessful, or at best average, but never excellent. Super traders know which goals they want to realize with their trading. Because they know this, trading is their vocation.

1.3 Condition yourself for success! Only those who reward themselves directly for good performance will be in a position to repeat this performance.

You can only be successful in the long term if you’re willing to use the money that you earn with trading for your personal goals. What’s the point of having money in your trading account if you don’t put it toward your goals? It’s important to reward yourself continually so that your brain knows why it’s making all that effort.

We know about this stimulus from psychology under the keyword “conditioning”.

If fun is among your preferred values, thus, if the goal of fun is right at the top of your list then, after a successful trade, you should indulge yourself by having some fun. Withdraw a part of your profits from your trading account and experience an amazing day when you treat yourself to everything that you enjoy. Splurge some of the profits. You’ll notice that you’ll earn the money again more quickly and more easily because by rewarding yourself you learn that you can achieve your goals by trading. Your brain needs feedback that it’s done everything correctly.

After I’d lost my first million again, I vowed to myself not to make the same mistake the second time around. I realized what I actually wanted, namely, fun. So, from time to time, I would go and withdraw a larger amount from my account, even though I still had a long way to go before I reached the million again, and I would spend the money within one day. For example, I flew to Sylt for a day [an island in northern Germany], hired a luxury suite and enjoyed the day.

The experience reinforced my conviction that by trading I was doing the right thing. Most of the time, I earned back the money that I’d spent on my fun within a few days already. I developed a completely different attitude to money and to trading and I learned that “realizing your own goals” doesn’t mean spending all your life working toward a goal but, instead, enjoying your life and that means realizing some of your goals immediately.

By realizing your goals already while trading you condition your brain for success. Conditioning is nothing other than action and reward. Our brain functions in accordance with this simple principle. Once it has learned how it can get its reward, thus, once the conditioning has taken place, then, through action it can help itself to obtain a reward over and over again.

That’s why you should learn to program your brain for success. That’s the only way that you can be successful in the long term. Otherwise, you’ll share the same fate of many traders who earned a lot of money once, but then lost it again and were never able to earn a lot of money once more. Star traders earn money continuously because they have conditioned themselves for success.

In practical terms, this means that even if you’re dreaming of owning a sailing yacht and, for this reason, you keep on accumulating more money in your account, it’s better to withdraw money intermittently and, for example, to charter a yacht for a week. In this way you reward yourself and condition your brain.

Most traders think: Why should I withdraw money from my trading account? The less money I have in my account, the higher my returns have to be in order to achieve my goal.

Mathematically speaking that’s right, but in terms of psychology it’s wrong. An important element of successful trading is rewarding yourself even for small successes. My experience and that of many traders has shown that continuous rewards enable you to reach your target faster.

So, firmly resolve to condition your brain for success. For this, you have to know what you want and set interim goals that can be achieved quickly. Every time that you achieve an interim goal you should reward yourself. Be sure that the interim goals are not too difficult to achieve. It’s absolutely fine to reward yourself already after the first successful day, or the first successful week.

1.4 Formulate your goals properly! Important rules that you should observe when you formulate your goals

When you set your goals and your interim goals you should observe a couple of rules. It’s important always to write down your goals. That way you have to use more specific language and you determine what you really want more precisely. It’s only when we have a clearly defined goal that it’s easier for our consciousness to make slight, to take corrections, if we move away from our goal.

Next to each goal, make a note of why you want to achieve it. The purpose of every goal is usually a value, such as fun, recognition or security.

Never formulate static goals, but, instead, dynamic ones. When you formulate static goals you install a barrier in your mind. What happens when you’ve earned a million?

It’s important that all the goals that you set yourself are measurable. That’s the only way that you’ll be able to know whether or not you’ve achieved your goal, or how far away you still are from achieving it and, thus, how much effort you still have to make in order to attain your goal. If your goal is restricted to earning a lot of money, this isn’t exactly precise and it certainly isn’t measurable. For some, Euros 20 is a lot of money, for others, it’s Euros 10,0000.000. This can lead to huge problems because you’ll never know whether or not you’ve earned enough money in order to reward yourself.

Ideally, you should formulate a target return for your trading, such as, for example, a monthly average increase in capital of 5 percent. This target is measurable, dynamic and specific.

Moreover, according to a basic rule of goal setting, you should always formulate positive goals. In your check list of goals there shouldn’t be any negative phrases such as “lose money” or “make small losses”. It’s better to say “maintain capital” instead of “lose no money”, or “low level of fluctuations in the performance curve” instead of “low level of losses”.

Just say what you want to achieve instead of expressing what you want to avoid. For us humans, it’s easier to achieve positive things than to avoid negative ones. So, if you formulate positive goals this helps you to achieve your goals more easily.

The final rule might appear to be a little strange initially. It’s about ensuring that your goals are desirable and advantageous for your personal environment. Every goal, in fact, will have different effects on your life, which could lead to deterioration in some areas. Imagine that in just one year you earn Euros 2,000.000. How would your environment react to this, your partner, your parents and friends? Many people are not aware that if they were to achieve their goal the reaction within their environment would not necessarily be positive. Perhaps you can deal with the success but your partner isn’t able to. He begins to buy expensive things for himself, to throw money out of the window and to have fun. However, you wanted to earn the money because you would like to have security in the future. You don’t want to move into a luxury apartment, but would prefer to buy two rented apartments as an investment. This leads to constant quarrels, you lose your partner and with him, perhaps, your child for whom the partner has been awarded custody. Was that what you wanted?

Of course, this is a very extreme example but it’s supposed to make the point that your goals, even if they are consistent with your values, are not always positive for your environment, too. Therefore, in order to be successful in the long term, you have to make absolutely sure that your goals are positive and advantageous for your personal situation.

2.
Chapter 2

There are two basic things that you have to accept before you set out to become a Master Trader.

2.1 Take 100 percent responsibility

When you create your checklist of goals you’ll already be way ahead of the majority of investors and traders who don’t even know exactly what it is that they want. Of course, there’s more to achieving a goal than knowing what it is, however. You have to be able to take responsibility for your goals.

No doubt you, too, know people who aren’t able to achieve their goals simply because others prevent them from doing so. They find thousands of reasons why they’re not successful or couldn’t be successful, all of which have nothing to do with them personally. Such a person will never be successful.

Success and, in particular, trading success, implies that you take 100 percent responsibility for everything that happens to you. At my seminars, I always ask the participants what things are arguably essential for successful traders. In the subsequent brainstorming they come up with keywords like: experience, capital, trading system, discipline, know-how, good software, market knowledge, risk management and the like. Afterwards, I go through every single point and I ask which of the things that were mentioned could we influence 100 percent. We quickly realize that we could influence everything. Because this is the case, we’re 100 percent responsible for our trading success - even if we suffer a total loss because our software wasn’t working properly. After all, we could’ve chosen different software, or backup software.

I point out to the traders that the minute they seek to pin responsibility for failure on anyone other than themselves and on anything other than their own actions, they run the risk of repeating this failure. It’s because if you believe that you’re merely the victim of unfortunate circumstances then, in the future, you won’t be inclined to make any changes. That’s why the same misfortune can befall you again.

Therefore, you have to decide - do you want to play the role of a victim or do you want to be pro-active in your life? As a victim you won’t have any power to make a difference, or to bring about changes. What you achieve will be the result of good fortune or bad luck, but it won’t have been within your power. You can go to a gambling casino with such an attitude but not into the market. Successful traders are active players. They determine what it is that they want to achieve and they’re responsible for this. If they don’t achieve something then they make the necessary changes in order to achieve their goal nevertheless.

If you accept 100 percent responsibility for everything, then in the event of a failure you will ask yourself: What do I have to change so that this never happens to me again? What did I do wrong? You ask yourself this question only because you believe that you share the responsibility for this failure.

There’s a nice example taken from crime statistics. You’d think that people who’ve fallen victim to an investment fraud would never again experience this in their lives. Unfortunately, you’d be wrong. Crime statistics show that it’s precisely those people who’ve been the victims of investment fraud once who, frequently in their life, will be victims of the same crime again. Here, of course, the question arises of how something like this can happen.

The answer is simple - because these people see themselves as victims. Of course, in both a legal as well as a moral sense they are victims, but this attitude doesn’t help those concerned, instead, it leads to them becoming victims a second time. If they hadn’t viewed themselves as victims but, instead, had accepted 100 percent responsibility for what had happened to them, the same thing certainly wouldn’t have happened to them again. They would have asked themselves: What did I do wrong, and not: What did the others do wrong? They would’ve most likely realized that they had acted too carelessly, that they had been too gullible or greedy and that they should’ve made enquiries about the person who had made them the offer. Instead, they simply saw themselves as victims.

You have to ask yourself whether, in your life, you want to be a victim or an active player. As a successful trader, the best hypothesis that you can put forward for yourself is that you’re 100 percent responsible for everything. I know that this is a very harsh statement. Of course, there are things that we would call unfortunate circumstances. But it’s only when we go through life with the conviction that everything that happens to us is 100 percent our responsibility, that we’ll be inclined to make changes. Otherwise, our ego will tell us that, well, it’s not we who are to blame for a failure but, instead, Mr. X who told us that we should buy position Y.

Currently, there are thousands of small investors in Germany who think that it wasn’t their own fault that they lost money on the stock market. They blame their bank, or their broker or the management board of the company whose stocks they bought. All these investors will make losses in the future, too, because their approach doesn’t allow them to be able to make changes to their strategy.

Naturally, a company’s management board is to blame if it falsified financial statements or published wrong forecasts, but the investors are also to blame. Why didn’t they have a risk model that, after an initial fall in value of 10 percent would have triggered the execution of a stop-loss order? Instead, they’re still stuck with their worthless stocks and are looking to get compensation from some court or other. By contrast, successful investors put the blame on themselves and they would realize, for example, that they had failed to manage their risks. In future, they’ll work with stop orders.

As soon as we seek to pin just 1 percent of the responsibility for a failure on others, our ego will make us believe that it was precisely this 1 percent that was also responsible for the failure and not us, even though we carry 99 percent of the responsibility. That’s why a basic prerequisite for successful traders is that they have to be prepared to accept 100 percent responsibility for everything.

Once they’ve resolved to do this, in future, in the event of failure they’ll ask themselves: What will I have to change next time in order not to suffer a failure again? How do I have to organize my trading in order to be successful?

2.2 Focus on those things that you can really control

Everyone, basically, wishes to exert control over their environment. Those who are confident that they have control over themselves and of a situation are able to take their lives in their own hands and actively create them. In the absence of such convictions we feel at the mercy of everyday life and of professional requirements and develop a fatalistic view of life. The desire for control is a human social construct; it’s the wish to make a positive difference and to be able to act autonomously.

This desire also has an impact in trading. A trader would like to control everything if possible. Even though we understand intuitively that we’re not able to influence the market, nevertheless, many trading beginners, in particular, believe that they can find a method that will allow them to predict future market movements. This desire to control is also reflected in the belief that it’s possible to forecast the outcome of a single transaction.

Yet, it’s impossible to know whether the next transaction will be a winner or a loser. There are thousands of unimportant matters to which we can direct our attention and in which we can find an instrument that satisfies our desire for control. However, in trading, control is only meaningful with respect to two things:

Self-control and risk control. These are the only issues on which we should and, indeed, have to concentrate. These are two things that we can truly control.

Goal	Purpose	Why
Earn 40 % per year	To buy a sports car	Prestige and recognition

Endnotes

Table of contents

Acknowledgements

Foreword

1.
Chapter 1

1.1 Find out what you want

1.2 Ask yourself what values do you strive for in your life

1.3 Condition yourself for success! Only those who reward themselves directly for good performance will be in a position to repeat this performance.

1.4 Formulate your goals properly! Important rules that you should observe when you formulate your goals

2.
Chapter 2

2.1 Take 100 percent responsibility

2.2 Focus on those things that you can really control

Endnotes

Table of contents

Acknowledgements

Foreword

1. Chapter 1

1.1 Find out what you want

1.2 Ask yourself what values do you strive for in your life

1.3 Condition yourself for success! Only those who reward themselves directly for good performance will be in a position to repeat this performance.

1.4 Formulate your goals properly! Important rules that you should observe when you formulate your goals

2. Chapter 2

2.1 Take 100 percent responsibility

2.2 Focus on those things that you can really control

1.
Chapter 1

2.
Chapter 2