Key To Trading Success: Ignore Nature's Laws?

By: Robert Prechter | Wed, Mar 25, 2009
Print Email

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.


...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

Author: Robert Prechter

Bob Prechter, CMT
Elliott Wave International

Robert Prechter, Jr., is a social theorist and market analyst. He is president of Elliott Wave International, a forecasting firm servicing institutional and private investors around the world. Since 1978, Prechter has published the monthly Elliott Wave Theorist and has authored 14 books. His Elliott Wave Principle with A.J. Frost in 1978 predicted the great bull market. His New York Times bestseller, Conquer the Crash (2002), forecast a collapse of the global credit mania and the ensuing period of deflation. His two-book set, Socionomics, presents his seminal hypothesis that endogenously regulated waves of social mood determine the character of social actions.

Prechter attended Yale University on a full scholarship and graduated in 1971 with a degree in psychology. He began his career as a Technical Market Specialist with the Merrill Lynch Market Analysis Department in New York City.

Copyright © 2004-2013 Elliott Wave International

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com