Long Term Secrets To Short-Term Trading

Table 14.1 
Coffee Trading System with Different Stops Produces Drastically Different Results 
increase!! At the same time drawdown on the $1,000 stop of $12,553 gets bumped up to $14,855 with a 
$4,500 stop, but you make almost $30,000 more! 
The Second Secret 
This one is even wilder ... you cannot improve, appreciably, a good system by using targets. 
Go ahead, reread what I just wrote just for you. The knack of a trendfollowing system's ability to make money 
is that it catches some really big trend moves. Those large wins pay off all the little losses. 
We all know the rule-let your profits run-and it is proven when you try to add targets (cutting your 
profits short) with objectives. This also bothers new traders ... they want to take profits or get out once price 
hits some magic number, a Gann line, Cyclical window, support/resistance or the like. 
For 20 years my studies keep coming back with the same answer ... you dampen the efficiency of a system by 
using fixed targets. I am certain that few, if any, subscribers will be able to ride our big winners all the way. 
The recent basesloaded home run we scored in the currencies is a good case in point. 
You would think our phones would be ringing off the hook with people talking about their profits. That, 
Red Ryder, is not the case. People are calling up wanting to know "where to get back in." 

---

230 
February 1993
Volume 30, Issue 2 
The Difference between Winners and losers 
The results of modeling over 20 winning and 30 losing traders. 
Most everything we learn to do well in life we have learned by studying those who do it well. I learned 
to throw a football by watching a kid named Russ Powers, learned to throw a handball by watching Paul 
Haber.
In hi-tech-talk this is called modeling; find someone good and scrutinize their every action AND beliefs 
to uncover what makes them good at what they do. You then imprint that winning form into your mind and 
body. 
Tony Robbins is today's leading advocate of this technology and has probably spent as much time 
modeling people as anyone I know. Tony defines modeling as the process of discovering the sequence of 
internal representations and behaviors that allows someone to accomplish a task. The components of the 
strategy are beliefs, behavior, and language. 
Belief systems are the bottom line to the difference between winning and losing commodity traders. First 
some facts: In a recent test, cancer patients were given chemotherapy, over 60 percent of them responded with 
the typical symptoms of this "cure"-vomiting, nausea, hair loss, and decreased energy. 
However, they had all been given an inert placebo. 
Their belief created their reality. So it is with us. I know. I've spent the last 2-3 years carefully recording 
conversations with losers and winners getting inside their heads to discover not only trading styles, but also 
their beliefs. You have read about some of the traders I modeled in books and magazines. Some of the 
winners are more private. But, what a discovery! There are major difference in how winners and losers play 
the game. 
Perhaps my most fascinating discovery was that there are also major similarities between these sets of 
trader. Let's look at them first. 
What They Share in Common ... 
Both winners and losers were found to be consumed by the idea of trading. It is their life. Winner or loser, it is 
their passion, and they are extremists. The biggest loser I know plays with the same intensity and energy as 
any of the winners. So, scratch off desire or motivation as the ingredient that makes the difference. 

---

231 
Another commonality I uncovered was that both camps had few close same-sex friends. The men had, at 
most, one strong male buddy, ditto the women. Win or lose, it looks like passionate commodity traders are not 
great social mixers. 
The point of being extremists that I touched on earlier permeates their lives. Both groups seemed to go to 
extreme lifestyles and beliefs. They see the world as black and white in most categories with very few grays. I 
assume this is what gets the losers in so much trouble ... they absolutely commit to trading, but since they are 
doing the wrong thing to begin with, their disasters have been pretty big-or steady. 
And Their Differences 
First, let's look at the losers. This is what I found they share in common: 
Most of all them are into the idea of turning $10,000 into $1,000,000, the quicker the better. Quick and 
substantial profits are a goal. All had internal dialogue "chatter" with themselves about their trades from 
before entering a position to days after exiting! 
All losers spoke of having anxiety pushing them into a trade. They could not refrain from taking a trade ... 
sitting on the sidelines with no position is apparently unbearable for these people. They are happier when they 
are in a trade, win or lose, than not being in a trade. They seemed addicted to having the rush of trading 
pumping thorough their blood stream. 
Two other common points revolve around trading decisions and money management. Losers pay little 
attention to money management. One boldly told me, "This game is not about money management it is about 
being right and wrong." I also observed few of them would stomach a look at their equity ... their account 
balance. They were amazed someone actually looked at it daily as they did not see what that had to do with 
getting into winning positions. 
Finally, they all asked me if I knew of anyone that really made a living at this. They seemed very 
uncertain that anyone could. They lacked the belief ... even face of the evidence from countless fund managers 
... that profits are made rather consistently. 
Now for the Winners 
Where do I begin this? My surprise was that the winning traders asked me as many questions as I asked 
them! The losers asked very few questions. None of the winners traded options. They all had a form of money 
management and were all technical traders. To a man and woman, they could all recount one big loss that 
seems embedded in their mind that they will not let happen again ... ever. So, they use stops and speak of