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Trading Lessons: There Is No Magic Bullet

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Most traders are looking for the Holy Grail. There isn't one.

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The insightful articles from Professor Sadana and Professor Smith provide guidelines for understanding some fundamental aspects of trading. They're stepping stones on the path to trading truth.

Most traders are looking for the Holy Grail, the keys to the kingdom, the one great book. They want the magic indicator, the chart pattern, thing, or person that will tell them what's going to happen, and what to do.

It's a natural human tendency to want to know what's going to happen next. Chart patterns, indicators, fundamental analyses, or technical analyses are constructs we build in an attempt to bring order to uncertainty. We do this in part because we're afraid that, without a detailed roadmap, we may have no future.

In the process of building these models, we become them. We want to believe what our eyes are seeing, when what we're really seeing are our own limitations. Charts are emotions plotted on a grid: When emotions change, the charts do, too. We can't control that, just as we can't control what others believe, or how they act on their beliefs.

We can control only one thing: how we respond to the situation that's right in front of us. In order to do this with consistent success, we must adopt an attitude of flexibility, and rid ourselves of all our rigid assumptions.

In the final analysis, those things we've seen on paper or had in our heads before we enter the markets are illusions. They may be useful illusions, but they're illusions nonetheless. We have no idea whether they're true or not until the markets tell us. If there's any absolute truth in trading, it's that, with 2 possible exceptions, the markets are always right. Traders ignore this at their own peril.

If there's a technique for winning, it's to stop believing in so many things that are wrong. In order to do this, we must learn to harness the villains of pride and greed that speak falsely to us, telling us that we've already won. We haven't won if the markets say we've lost. By eliminating what's false, we open ourselves to the truth.

To paraphrase George Orwell: If the greatest lies are those we tell ourselves, then truth-telling becomes a revolutionary act.
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No positions in stocks mentioned.
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