There can be an extreme diversity of beliefs present in any given market in any given moment, making
virtually anything possible. When we look at the market from this perspective, it's easy to see that
every potential trader who is willing to express his belief about the future becomes a market variable.
On a more personal level, this means that it only takes one other trader, anywhere in the world, to
negate the positive potential of your trade. Put another way, it takes only one other trader to negate
what you believe about what is high or what is low. That's all, only one! Here's an example to illustrate
this point. Several years ago, a trader came to me for help. He was an excellent market analyst; in fact,
he was one of the best I've ever met. But after years of frustration during which he lost all his money
and a lot of other people's money, he was finally ready to admit that, as a trader, he left a lot to be
desired. After talking to him for a while, I determined that a number of serious psychological obstacles
were preventing him from being successful.
One of the most troublesome obstacles was that he was a know-it-all and extremely arrogant, making it
impossible for him to achieve the degree of mental flexibility required to trade effectively. It didn't
matter how good an analyst he was. When he came to me, he was so desperate for money and help that
he was willing to consider anything. The first suggestion I made was that instead of looking for another
investor to back what ultimately would be another failed attempt at trading, he would be better off
taking a job, doing something he was truly good at. He could be paid a steady income while working
through his problems, and at the same time provide someone with a worthwhile service. He took my
advice and quickly found a position as a technical analyst with a fairly substantial brokerage house and
clearing firm in Chicago.
The semiretired chairman of the board of the brokerage firm was a longtime trader with nearly 40 years
of experience in the grain pits at the Chicago Board of Trade. He didn't know much about technical
analysis, because he never needed it to make money on the floor. But he no longer traded on the floor
and found the transition to trading from a screen difficult and somewhat mysterious. So he asked the
firm's newly acquired star technical analyst to sit with him during the trading day and teach him
technical trading. The new hire jumped at the opportunity to show off his abilities to such an
experienced and successful trader. The analyst was using a method called "point and line," developed
by Charlie Drummond. (Among other things, point and line can accurately define support and
resistance.) One day, as the two of them were watching the soybean market together, the analyst had
projected major support and resistance points and the market happened to be trading between these two
points.
As the technical analyst was explaining to the chairman the significance of these two points, he stated
in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse;
and if the market goes down to support, it will also stop and reverse. Then he explained that if the
market went down to the price level he calculated as support, his calculations indicated that would also
be the low of the day. As they sat there, the bean market was slowly trending down to the price the
analyst said would be the support, or low, of the day. When it finally got there, the chairman looked
over to the analyst and said, "This is where the market is supposed to stop and go higher, right?"
The analyst responded, "Absolutely! This is the low of the day." "That's bullshit!" the chairman
retorted. "Watch this." He picked up the phone, called one of the clerks handling orders for the soybean
pit, and said, "Sell two million beans (bushels) at the market." Within thirty seconds after he placed the
order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified
expression on the analysts face. Calmly, he asked, "Now, where did you say the market was going to
stop? If I can do that, anyone can."
The point is that from our own individual perspective as observers of the market, anything can happen,
and it takes only one trader to do it. This is the hard, cold reality of trading that only the very best
traders have embraced and accepted with no internal conflict.
