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  • Hello, everyone.

  • This is Adam Halpern with Indicator Warehouse.

  • And I want to thank you all for joining us today.

  • I have the pleasure of having Richard Friesen and Erich

  • Senft, both with two of the most difficult last names you

  • could imagine.

  • So for those of you who don't know Rich, I met him,

  • actually, when I was trying to build a

  • trading assessment test.

  • Because of our diversified trading system, I really

  • wanted people to be able to get a sense of where their

  • strengths resided.

  • Do they tend to lead towards scalping,

  • swing trading, whatever.

  • And Rich will give you a little bit about his

  • background, but he is the perfect match.

  • He used to be a pit trader.

  • Now he has a background in psychology and many, many

  • other interesting things.

  • He's definitely earned his gray hair.

  • For those of you that don't know Erich, he owns and

  • manages supportresistance.com, and he's

  • also our lead educator.

  • So I thought it would be perfect to get these two guys

  • together and have a conversation.

  • So with that, I will hand it off to Rich and Erich.

  • I'm happy to be here.

  • And my background started on the floor of the Chicago

  • Mercantile Exchange, trading options on the S&P futures.

  • And then I built a trading desk at the Pacific Stock

  • Exchange on the options floor, trading options on equities.

  • I ended up through some perverse things trading on the

  • Chicago Board of Trade, trading options on wheat.

  • And then I built an electronic exchange during the dot-com

  • boom called ePIT systems.

  • I have been working with professional traders, money

  • managers, and active traders for the last decade, working

  • with them to build their emotional, mental, and

  • psychological strengths.

  • And from this, I have developed a number of

  • processes and found where people get stuck, where

  • traders do those things, those behaviors that no

  • longer serve them.

  • And so I've been working, building a series of processes

  • to overcome the major issues that traders have.

  • So that's where I have been.

  • That's what's exciting me today.

  • And I'm just excited to talk about whatever

  • Erich brings up.

  • I know that he sometimes can be a little creative in his

  • questions, so I'm ready.

  • All right.

  • Well, I'll try not to throw you too many curveballs.

  • All right, so the first question--

  • fear.

  • I think this is probably the biggest psychological obstacle

  • that plagues traders.

  • You're afraid to take a trade.

  • You're afraid to pull the trigger.

  • You're afraid of being wrong, and everything

  • that goes with that.

  • How does a trader deal with fear?

  • Well, first we have to realize that fear is there for a very

  • positive reason.

  • We're still operating with our 50,000-year old brains.

  • In other words, our basic neurology hasn't

  • changed that much.

  • And on the savannas and in the tribe, fear was a very

  • positive contributor to our survival.

  • And as a result, it's really deep into our brains.

  • Now, the problem is that we're no longer on the savanna.

  • There's no longer tigers.

  • And we're no longer in a clan environment.

  • But our brains haven't shifted.

  • And as a result, because trading puts us as close as we

  • can get to the edge of risk, of survival, of making that

  • hunt and making that big kill, it triggers all the same

  • things that our brain is used to from the

  • savannas, early on.

  • So as a result, we drop into fear.

  • We drop into stress cycles.

  • And we act the same kind of ways that we did

  • 50,000 years ago.

  • The problem is that those ways 50,000 years ago really helped

  • us survive.

  • But in a training environment, it almost brings us to the

  • opposite behaviors of what we need to do.

  • That's an excellent answer.

  • It kind of reminds me a little bit of road rage too, that

  • would explain what's going on on the highways.

  • Yeah, the exact same thing.

  • The whole survival thing.

  • Yeah, we trigger that fight or flight.

  • And there are some things you can do, and a couple of break

  • state exercises.

  • And I think that Adam can maybe drop those into the chat

  • box for people who want links to the Flight to Freedom.

  • There's an exercise there.

  • And that exercise is basically a breathing exercise.

  • What happens is, when we're threatened, our brains are

  • great pattern matchers.

  • And they see the pattern of the threat.

  • We drop into our limbic system, and that's our more

  • primitive animal survival brain.

  • And it immediately gives us adrenalin cocktail.

  • It immediately gives us what we need to move our large

  • muscle groups.

  • But it shifts our thinking also.

  • And to get out of that fear state, we need to then

  • interrupt that cycle.

  • And what we can do is do a breathing exercise.

  • And for those of you who are interested, you can go to that

  • link, and there's the exercises there.

  • And that breaks that state.

  • Because what happens is, our limbic system puts in the

  • adrenalin cocktail, gets us ready for fight or flight, and

  • then it says, OK, is there a real threat?

  • It does that first and then checks.

  • So it checks with our more thinking brain, our neocortex.

  • And if, in fact, the neocortex says, hey,

  • there is a threat here--

  • because the neocortex is somewhat slower--

  • but if it evaluates and says it is a threat, then it goes

  • back to the limbic system and says, OK, let's pump up that

  • adrenalin again.

  • And so for some of us, we can get into this cycle whereby

  • the neocortex says, oh my god, we're in a panic state.

  • There must be something wrong.

  • The adrenalin says, the neocortex thinks there's

  • something wrong.

  • So we get into this cycle.

  • So this is a break state that traders can do.

  • Hm.

  • That's really interesting.

  • I had no idea.

  • So a simple breathing exercise can actually help you refocus

  • and give you some clarity on the situation and help you

  • decide whether you should pull the trigger on a trade or

  • perhaps exit a trade early.

  • Well, it's not going to give you the decision process on

  • that, but what it's going to do is break that cycle.

  • So if your limbic system in the brain notices that you're

  • breathing slowly and regularly, it will say, oh,

  • there must be nothing wrong.

  • So you can actually take a symptom and turn it into a

  • cause and change the state of your brain.

  • Then once you're not in the fight or flight mode, you have

  • less fear, then you can take and say, OK, what do I need to

  • do here, and make a decision.

  • Well, that sounds a whole lot better than my method of

  • dealing with it, which was usually

  • just to hold my breath.

  • Well, OK--

  • you can go another direction on this.

  • And that is, another way to break that fear is to take

  • some deep fast breaths until you start to feel lightheaded.

  • You need to lie down for this--

  • is to lift your legs, lift your belly, clench your arms,

  • clench your legs, clench everything as tight as you can

  • and hold your breath and squeeze hard.

  • Just hold that breath.

  • Hold it until you feel like you're going to pass out.

  • And then let it out.

  • And what this does is it takes that fear state, builds that

  • physiology that a normal fear state would do, by using your

  • big muscle groups.

  • And then when you release and breathe slowly, it's another

  • way to break that fear cycle.

  • I may actually try that one.

  • That sounds pretty good.

  • It's a great exercise.

  • Yeah, no, that sounds fantastic.

  • All right.

  • Next question here, we have greed.

  • I think probably behind fear, greed is probably the next

  • biggest obstacle that plagues traders.

  • We're in a position, we have an open position, we're making

  • profit, we don't want to get out of a trade any earlier

  • than we need to.

  • But at the same time, there's probably no worse feeling in

  • trading than to have a profitable position turn on

  • you and turn into a loser.

  • What advice do you have for people when it comes to

  • dealing with greed?

  • Well, greed is a word that covers a lot of different

  • psychological and physiological states.

  • So let's parse this out and break it down a little bit.

  • You know, on Wall Street, the Gordon Gekko, "Greed is good."

  • In one sense for traders, greed is great.

  • And we can talk about that later.

  • What you just mentioned, though, is that sense of loss.

  • Psychologically, and when I'm doing presentations to groups,

  • I'll say, OK, let's say we bought something at 100, and

  • it ticks at 99.

  • Have we really lost money?

  • And most people say no.

  • It ticks to 98.

  • Have we really lost money yet?

  • No.

  • 97, no, no, no, no.

  • And then they say, OK, we get out.

  • And then I say, have you lost money, and the answer is yes.

  • If, on the other hand, you buy something at 100,

  • and it goes to 101.

  • Ooh, that's cool.

  • 102, oh, man.

  • I called that right.

  • I'm a giant in the industry.

  • It goes to 103.

  • Wow, did I nail that.

  • 104, whoa--

  • everything I dreamed about is coming true.

  • And I'm exaggerating here, but what happens is when we're in

  • a winning trade, what we do is we associate that win with a

  • lot of psychic and psychological value.

  • Now, let's say it gets up to 110.

  • And we're going, man, am I a genius.

  • And then it ticks to 109--

  • have we made money from 100 to 109?

  • Well, really the answer is no.

  • We've lost money from 110 to 109.

  • Because psychologically, we've already

  • banked that 110 number.

  • And as a result, it ticks 108.

  • Whoa.

  • We don't look at it, is the overall strategy, what's the

  • best way to get out?

  • Do we have trailing stops?

  • How do we exit?

  • What's our goal?

  • All those things that are statistically valuable, we

  • lose sight of those because we've already

  • banked that high watermark.

  • Right.

  • I can certainly relate to that.

  • I can too.

  • So what's a solution to that?

  • How do we deal with the market backing up on us?

  • Do you have any suggestions?

  • Yeah, that is moving from trade winning to strategies.

  • When a new trader starts out--

  • and I've trained lots of traders to trade my money.

  • And usually on the floors, they spend six months or a

  • year as clerks, and then they move up, and first, they're

  • getting your coffee.

  • Then they're running your sheets.

  • Then they're helping determine implied volatilities, like I

  • was on the options floor.

  • So on the first day, almost every trader that I've

  • trained, deep down inside, believes that he's a god, he's

  • a trading genius, and that if somebody would

  • just give him a chance--

  • just give me a chance, I'll show you.

  • So they've worked a way up.

  • They've learned the system.

  • It's consistently profitable.