So Young Ray sold his legal practice and armed with false confidence sallied forth. At least I did not make one mistake that some newbies make: I was well capitalized. I meet many novice traders who have dreams of becoming full-time traders with a starting capital of about US$10,000.00. I have yet to see one such dream reach fulfillment. Trading is a business in every sense of the word and the first requirement of a business is adequate capitalization.

Traders today have one resource not available to me when I started. You have CFDs and mini-contracts. In my day it was full-size or nothing. CFDs allow us to learn to trade with minimal capital exposure until we prove to ourselves we can make consistent money.

Being well-capitalized did not stop me from losing all my capital. In less than 18 months, I lost the proceeds from the sale of the practice. Chrisy stepped into the breach and as fast as she brought money to the table, I shoveled it out the window. Money went for courses, books and most of all in losses. I can’t remember the number of times I blew up - I only know that looking back it seemed like I was forever telling Chris that I’d make it ‘next time’.

Not that there weren’t some winning months; sometimes I felt I could do no wrong. But in the end, the profits would go and the losses would again mount.

It came to the stage that I needed to do something very different. At Chrisy’s urging we went to see a psychiatrist - perhaps I was unsuited to this game called trading? In Joseph Campbell’s model, the Hero meets challenges along the way and then encounters his greatest challenge.

In my case, the greatest challenge came in sticking with Dr. George Lianos. He showed me how to be self-aware and peel back defenses our mind constructs to defend our all too fragile ego. One statement remains to this day: I was brilliant at coming up with ‘reasons’ why I had again blown up. When hearing of yet another ‘inventive reason’, he said: “That sounds reasonable. By the way, at some point, Ray, you will need to face the fact that when a pattern of behaviour repeats, you pay attention to the pattern and ignore the reasons”.

That statement marked my graduation from trading kindergarten. I started to see that within my successes lay the very seeds of my failure. I started to see that I blew up because my size grew too large when I hit a winning streak; and when the size was too large, I refused to cut a losing trade - ‘too big - it’ll come back’; I started to see I had to control my risk.

Staying with George was difficult - it’s not what happens in therapy that brings improvement. It’s the exploration and application of the lessons learnt in therapy that brings about change. Slowly I started to lose less. But winning was another matter.

That came when I went to Chicago to take a seminar with Pete Steidlmayer. There I learnt many lessons that have served me well:

  • That context and structure define patterns.
  • That having time to exit losing positions results in our edge.
  • That waiting for the market to come to us is critical to our success.
  • That success in trading comes from our perceptions which need to be aligned to reality.
  • That there is a relationship between price, volume and time which a trader can exploit……….

At the time it was Chris’ efforts that enabled me to go to that first seminar. When I returned from it, we were living on A$5.00 per week. I had to take a job lecturing law at Tech to make ends meet. Chris found me yet another grubstake and it took me 9 months of study before I internalised the Market Profile enough to combine it with Wyckoff. That combination brought about my first set of written trading rules. And, that year was my first profitable year. The following year was my second profitable year and I was on the way. But, it was not until 1987 that I can say I achieved my first year of consistent monthly results.

Ray of today would tell Young Ray that he was lucky in this quest because he found second-to-none supporters: Chris, Dr. Lianos, Pete Steidlmayer - each in their own ways played an irreplaceable role. He’d tell Young Ray never to lose sight that in the markets, success of yesterday means little. The markets are constantly evolving so that while the principles never change, the tools implementing those principles are constantly evolving with the markets. As traders we need to keep abreast of the changes if we are to remain successful in the game we so love.

Concluding  tomorrow….

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