Interpretations that would result in a more satisfying experience

would not 
tap them into the accumulated pain of every other time in 
their lives they had been wrong. Why? Most people know that the outcome of a coin toss is random. If 
you believe the outcome is random, then you naturally expect a random outcome. Randomness implies 
at least some degree of uncertainty. So when we believe in a random outcome, there is an implied 
acceptance that we don't know what that outcome will be. When we accept in advance of an event that 
we don't know how it will turn out, that acceptance has the effect of keeping our expectations neutral 
and open-ended. Now we're getting down to the very core of what ails the typical trader. Any 
expectation about the markets behavior that is specific, well-defined, or rigid—instead of being neutral 

---

and open-ended—is unrealistic and potentially damaging. I define an unrealistic expectation as one that 
does not correspond with the possibilities available from the market's perspective. If each moment in 
the market is unique, and anything is possible, then any expectation that does not reflect these 
boundary-less characteristics is unrealistic.
MANAGING EXPECTATIONS 
The potential damage caused by holding unrealistic expectations comes from how it affects the way we 
perceive information. Expectations are mental representations of what some future moment will look, 
sound, taste, smell, or feel like. Expectations come from what we know. This makes sense, because we 
can't expect something that we have no knowledge or awareness of. What we know is synonymous 
with what we have learned to believe about the ways in which the external environment can express 
itself. What we believe is our own personal version of the truth. When we expect something, we are 
projecting out into the future what we believe to be true.
We are expecting the outside environment a minute, an hour, a day, a week, or a month from now to be 
the way we have represented it in our minds. We have to be careful about what we project out into the 
future, because nothing else has the potential to create more unhappiness and emotional misery than an 
unfulfilled expectation. When things happen exactly as you expect them to, how do you feel? The 
response is generally wonderful (including feelings like happiness, joy, satisfaction, and a greater sense 
of well-being), unless, of course, you were expecting something dreadful and it manifested itself. 
Conversely, how do you feel when your expectations are not fulfilled? The universal response is 
emotional pain.
Everyone experiences some degree of anger, resentment, despair, regret, disappointment, 
dissatisfaction, or betrayal when the environment doesn't turn out to be exactly as we expected it to be 
(unless, of course, we are completely surprised by something much better than we imagined). Here's 
where we run into problems. Because our expectations come from what we know, when we decide or 
believe that we know something, we naturally expect to be right. At that point, we're no longer in a 
neutral or open state of mind, and it's not difficult to understand why. If we're going to feel great if the 
market does what we expect it to do, or feel horrible if it doesn't, then we're not exactly neutral or open-
minded. Quite the contrary, the force of the belief behind the expectation will cause us to perceive 
market information in a way that confirms what we expect (we naturally like feeling good); and our 
pain-avoidance mechanisms will shield us from information that doesn't confirm what we expect (to 
keep us from feeling bad).
As I've already indicated, our minds are designed to help us avoid pain, both physical and emotional. 
These pain-avoidance mechanisms exist at both conscious and subconscious levels. For example, if an 
object is coming toward your head, you react instinctively to get out of the way. Ducking does not 
require a conscious decision-making process. On the other hand, if you clearly see the object and have 

---

time to consider the alternatives, you may decide to catch the object, bat it away with your hand, or 
duck. These are examples of how we protect ourselves from physical pain. Protecting ourselves from 
emotional or mental pain works in the same way, except that we are now protecting ourselves from 
information. For example, the market expresses information about itself and its potential to move in a 
particular direction. If there's a difference between what we want or expect and what the market is 
offering or making available, then our pain-avoidance mechanisms kick in to compensate for the 
differences. As with physical pain, these mechanisms operate at both the conscious and subconscious 
levels.
To protect ourselves from painful information at the conscious level, we rationalize, justify, make 
excuses, willfully gather information that will neutralize the significance of the conflicting information, 
get angry (to ward off the conflicting information), or just plain lie to ourselves. At the subconscious 
level, the pain-avoidance process is much more subtle and mysterious. At this level, our minds may 
block our ability to see other alternatives, even though in other circumstances we would be able to 
perceive them. Now, because they are in conflict with what we want or expect, our pain-avoidance 
mechanisms can make them disappear (as if they didn't exist). To illustrate this phenomenon, the best 
example is one I have already given you: We are in a trade where the market is moving against us. In 
fact, the market has established a trend in the opposite direction to what we want or expect. Ordinarily, 
we would have no problem identifying or perceiving this pattern if it weren't for the fact that the market 
was moving against our position. But the pattern loses its significance (becomes invisible) because we 
find it too painful to acknowledge.
To avoid the pain, we narrow our focus of attention and concentrate on information that keeps us out of 
pain, regardless of how insignificant or minute. In the meantime, the information that clearly indicates 
the presence of a trend and the opportunity to trade in the direction of that trend becomes invisible. The 
trend doesn't disappear from physical reality, but our ability to perceive it does. Our pain-avoidance 
mechanisms block our ability to define and interpret what the market is doing as a trend. The trend will 
then stay invisible until the market either reverses in our favor or we are forced out of the trade because 
the pressure of losing too much money becomes unbearable. It's not until we are either out of the trade 
or out of danger that the trend becomes apparent, as well as all the opportunities to make money by 
trading in the
All the distinctions that would otherwise be perceivable become perfectly clear, after the fact, when 
there is no longer anything for our minds to protect us from. We all have the potential to engage in self-
protective painavoidance mechanisms, because they're natural functions of the way our minds operate. 
There may be times when we are protecting ourselves from information that has the potential to bring 
up deepseated emotional wounds or trauma that we're just not ready to face, or don't have the 
appropriate skills or resources to deal with. In these cases, our natural mechanisms are serving us well. 
But more often, our pain-avoidance mechanisms are just protecting us from information that would 
indicate that our expectations do not correspond with what is available from the environments 

---

perspective. This is where our pain-avoidance mechanisms do us a disservice, especially as traders. To 
understand this concept, ask yourself what exactly about market information is threatening. Is it 
threatening because the market actually expresses negatively charged information as an inherent 
characteristic of the way it exists? 
It may seem that way, but at the most fundamental level, what the market gives us to perceive are 
uptics and down-tics or up-bars and down-bars. These up and down tics form patterns that represent 
edges. Now, are any of these tics or the patterns they form negatively charged? Again, it may certainly 
seem that way, but from the market's perspective the information is neutral. Each up-tic, down-tic, or 
pattern is just information, telling us the market's position. If any of this information had a negative 
charge as an inherent characteristic of the way it exists, then wouldn't everyone exposed to it 
experience emotional pain? For example, if both you and I get hit on the head with a solid object, there 
probably wouldn't be much difference in how we would feel. We'd both be in pain. Any part of our 
bodies coming into contact with a solid object with some degree of force will cause anyone with a 
normal nervous system to experience pain.
We share the experience because our bodies are constructed in basically the same way. The pain is an 
automatic physiological response to the impact with a tangible object. Information in the form of words 
or gestures expressed by the environment, or up and down tics expressed by the market, can be just as 
painful as being hit with a solid object; but there's an important difference between information and 
objects. Information is not tangible. Information doesn't consist of atoms and molecules. To experience 
the potential effects of information, whether negative or positive, requires an interpretation. The 
interpretations we make are functions of our unique mental frameworks. Everyone's mental framework 
is unique for two fundamental reasons.
First, all of us were born with different genetically encoded behavior and personality characteristics 
that cause us to have different needs from one another. How positively or negatively and to what 
degree the environment responds to these needs creates experiences unique to each individual. Second, 
everyone is exposed to a variety of environmental forces. Some of these forces are similar from one 
individual to the next, but none are exactly the same. If you consider the number of possible 
combinations of genetically encoded personality characteristics we can be born with, in relation to the 
almost infinite variety of environmental forces we can encounter throughout our lives, all of which 
contribute to the construction of our mental framework, then it's not difficult to see why there is no 
universal mental framework common to everyone.
Unlike our bodies, which have a common molecular structure that experiences physical pain, there is 
no universal mind-set to assure us that we will share the potential negative or positive effects of 
information in the same way. For example, someone could be projecting insults at you, intending to 
cause you to feel emotional pain. From the environment's perspective, this is negatively charged 
information. Will you experience the intended negative effects? Not necessarily! You have to be able to 
interpret the information as negative to experience it as negative. What if this person is insulting you in 

---

a language you don't understand, or is using words you don't know the meaning of? Would you feel the 
intended pain? Not until you built a framework to define and understand the words in a derogatory 
way. Even then, we can't assume that what you'd feel would correspond to the intent behind the insult. 
You could have a framework to perceive the negative intent, but instead of feeling pain, you might 
experience a perverse type of pleasure. I've encountered many people who, simply for their own 
amusement, like to get people riled up with negative emotions.
If they happen to be insulted in the process, it creates a sense of joy because then they know how 
successful they've been. A person expressing genuine love is projecting positively charged information 
into the environment. Let's say the intent behind the expression of these positive feelings is to convey 
affection, endearment, and friendship. Are there any assurances that the person or persons this 
positively charged information is being projected toward will interpret and experience it as such? No, 
there aren't. A person with a very low sense of self-esteem, or someone who experienced a great deal of 
hurt and disappointment in relationships, will often misinterpret an expression of genuine love as 
something else. In the case of a person with low self-esteem, if he doesn't believe he deserves to be 
loved in such a way, he will find it difficult, if not impossible, to interpret what he is being offered as 
genuine or real. In the second case, where one has a significant backlog of hurt and disappointment in 
relationships, a person could easily come to believe that a genuine expression of love is extremely rare, 
if not non-existent, and would probably interpret the situation either as someone wanting something or 
trying to take advantage of him in some way.
I'm sure that I don't have to go on and on, sighting examples of all the possible ways there are to 
misinterpret what someone is trying to communicate to us or how what we express to someone can be 
misconstrued and experienced in ways completely unintended by us. The point that I am making is that 
each individual will define, interpret, and consequently experience whatever information he is exposed 
to in his own unique way. There's no standardized way to experience what the environment may be 
offering—whether it's positive, neutral, or negative information—simply because there is no 
standardized mental framework in which to perceive information. Consider that, as traders, the market 
offers us something to perceive at each moment. In a sense, you could say that the market is 
communicating with us.
If we start out with the premise that the market does not generate negatively charged information as an 
inherent characteristic of the way it exists, we can then ask, and answer, the question, "What causes 
information to take on a negative quality?" In other words, where exactly does the threat of pain come 
from? If it's not coming from the market, then it has to be coming from the way we define and interpret 
the available information. Defining and interpreting information is a function of what we assume we 
know or what we believe to be true. If what we know or believe is in fact true—and we wouldn't 
believe it if it weren't—then when we project our beliefs out into some future moment as an 
expectation, we naturally expect to be right. When we expect to be right, any information that doesn't 
confirm our version of the truth automatically becomes threatening. Any information that has the 

---

potential to be threatening also has the potential to be blocked, distorted, or diminished in significance 
by our pain-avoidance mechanisms.
It's this particular characteristic of the way our minds function that can really do us a disservice. As 
traders, we can't afford to let our pain-avoidance mechanisms cut us off from what the market is 
communicating to us about what is available in the way of the next opportunity to get in, get out, add 
to, or subtract from a position, just because it's doing something that we don't want or expect. For 
example, when you're watching a market (one you rarely, if ever, trade in) with no intention of doing 
anything, do any of the up or down tics cause you to feel angry, disappointed, frustrated, disillusioned, 
or betrayed in any way? No! The reason is that there's nothing at stake. You're simply observing 
information that tells you where the market is at that moment. If the up and down tics that you're 
watching form into some sort of behavior pattern you've learned to identify, don't you readily recognize 
and acknowledge the pattern? Yes, for the same reason: There's nothing at stake.
There is nothing at stake because there's no expectation. You haven't projected what you believe, 
assume, or think you know about that market into some future moment. As a result, there's nothing to 
be either right about or wrong about, so the information has no potential to take on a threatening or 
negatively charged quality. With no particular expectation, you haven't placed any boundaries on how 
the market can express itself. Without any mental boundaries, you will be making yourself available to 
perceive everything you've learned about the nature of the ways in which the market moves.
There's nothing for your pain-avoidance mechanisms to exclude, distort, or diminish from your 
awareness in order to protect you. In my workshops, I always ask participants to resolve the following 
primary trading paradox: In what way does a trader have to learn how to be rigid and flexible at the 
same time? The answer is: We have to be rigid in our rules and flexible in our expectations. We need to 
be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an 
environment that has few, if any, boundaries. We need to be flexible in our expectations so we can 
perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us 
from its perspective. At this point, it probably goes without saying that the typical trader does just the 
opposite: He is flexible in his rules and rigid in his expectations. Interestingly enough, the more rigid 
the expectation, the more he has to either bend, violate, or break his rules in order to accommodate his 
unwillingness to give up what he wants in favor of what the market is offering.