Interpretations that would result in a more satisfying experience

 
THE POWER OF ASSOCIATION 
 
As complex as these questions may seem at first glance, most of them can be answered quite easily. I'm 
sure many of you already know the answer: Our minds have an inherent design characteristic that 
causes us to associate and link anything that exists in the external environment that is similar in quality, 
characteristics, properties, or traits to anything that already exists in our mental environment as a 
memory or distinction. In other words, in the example of the child being afraid of dogs, the second dog 
or any other dog he encounters thereafter, doesn't have to be the dog that attacked in order for him to 
experience emotional pain.
There just has to be enough of a likeness or similarity for his mind to make a connection between the 
two. This natural tendency for our minds to associate is an unconscious mental function that occurs 
automatically. It's not something we have to think about or make a decision about. An unconscious 
mental function would be analogous to an involuntary physical function such as a heartbeat. Just as we 
don't have to consciously think about the process of making our hearts beat, we don't have to think 
about linking experiences and our feelings about them. Its simply a natural function of the way our 
minds process information, and, like a heartbeat, it's a function that has a profound effect on the way 
we experience our lives.
I'd like you to try and visualize the two-way flow of energy that reverses the cause-and-effect 
relationship that will make it difficult (if not impossible) for the boy to perceive any other possibilities 
than the one that's in his mind. To help you, I'm going to break this process down into its smallest parts, 
and go through what happens step by step, All of this may seem a bit abstract, but understanding this 
process plays a big part in unlocking your potential to achieve consistent success as a big trader. First, 

---

let's get right down to the basics. There's structured energy on the outside of the boy and structured 
energy on the inside of the boy. The outside energy is positively charged in the form of a friendly dog 
that wants to express itself by playing.
The inside energy is a negatively charged memory in the form of mental images and sounds that 
represent the boy's first experience with a dog. Both the inside and the outside energy have the 
potential to make themselves felt on the boy's senses and, as a result, create two different kinds of 
situations for him to experience. The outside energy has the potential to act as a force on the boy in a 
way that he could find very enjoyable. This particular dog expresses behavior characteristics like 
playfulness, friendliness, and even love. But keep in mind that these are characteristics that the child 
still has not experienced in a dog, so from his perspective they don't exist. Just as in the price chart 
example I presented earlier, the child won't be able to perceive what he hasn't yet learned about, unless 
he is in a state of mind that is conducive to learning.
The inside energy also has potential and is just waiting, so to speak, to express itself. But it will act on 
the boy's eyes and ears in a way that causes him to feel threatened. This in turn will create an 
experience of emotional pain, fear, and possibly even terror. From the way I've set this up, it may seem 
as if the boy has a choice between experiencing fun or experiencing fear, but that's really not the case, 
at least not in the moment. Of the two possibilities that exist in this situation, he will undoubtedly 
experience the pain and fear, instead of the fun. This is true for several reasons. First, as I've already 
indicated, our minds are wired to automatically and instantaneously associate and link information that 
has similar characteristics, properties, and traits. What's outside of the child in the form of a dog, looks 
and sounds similar to the one that's in his mind. However, the degree of similarity that is necessary for 
his mind to link the two is an unknown variable, meaning
I don't know the mental mechanism that determines how much or how little similarity is required for 
our minds to associate and link two or more sets of information. Since everyone's mind functions in a 
similar way, but, at the same time is unique, I would assume there is a range of tolerance for similarity 
or dissimilarity and each of us has a unique capacity somewhere within the range. Here's what we do 
know: As this next dog comes into contact with the boy's eyes or ears, if there is enough similarity 
between the way it looks or sounds and the dog that's embedded in his memory, then his mind will 
automatically connect the two.
This connection, in turn, will cause the negatively charged energy in his memory to be released 
throughout his body, causing him to be overcome with a very uncomfortable sense of foreboding or 
terror. The degree of discomfort or emotional pain that he experiences will be equivalent to the degree 
of trauma that he suffered as a result of his first encounter with a dog. What happens next is what 
psychologists call a projection. I'm going to refer to it simply as another instantaneous association that 
makes the reality of the situation from the boy's perspective seem like the absolute, unquestionable 
truth. The boy's body is now filled with negatively charged energy.
At the same time, he is in sensory contact with the dog. Next, his mind associates whatever sensory 

---

information his eyes or ears perceive with the painful energy he's experiencing inside himself, which 
makes it seem as if the source of his pain and fear is the dog he is seeing or hearing in that moment. 
Psychologists call the dynamics of what I just described a projection because, in a sense, the boy is 
projecting the pain he is experiencing in the moment onto the dog. That painful energy then gets 
reflected back to him, so that he perceives a dog that is threatening, painful, and dangerous. This 
process makes the second dog identical in character, properties, and traits to the one that is in the boy's 
memory bank, even though the information the second dog is generating about its behavior is not 
identical, or even similar, to the behavior of the dog that actually attacked the boy.
Since the two dogs, the one in the boy's mind and the one outside of the boy's mind, feel exactly the 
same, it's extremely unlikely the boy will be able to make any type of distinctions in the second dog's 
behavior that would suggest to him that it is any different than the one in his mind. So, instead of 
perceiving this next encounter with a dog as an opportunity to experience something new about the 
nature of dogs, he perceives a threatening and dangerous dog. Now, if you think about it for a moment, 
what is it about this process that would indicate to the boy that his experience of the situation was not 
the absolute, unquestionable truth? Certainly the pain and fear that he experienced in his body was the 
absolute truth. But what about the possibilities that he perceived? Were they true? From our 
perspective, they weren't.
However, from the boy's perspective, how could they be anything but the true reality of the situation? 
What alternatives did he have? First, he can't perceive possibilities that he hasn't learned about yet. And 
it is extremely difficult to learn anything new if you're afraid, because, as you already well know, fear 
is a very debilitating form of energy. It causes us to withdraw, to get ready to protect ourselves, to run, 
and to narrow our focus of attention —all of which makes it veiy difficult, if not impossible, to open 
ourselves in a way that allows us to learn something new. Second, as I have already indicated, as far as 
die boy is concerned, the dog is the source of his pain, and in a sense this is true.
The second dog did cause him to tap into the pain that was already in his mind, but it was not the true 
source of that pain. This was a positively charged dog that got connected to the boy's negatively 
charged energy by an automatic, involuntary mental process, functioning at speeds faster than it takes 
to blink an eye (a process that the boy has absolutely no awareness of). So as far as he's concerned, 
why would he be afraid if what he perceived about the dog wasn't the absolute truth? As you can see, it 
wouldn't make any difference how the dog was acting, or what someone might say to the contrary 
about why the boy shouldn't be afraid, because he will perceive whatever information the dog is 
generating about itself (regardless of how positive) from a negative perspective. He will not have the 
slightest notion that his experience of pain, fear, and terror was completely self-generated.
Now, if it's possible for the boy to self-generate his own pain and terror and, at the same time, be firmly 
convinced that his negative experience was coming from the environment, is it also possible for traders 
to self-generate their own experiences of fear and emotional pain as they interact with market 
information and be thoroughly convinced that their pain and fear was completely justified by the 

---

circumstances? The underlining psychological dynamics work in exactly the same way. One of your 
basic objectives as a trader is to perceive the opportunities available, not the threat of pain. To learn 
how to stay focused on the opportunities, you need to know and understand in no uncertain terms the 
source of the threat. It's not the market.
The market generates information about its potential to move from a neutral perspective. At the same 
time, it provides you (the observer) with an unending stream of opportunities to do something on your 
own behalf. If what you perceive at any given moment causes you to feel fear, ask yourself this 
question: Is the information inherently threatening, or are you simply experiencing the effect of your 
own state of mind reflected back to you (as in the above illustration)? I know this is a difficult concept 
to accept, so I'll give you another example to illustrate the point. Let's set up a scenario, where your last 
two or three trades were losers.
You are watching the market, and the variables you use to indicate that an opportunity exists are now 
present. Instead of immediately executing the trade, you hesitate. The trade feels very risky, so risky, in 
fact, that you start questioning whether this is "really" a signal. As a result, you start gathering 
information to support why this trade probably won't work. This is information you normally wouldn't 
consider or pay attention to, and it's certainly not information that is part of your trading methodology. 
In the meantime, the market is moving. Unfortunately, it is moving away from your original entry 
point, the point at which you would have gotten into the trade if you hadn't hesitated. Now you are 
conflicted, because you still want to get in; the thought of missing a winning trade is painful. At the 
same time, as the market moves away from your entry point, the dollar value of the risk to participate 
increases. The tug of war inside your mind intensifies.
You don't want to miss out, but you don't want to get whipsawed either. In the end, you do nothing, 
because you are paralyzed by the conflict. You justify your state of immobility by telling yourself that 
it's just too risky to chase the market, while you agonize over every tic the market moves in the 
direction of what would have been a nice winning trade. If this scenario sounds familiar, I want you to 
ask yourself whether, at the moment you hesitated, were you perceiving what the market was making 
available, or perceiving what was in your mind reflected back to you? The market gave you a signal. 
But you didn't perceive the signal from an objective or positive perspective. You didn't see it as an 
opportunity to experience the positive feeling you would get from winning or making money, but that's 
exactly what the market was making available to you.
Think about this for a moment: If I change the scenario so that your last two or three trades were 
winners instead of losers, would you have perceived the signal any differently? Would you have 
perceived it more as an opportunity to win than you did in the first scenario? If you were coming off 
three winners in a row, would you have hesitated to put that trade on? Very unlikely! In fact, if you're 
like most traders, you probably would have been giving very strong consideration to loading up 
(putting on a position much larger than your normal size). In each situation, the market generated the 
same signal. But your state of mind was negative and fear-based in the first scenario, and that caused 

---

you to focus on the possibility of failure, which in turn caused you to hesitate. In the second scenario, 
you hardly perceived any risk at all. You may even have thought the market was making a dream come 
true.
That, in turn, would make it easy, if not compelling, to financially overcommit yourself. If you can 
accept the fact that the market doesn't generate positively or negatively charged information as an 
inherent characteristic of the way it expresses itself, then the only other way information can take on a 
positive or negative charge is in your mind, and that is a function of the way the information is 
processed. In other words, the market doesn't cause you to focus on failure and pain, or on winning and 
pleasure. What causes the information to take on a positive or negative quality is the same unconscious 
mental process that caused the boy to perceive the second dog as threatening and dangerous, when all 
the dog was offering was playfulness and friendship.
Our minds constantly associate what's outside of us (information) with something that's already in our 
mind (what we know), making it seem as if the outside circumstances and the memory, distinction, or 
belief these circumstances are associated with are exactly the same. As a result, in the first scenario, if 
you were coming off two or three losing trades, the next signal the market gives you that an 
opportunity was present will feel overly risky. Your mind is automatically and unconsciously linking 
the "now moment" with your most recent trading experiences. The link taps you into the pain of losing, 
creating a fearful state of mind and causing you to perceive the information you're exposed to in that 
moment from a negative perspective. It seems as if the market is expressing threatening information, 
so, of course, your hesitation is justified. In the second scenario, the same process causes you to 
perceive the situation from an overly positive perspective, because you are coming off three winners in 
a row.
The association between the "now moment" and the elation of the last three trades creates an overly 
positive or euphoric state of mind, making it seem as if the market is offering you a riskless 
opportunity. Of course, this justifies overcommitting yourself. In Chapter 1, I said that many of the 
mental patterns that cause traders to lose and make errors are so self-evident and deeply ingrained that 
it would never occur to us that the reason we aren't consistently successful is because of the way we 
think. Understanding, becoming consciously aware of, and then learning how to circumvent the mind's 
natural propensity to associate is a big part of achieving that consistency. Developing and maintaining a 
state of mind that perceives the opportunity flow of the market, without the threat of pain or the 
problems caused by overconfidence, will require that you take conscious control of the association 
process. 
CHAPTER 6

---