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TRADING EDUCATION ARTICLE #13: WHAT I INTERNALZIED ON MY OWN I STILL USE

One of my favorite authors is Nassim Taleb, the author of Fooled by Randomness and The Black Swan.
He has a new book out titled The Bed of Procrustes, Philosophical and Practical Aphorisms. From
Dictionary.com: aphorism—a terse saying embodying a general truth, or astute observation; “What I
internalized On My own I Still Use” grew out of reflecting on one of his observations: “What I learned
on my own I still remember”.

Processing information and being able to recall that information generally causes us to believe that
the person we are observing is knowledgeable; this equally applies to others as well as ourselves. In
trading, I find that the only consistently useful information is information that I have internalized;
again from Dictionary.com: “To take in and adopt as an integral part of one’s attitudes or beliefs”. I
can recall a lot of information that is not internalized.

There is another side to internalized information: information that we have internalized that is
incorrect and doesn’t work, or as Taleb says, “What not to do”. Many traders have, over the years,
accumulated substantial “what not to do” information that is inhibiting their trading growth. To make
substantial progress it is likely that you will need to subtract far more information than you add to
your internalized knowledge base.

Let’s list the basis information, related to our approach, that should be on your internalized, “what to
do list”. There are certainly more; however, this is a solid start.

1. Balance—I’ve listed balance first because markets trend approximately 15% of the time and
remain within trading ranges approximately 85% of the time. Balanced should be viewed from a top
down approach.

1. Long‐term
2. Intermediate‐term
3. Short‐term‐3‐5 days; slightly longer under the right conditions
4. Inside day
5. 30 minute bars

This concept is actually better understood, for most traders, from a bottom up approach; however,
once you have mastered and internalized this concept you will naturally switch to a top down
perspective. Keep this in mind as you learn and increase your understanding of this concept.

Note: The reason for switching is that failure to recognize where longer timeframes are likely to enter
the market has financially damaged numerous shorter‐term traders. Additional note: Review the five
steps in Mind over Markets that are involved in the learning process that transform you from novice
to expert. Notice that once you reach “competent” you, very often, have to jettison the rules that got
you that far and establish new rules to advance to “proficient” and finally to “expert”. Becoming a
competent, proficient, and expert trader requires commitment and a great deal of time; without
reaching these levels it is difficult to survive for any extended period.
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The final step in trading balance is to internalize the rules for trading balance:

1. Remain within balance and rotate from one extreme to the other.
2. Look below or above the balance failing to find acceptance, which most often leads to a
strong auction in the opposite direction.
3. Trade out of balance in the quest to discover a new trading range or level where two‐sided
trade begins again.

If you have not internalized these rules it is unlikely that you will be able to execute in a timely
manner. Internalized information is evident when we drive a car; without internationalization it is
unlikely that we will safely arrive at our desired destination. Below is a crude oil example that
occurred as I was writing this article.

You had to be conditioned to execute this trade opportunity.

2. The continual two‐way auction process—How often have you experienced an auction that was
trading lower, for example, only to experience a sudden reversal. The above example also
incorporates this concept. Think about an auctioneer attempting to get an auction underway; if he
attempts to get the bidding started at 100 and no one lifts his bid he will quickly lower his bid until
the auction gets underway. It may be 92, for example, before the bidding really gets underway; once
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the auction is underway it is not unusual to see price quickly surpass the original attempted bid at
100. That exact concept is in play in the previous example. Without internalization of the auction
process, you may do the exact opposite having been mesmerized by the very visual price mechanism.

3. Excess—The same example used above also serves to convey the concept of excess; excess marks
the end of one auction and the ushering in of a new auction in the opposite direction. Reminder: The
concepts discussed above occur in all timeframes including 30 minute bars. The longer the timeframe
that demonstrates the concept the greater the ensuing dynamics are likely to be.

4. Daily openings—Is the market opening within or out of balance‐relative to the previous day’s
range.

1. If we are opening near or in the center of the previous pit session’s range, the odds are
that our trade opportunities are likely small; the exception is when prices single print rapidly
away from the opening.
2. If we open near the upper or lower extremes of the prior pit session’s range our opportunities
are potentially larger.
3. If we open out of balance, in other words outside of the prior session range—a gap opening—
we are aware that this opening presents us with the largest potential opportunity.

The above topics are just the beginning—you have to start somewhere. Additional important
concepts for a trader to internalize are short covering, long liquidation, the absence of excess, along
with learning to automatically ask yourself what could have happened but didn’t; very often, what
didn’t occur is actually more important that what actually occurred. Any amateur can recite what
occurred; most successful traders are aware of and have internalized what didn’t happen.

Volume wasn’t included in the initial list; however, it is extremely important as well as being very
complex. I tried to include what I consider to be initial concepts needed for financial survival.

Why does it take so long to learn to trade—Internalization is a difficult process, which is behind the
statement we hear most often from successful traders that you can’t hear what Jim has to say
enough. Most of these successful traders have read Mind over Markets, Markets in Profile, attended
numerous seminars and webinars, and have strongly endorsed the Field of Vision video.

There is a distinct difference between identifying trading opportunities and executing those trades in
the heat of battle. This is one reason that paper trading or trading on a simulator usually yields far
different results than live trades in one’s trading account. Gaining experience and internalizing these
concepts are a vital step to becoming a decisive, flexible, and successful trader over the long‐term.