CNBC Guest Blog

Published: Monday, 1 Jun 2009 | 8:43 AM ET

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Dr. Janice Dorn
The Trading Doctor

How did I get into this, and how do I get out of it again, and how does it work?...Soren Kierkegaard

Night falls as the road narrows, leaving the paved highway and winding its way up the mile-high mountain.

Squinting, I see a large shadow that comes slowly into focus. It’s a gorgeous structure built by my friend who made millions in a business that nobody else wanted.

He endured hardships, including law suits, major financial losses, an arsonist who set fire to his property twice, persecution from those who said it couldn’t be done and betrayal from the love of his life.

AP Wall Street Trader

At 35 years of age, he is a role model, community leader and a seventh degree black belt in Tae Kwan Do.

His name is Able, and he is a survivor.

His 20,000-square-foot home on the mountaintop is a testament to Able’s ability to face the wilderness and return as a triumphant survivor. He refused to quit, kept his discipline and never stopped moving forward until he emerged on the other side. Right next to the palatial estate is a 5,000-square-foot structure called a dojo. It is immaculate, and there are a several parents chatting while their children prepare for class. The children, ranging in age from 6 to 14, are dressed in white outfits, each with a different colored belt. They are talking, punching, kicking and waiting.

At exactly 7:30 p.m., Able enters the room, and the lesson begins. The class is free for all who dare to make the trip and the commitment. It is Able’s way of giving back to those who want to give to themselves. It’s a joy to see children engaged in learning to defend themselves, making themselves stronger, and giving up time they might be spending with TV or hanging out.

Like Able, they are learning the art of survival.

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The wilderness is a metaphor for the challenges that we face on a daily basis—both in the markets and in life. The behavior of the markets over the past year has taught us how to survive. We survive by preserving our financial capital, and with that, our mental, emotional, physical and spiritual capital. The markets will not rescue us from the wilderness. In fact, they are the wilderness.

It is our responsibility to do whatever we can to face them and to survive.

How do we survive under such brutal and unfriendly conditions? How do we make it through the wilderness to the mountaintop? Deep Survival: Who Lives, Who Dies, and Why by Laurence Gonzales (published 2004, W. W. Norton & Company) has many lessons for traders and here is one of them:

There is a Korean martial art called Kum Do.

This is a brutal game that involves a fight to the death with very sharp swords. The way it is practiced today is with bamboo sticks, but the moves are the same.

Kum Do teaches the student warriors to avoid what are called “The Four Poisons of the Mind.”

These are: fear, confusion, hesitation and surprise.

In Kum Do, the student must be constantly on guard to never anticipate the next move of the opponent.

Likewise, the student must never allow his natural tendencies for prediction to get the better of him. Having a preconceived bias of what the markets or the opponents will do can lead to momentary confusion and—in the case of Kum Do—to death. A single blow in Kum Do can be lethal, and is the final cut, since the object is to kill the opponent.

One blow—>death—>game over.

Instead of predicting, anticipating, and being in fear and confusion, you must do exactly the opposite if you are to survive a death blow from the market movements. You must watch with a calm, clear and collected attitude and strike at the right time. A few seconds of anticipation, hesitation or confusion can mean the difference between life and death in Kum Do—and wins or losses in the stock markets. If you are not in tune with the four poisons of fear, confusion, hesitation or surprise in the markets, you are at risk for ruin. Ruin means that your money is gone and the game is over.

How can you avoid the four poisons of the trading mind: fear, confusion, hesitation and surprise?

• Replace fear with faith—faith in your trading model and trading plan
• Replace confusion with the attitude of being comfortable with uncertainty
• Replace hesitation with decisive action
• Replace surprise with taking nothing for granted and preparing yourself for anything.

Oliver Quillia for CNBC.com A market reporter at NYSE's opening bell.

Always remember the long and winding road to the top of the mountain in the dark of night. Success in trading is a long journey with many twists and turns. You can and will get there if you are patient, watchful, non-anticipatory and always on guard for the exact moment when you can strike. Trading is a game of survival and the spoils are money. It’s your money, your life and your future. You have the power to survive and flourish if you remember the lessons from Able and Kum Do.

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat…Sun Tzu

More Investor Psychology Tips Including:

• Are You Making These Trading Mistakes?
• What Do You Believe That Is Not True?
• Traders, Are You Talking To Yourself?
• What are Other CNBC.com Guest Bloggers Saying ...

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Dr. Janice Dorn is the only Ph.D. (Brain Anatomist) and M.D. (Board-Certified Psychiatrist and Addiction Psychiatrist) in the world who actively trades, writes commentary on the financial markets and manages a subscription-based website. Dr. Dorn has been trading the gold futures markets full time since 1993. She has written over 1000 articles on trader and investor psychology, and mentored over 600 traders and investors. She writes on all aspects of trading psychology and provides a real-time trading service on her website:  TheTradingDoctor.com.

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