Bargaining

Bargaining

By Lucas Tarigal

Bargains are an interesting phenomenon of the human race. Thousands of laws in our nuanced law code define how bargains can be made and kept. We have bargains that are in the open, like contracts spelling out the exact nature of a transaction. We also have silent bargains, like not cutting in line or holding the door open for old ladies. Bargains fascinate me because we always bring a bit of ourselves to any bargains we make. Wars are started over broken agreements, because each side feels slighted. In this article, I am going to refer to bargains quite a bit, so I want to lay some ground rules. When I speak about bargains, I am usually talking about the feelings that we invest in bargains, not the actual bargains themselves. The actual bargains are immaterial and different for each person. The feelings we feel when bargains are broken are universal. Those feelings have a huge impact on our trading and our life. In no way am I suggesting in this article that we break a contract with anyone. I want you to look at the feelings and attachments behind the contract, not necessarily throw it out the window.

I am going to give you three scenarios, two of them are trading scenarios, and one is a real life scenario. These scenarios will illustrate a painful aspect of trading and life, and then a contract that is made to prevent suffering in the same way in the future. If you are new to the markets, the trading examples may be a bit incomprehensible, but the emotions are understandable.

Here is the first scenario: you have done some research, you see that agriculture stocks are poised to break to the upside. You have drilled down and found a couple stocks that you like from that sector, and some good entry prices and corresponding stops. The market opens the next day and you watch these stocks like a hawk, they gap up a bit over your entry, but are not too far away, so you decide to buy them. They fall back down to your original entry and you kick yourself for not waiting for better prices.

Here is the second scenario: you have on a winning trade, a target of the 200 day moving average (MA), and you are waiting to exit the position as the market works in your favor. Your winner comes to the 200 MA, gets really close, and stalls out. You start to worry a bit that its going to reverse before you can get out, so you put in a limit order you hope to get filled, but the market starts to tick away from you. You keep changing your limit order hoping that the market will take you out, and finally in exasperation, put in a market order and panic out of your position. You sigh in relief on taking off this winner, only to see the market stop its reversal and touch your original target.

Here is the third scenario: you are minding your own business, driving along on your way home from work. The radio is on; some of your favorite music is playing. All of a sudden you are snapped back to the present as the car in front of you slams on the brakes. You hit your brakes but are so close that an accident is unavoidable. Your adrenaline is running high, you cannot believe this happened, and all your plans for the evening are thrown out the window. The cops come and cite you for rear ending the other car and you call your insurance company when you get home. You are pretty shaken as this is the first time you have ever been in an accident.

I do not think these scenarios are foreign to most traders or drivers; they have happened to me several times each. You probably have rules in place that mitigate the chances of these events happening. At some point or another, you suffered if these things happened to you. If you’re like me, you made some mental rules to prevent this suffering.

• The first scenario created a rule that said “only enter at your price, do not chase the market more then X%.”
• The second scenario created a rule that said “place your limit order in the market and only exit at the pre-determined point, according to your plan.”
• The third scenario created a rule that said: “I am always going to keep a good distance between my car and the one in front of me.”

Now you have these rules and everything is dandy, right? Well no. In fact, many traders who suffer on a regular basis have a host of rules they actually follow, and they still lose money constantly. I used to be that person following rules the same way every time, yet still losing over and over again. Trading books tell people they need to have a plan, trade with a statistical edge, and follow a set of rules religiously to make money. I would hazard a guess and say that if you have been trading for over a year, you have read enough books and know exactly what you need to do to win. So why are you still losing?

The reason why losses still occur, even under a strict set of rules, is quite simple. It is because you are not taking full responsibility for the rules. Countless books have said, “if you trade, you must take full responsibility; your results are entirely up to you.” Most of us have heard this many times, and we think we are taking responsibility, but we are not. To use the above example, the loser suffers, makes the rule, and then expects the rule to buffer him from suffering and losses. It wasn’t the rule that created the future suffering; it was the fact that the trader put part of the responsibility of trading onto that rule that did it. In other words, he made a bargain. He made a bargain that he hoped would get him what he wanted in the future.

We are always making bargains of some kind in our lives, such as “if I do this, then life/someone/God will do that.” The driver made a bargain hoping he would not suffer from another car accident. We do not realize it, but there is NO ONE on the other side of that bargain. We are wheeling and dealing with phantoms. When the overweight compulsive eater thinks, “I will get on the treadmill but if I do, I get a cookie,” who is he talking to? When a woman goes on a date and thinks, “the man should have opened the door for me,” who did she make that deal with? When the trader thinks, “I will follow this system religiously and it will make me money in the market, because I have been told it is a winning system,” who is he bargaining with?

This is why we lose! We make bargains with phantoms and then get upset when the other end of the bargain does not materialize. I used to go through system after system, getting angrier and angrier, as these systems would not make me money! Here is the bottom line: the market is NOTHING. There is no one across that table. The market is a mirror, and any essence that it has is given to it by you. It is a radical statement, but life is the same way, it is just a mirror. There is only one reality, not yours and the one you make deals with. At the highest level, it is only you; there is no one else, no separation.

We are raised to make bargains and take responsibility for our side.  You pay taxes, you get government services; if someone breaks the law, they get tried; if we go to work, we get a pension. We are raised in an environment with so many social contracts and bargains that we have to go to fifteen plus years of school. By the time we reach adulthood, the sheer number of social contracts we have to keep track of is mind boggling. Is it any wonder, in a world where we are always sharing responsibility with whatever is on the other side of the bargaining table, most of us fail when we get into the trading environment where it is only us?

To further cement this point, consider what it means when you make some kind of bargain with the market. You think the market should go up most of the time when it does a certain thing, but when you trade in that direction, you get angry as it does the opposite. In effect, what you are saying is that other market participants should give you their money because of the deal you just made. This is insane! If someone were trying to take your money, would you do what they’d expect? Every time you get angry or sad at the market, you are really getting angry or sad at other traders and investors who will not give you their money. Of course your positions are going to go against you. Of course you are going to get stopped out. People are trying to take your money just as much as you are trying to take theirs! Traders who started trading from the screen (like myself) are disadvantaged a bit because it seems like we are just trading prices, when in reality we are trading people. Those who start in the pits find out very fast that other traders are gunning for them, and that the market is not some amorphous blob that hands out treats to the few.

In this context, death means letting go of the person who you are making bargains with. When we think of someone dying, we think of someone leaving us, and that is just what I want to show you how to do. I want all your emotional dependencies on social, emotional, and mental bargains to leave you, whatever they are. This does not mean you do not still perform these bargains. You can still open the door for ladies, signal when you change lanes, say thank you, and cut trading losses. The car example above is not wrong in anyway, it’s a legitimate reaction to an accident. I included it to point out that the rule the driver created is made out of fear. The driver made a bargain with life that says, “if I don’t tail people, I will not suffer from an accident in the future.” This isn’t unreasonable. This paper is about changing the nature of that agreement (not the agreement itself) so that you are not bartering with someone (“life,” in the driver’s case) who will never uphold their end of the bargain. How you do these things changes, because as soon as you eliminate the person you have created who is across the table, you stop expecting anything. A popular line in a lot of self help books says, “it’s not the thing which causes suffering; it is expecting the thing which causes suffering.” From this, you are somehow supposed to eliminate expectation, which usually means you chide yourself whenever you expect something, getting all emotionally confused. You can eliminate expectation, not by making different deals in your head with a phantom, but by realizing, piece by piece, it’s just you.

Exercise

The exercise for this article is to let one phantom die in some bargain you make. The trigger is some kind of an emotion, it doesn’t matter which, but something other then bliss, joy, or happiness. Anger is probably the best one because it is the easiest to recognize; the reason for it is usually apparent, and we all have frustrations throughout the day. This is the step-by-step process to go through:

1. An event occurs that triggers an emotion

• This is the starting point, and arguably can be the most difficult if your mind is going at 100 mph. Just recognizing this point does a lot of the work for you, as realizing you are angry separates you from the anger.

2. Feel the emotion

• This is also a very hard part, because lots of us have these little things in our heads that say we should not feel emotions. For example, we will get angry at someone cutting us off and think, “why am I angry? This is beneath me. I shouldn’t be angry at this little thing.” The best way to mitigate this is to pre-empt these thoughts by committing to yourself that the next time you feel an emotion, you are going to go through this process. This will cause those thoughts to shush up when the emotion occurs, because you are trying something new, and the status quo can be put aside for now.

3. After the emotional intensity has faded a bit, analyze the emotion

• This is a very crucial stage, and if you do it right, and get to the bottom of your emotion, you should have one of those glorious aha moments that signals death. If you are getting just angrier and angrier, then do not start analyzing (that will just make you angrier). Cool off and try again some other day. Let the emotion go through you, and as it is starting to fade away (again, this is easiest with anger), grab a little part of it with your mind and do not let it go. We can easily recreate scenarios in our heads that we have experienced in the past, which will also recreate how we felt. So if you are starting to move on from whatever made you angry, recreate the scenario again in your head to get a whiff of the emotions you were feeling so strongly a minute ago.

• Now comes the analyze part, which is probably the toughest part to explain in words. You want to look at what caused your emotion, and then look at your own thinking. Look at what thoughts get triggered just as you got angry/sad/whatever, and think of the situation as a bargaining table. It may help to ask what you bring to the table, and what you expect to be brought to the table in return. You want to couch all these thoughts with the knowledge that there is no one else at the bargaining table (even if there is a real person at the other end); that it is just you. Ask yourself who you are making deals with, and if there is a real person on the other end, how they could know your thoughts when you made this deal. You really want to drill down, separate yourself from the actual event, and isolate what exactly is causing this emotion. Anger is caused by those failed expectations, which means the phantom did not take responsibility for his end of the bargain. You do not HAVE to feel angry; you can be free by going beyond it and realizing that there is no phantom.

4. Rinse and repeat

• If you do this right, you should have a rush of understanding and a feeling of more freedom like every cell in your body waking up. When you realize there is no one on the other side of the table, you gain responsibility. When you gain responsibility, you gain power. Power is very palpable; old restrictions seem small and you feel invigorated. You feel ALIVE, almost like you are on drugs, or intoxicated with your senses.

• If you feel stuck, like you are going around in circles with your thoughts, that’s okay. Sometimes you aren’t exactly ready to take responsibility. You’re not ready for that power, yet. Do not let the bargain change (well I guess you could, it wouldn’t really matter), or think that somehow by changing the bargain you will prevent the anger in the future.

• This is usually what happens: we get angry, we think about it, and then we change the bargain, putting different responsibilities on the phantom and taking different ones for ourselves. If you have ever seen someone who reinvents themselves every so often so they can “try something new,” yet stays in the same slump, this is it. They just change what they think is their responsibility, but don’t actually take over that responsibility. In trading, this leads to the common newbie saying, “I will do anything to win, please teach me, I am at the end of my rope.” These people are pretty close to trading enlightenment because they have changed the deal with the phantom so many times they are ready to totally banish him (usually after a few blown-out accounts). Another good example from The Art of the Trade is women who get married five or six times and “grow” after each marriage. They think they make a mistake in their choice of husband, and after each one they “grow” in some way. This really means they just change what they think they, and their future husband, are responsible for. They do not realize that what is actually causing all the break-ups is the very idea that they are not 100% responsible for their life, and that someone else has to bring something to the table for them to be happy.

Trying to explain this process is a challenge at best. This process will probably not work for you the first few times you do it. You may think you see the phantom, but you do not get that rush of power that comes from taking more responsibility. I can tell you, definitively, that if you truly see that the phantom is illusory in some aspect of your life, you WILL get the awesome feelings I have described above. If you are not getting those feelings, just keep running your mind along the lines I have outlined and eventually something will pop. (Trading in the Now takes no responsibility for actual popping sounds as a result of this practice. Please consult a doctor.)

A few weeks ago, I talked about responsibility, freedom, and power. They are all linked, and you will find that the more responsibility you take, the more power comes to you. The freedom of your environment dictates how much responsibility you can take, which then dictates how much power you will be given. The trading environment is as free as it gets, which means that those who do take complete responsibility open themselves up to LOTS of power. They get power in droves. People want their company, they can live anywhere they like, and have as much money as they like. Most people think of Warren Buffet, Paul Tudor Jones, and other great traders, as almost demigod-like. They do things that others do not understand, act in ways that others emulate, and live lives of purpose and clarity. Become one of these people by realizing it’s JUST you. There is no one else. Remove “can’t” from your vocabulary and replace it with “I don’t want to.” Remove “must” and replace it with “will.” Whatever system you are using, whatever rut you are stuck in, realize that it’s only you who creates your results. You can drop it all, all your rules, all your preconceptions, and you are not going to be left out to dry because there is no one doing the leaving! On the highest level, there are no bargains because their existence would be a contradiction! Every great teacher in humanity has been trying to say that there is no “two,” only “one,” and that you are that one.

Love,

Lucas