Quotes from Jim Paul

Your plan is a script of what you expect to happen based on your particular method of analysis and provides a clear course of action if it doesn't happen;

For instance, we lose points for wrong answers on tests in school.

Regardless of the methodology used, before you decide to get into the market you have to decide where (price) or when (time) or why (new information) you will no longer want the position.

The objective of the scenario approach is not to decide which scenario is right…. There is no 'right' answer.

Almost all commentary on the development of a plan will list the ingredients as entry, stop-loss, and price objective. However, to be effective as a loss-control tool, the plan must be derived by deciding STOP, ENTRY, then PRICE OBJECTIVE. Failure to choose a price objective could cost the trader some potential profits. A poor entry price could increase losses or reduce profits. But not having a predetermined stop-loss can, and ultimately will, cost you a lot of money.

Likewise, when we lose money in the market we think we must have been wrong.

Somehow, the concepts profit and loss get confused with win and lose and right and wrong. But if you lose as a participant of a game, you weren't wrong; you were defeated. If you lose as a spectator of a game, you must have placed a bet (or expressed an opinion) on the game's outcome and you lost money (or were wrong), but you were not defeated.

An objective loss is impervious to how you feel about it or react to it. It's not subject to anyone's appraisal; it must be accepted without evaluation.

The basic distinction between the individual and the crowd is that the individual acts after reasoning, deliberation, and analysis; a crowd acts on feeling, emotion, and impulses.

Because people tend to regard loss, wrong, bad, and failure as the same thing, it is little wonder that loss is a dirty word in our vocabulary.

However, in the markets losses should be viewed like the light bulbs or rotten fruit mentioned earlier: part of the business and taken with equanimity. Loss is not the same as wrong, and loss is not necessarily bad.

Man is extremely uncomfortable with uncertainty. To deal with his discomfort, man tends to create a false sense of security by substituting certainty for uncertainty. It becomes the herd instinct.

One of the most incomprehensible features of a crowd is the tenacity with which the members adhere to erroneous assumptions despite mounting evidence to challenge them.

The stock investor can stay in the position forever. A futures speculator, on the other hand, will be forced out of the market when the contract expires. So even if he has financed a losing futures position, he is forced into making a new decision at expiration as to whether to stay with the position. The stock player has no such forcing point, which is why it's especially important to decide what type of participant you're going to be when you're in the stock market.

Next, you must select a method of market analysis that you are going to use. Otherwise, you will jump back and forth among several methods in search of supporting evidence to justify holding onto a market position.

Because there are so many ways to analyze the market, you will inevitably find some indicator from some method of analysis that can be used to justify holding a position. This is true for both profitable and unprofitable positions: you will keep a profitable position longer than originally intended and possibly have it turn into a loss, and you will rationalize holding a losing position far beyond what you were originally willing to lose.

Facts are neither right nor wrong; they simply are. Opinions are personal assessments and are right or wrong depending on whether they actually correspond with the facts. Therefore, only opinions can be right or wrong; facts cannot. Right and wrong are inappropriate for the description of business operations and market participation, and so are the terms win and lose. Participating in markets is not about being right or wrong, nor is it about defeat; it's about making decisions.

Decision making is a process of reaching a conclusion after careful consideration; it is a judgment, a choice between alternatives when all the facts are not yet, and cannot yet, be known because they depend on events unfolding in the future. Therefore, decision making is not a choice between right and wrong. In 20/20 hindsight, decisions might be good or bad but not right or wrong. With regard to the markets, only expressed opinions can be right or wrong.

the decision-making process is as follows: (1) Decide what type of participant you're going to be, (2) select a method of analysis, (3) develop rules, (4) establish controls, and (5) formulate a plan.

Market positions are either profitable or unprofitable, period.

Management guru Peter Drucker calls it "risk which is coincident with the commitment of present resources to future expectations.

The truth is that trading, both successful and unsuccessful, is more about psychology than tactics.

The lesson here is: Taking either success or failure personally means, by definition, that your ego has become involved and you are in jeopardy of incurring losses due to psychological factors.

trading is not about discovering a great strategy for making money but rather a matter of learning how to lose.