Trading Paradigm Shifts
September 21 2017 - Paradigm Shifts Part I — Infinite Wealth By Dr. Van Tharp Trading Education Institute
In this three part series, I will explore the idea of making major shifts in your thinking and your mental maps. Paradigm shifts — or shifts in your lateral thinking — mean you get out of the box you are in (your perceptual limitations from your current perspectives) and determine what is possible from other perspectives. If you understand the power of paradigm shifts, you can begin to understand what it is to be a genius. You can accomplish what seems like miracles. Most people’s mental maps and paradigms about money tell them things like —
My net worth is the basis of my wealth.
Becoming wealthy requires years of hard work and saving.
The best things in life are expensive.
Money is real.
To the extent you are attached to these beliefs about money, you are trapped in your current situation. These beliefs, however, are just mental maps or paradigms — paradigms which you can change. For example, you can create money out of nothing. How? There are many ways actually and they are just a small part of what I teach at my Infinite Wealth Workshop. With that course coming up in London in October, now is a good time to explore wealth paradigms in particular but also paradigm shifts in general.
This article is the first in a three part series. Today, we will explore six major paradigm shifts that most people must make to gain real wealth. In the next article, we'll explore five paradigm shifts related to trading success. In the third article, we'll explore techniques that you can use to make your own paradigm shifts — in any area of your life.
Shifting Your Paradigms
There are three phases to paradigm shifts. The first phase is an awareness that the new paradigm is possible and that it might be more useful than the old one. Don't take this step lightly because awareness alone is a major shift. The second phase comes with your understanding of the new paradigm and how it works. The third phase is a total knowingness of the new paradigm. In this final phase, the new paradigm works for you and is totally natural because it is part of you. You have internalized it fully.
I don't claim to be in the third stage on any of the paradigms I have written about. Mostly, I speak from understanding and a sense of beginning to know. Read the following paradigms and determine where you are with respect to each. Perhaps you are further along the shift than I am or perhaps by reading this article, you are just becoming aware of some them. Just notice where you are and where you would like to be.
One other point — if I use the term paradigm shift in the context of focusing on a new paradigm, most people can accept the new paradigm as possibly true. Even when people accept a new paradigm, however, the shift indicates that the old paradigm is false. This is when many people start to argue — which indicates that they have really not made the new paradigm theirs, that they have not made the shift. As a result, I will phrase the language about shifting paradigms both in terms of accepting a new one and negating an old one.
Wealth Related Paradigm Shifts
In my opinion, there are six paradigm shifts that most people need to make before they can really achieve wealth. Talking about a new paradigm, however, means nothing. You have to understand it and know the material before it will have much effect on how you live your life. (I still teach workshops because a classroom environment for group, partner, and individual exercises creates the most effective way to help people thoroughly experience and integrate paradigm shifts.)
The first new paradigm is a combination of two meditations from the 40 day program in The Abundance Book by John Randolph Price. 1) Neither my job, nor my business, nor my bank account are my supply. Instead, God is lavish, unfailing abundance, the rich omnipresent substance of the Universe. This all-providing source of infinite prosperity is individualized as me — the reality of me.
For many of you, this statement may involve two paradigm shifts. The first one is that the external things that we rely upon are just illusions. They have nothing to do with our prosperity or our well-being. Instead, they are illusions that lock us into the box we are living in today. Think about the implications of not worrying about your job or your business or your bank account — could you do it? Probably not! Yet, if you cannot do it, then you do not really accept the first major shift that God is the source of your unlimited abundance. You might accept this a little but most people certainly cannot accept the second paradigm shift: This unlimited source is individualized as you. That it is your reality! But think through the implications that would happen if the statement were true. In addition, think of the implications of the first statement being false. Or perhaps, it is just more useful to believe the second statement.
Step back my friends, there is so much more. The next paradigm shift is something I have been talking about throughout my career. One of the major purposes of my life is to teach this key paradigm shift to people.
2) Nothing happens to me. Instead, I am responsible for everything that occurs because I am in control of my life. I am in control of my beliefs, my thoughts and my emotions and that's what creates my experience. In fact, my major purpose in life is to decide, "Who I am," and create my experience based upon that decision.
I've been teaching the idea of personal respond-ability since I first became a coach for traders. There are two versions of respond-ability. The easiest version for most people to understand is that you are responsible at the very least for your reactions to what happens. Most people can accept that, however, I'd like for you to consider the implications to your life of the paradigm shift that you actually create your life through your beliefs, thoughts, and emotions. It's pretty dramatic.
If you believe this one, then you'll find lots of evidence that it is true. If you don't believe this one, you'll probably find plenty of evidence that makes it not true. Either way, you are illustrating the principle. Ponder on that one. And if that interests you, then I'd suggest reading the book from Neale Donald Walsh, Friendship with God. You might be really amazed.
3) If you are afraid to give, that's what you'll get back — fear. Instead, if you want enrichment and abundance, figure out how to enrich others. The basis of making this shift stems from paradigm shifts one and two. If you acknowledge, understand and finally reach a point of knowing that God is unlimited abundance and is individualized as you, then you should have no fear of giving and giving and giving. If you understand that you create your life, you understand how giving is creating. And it comes back many times over — not because you are giving — but because you have such faith in your unlimited source that it matters not what you give. You just give because you love to give.
This shift is just part of the Golden Rule that is common to almost any form of religion or spirituality. It works with material things and it is very obvious with elements like thoughts and emotions. What you give is what you get back.
The next shift is usually a major one for most people.
4) Money is not real. It is created by us and the creation originates from thought, not hard work. In fact, the more you tend to believe that money is real, the more you will tend to believe that you have to work hard for it. First, it should be very clear to most people that governments invent money. They used to back this invented money with a rare metal like gold — but only the ideas of man gave gold any value. Later, we allowed our governments to get off the gold standard and back money with our debt — really, our debt! We tend to think of money as being real because there are grave penalties if anyone but the government prints it.
There are many ways to make your own money (legally) out of thin air. And if you don't understand how it's done (or even believe that it can be done), then you need to learn how in our Infinite Wealth Workshop. Let me give you one example. Let's say you know how to grow money at 40% per year through your trading. Raise some money from a group of investors, trade it, take a 30% fee out of the returns, and basically, you've manufactured money from nowhere. Notice your reactions to this kind of idea.
The fifth shift is one that I'm as close to the "knowing" level as any of these shifts. It will change your beliefs about money if you reach a point of understanding it even slightly. 5) You do not determine wealth by how much you have. In fact, “having” has nothing to do with wealth. Instead, wealth is how long you can exist at your current standard of living without working or doing anything. If you can last forever — that is if your passive income is greater than your expenses — then you are infinitely wealthy. Once you are infinitely wealthy, you are free of any financial or time chains and you can increase your standard of living just by continuing to practice the principles that brought you there. This is the wealth principle that applies to the made up substance called money (see principle 4 above).
There is an even more important shift than those: 6) Value is not created by scarcity. Instead, the most valuable "aspects" of life are all free. What now appears most valuable to me are love, the ability to give (which I really always had), air, water, exercise, the ability to help and make a difference for many people, my creativity, my feelings, my health, and my spiritual relationship. Those are all free. Incidentally, a few years back when I was first really exploring these ideas, it was an immense breakthrough for me to write about these things for you. That breakthrough, of course, is just another testimony to shift number three — I'm not afraid to give this material to you. By sharing it, I'm getting back even more.
Paradigm Shifts, Part II — Trading Success By Dr. Van Tharp Trading Education Institute
In part one we explored six major paradigm shifts that most people must make to gain real wealth. Through paradigm shifts, you can begin to understand what it is to be a genius. You can create money out of nothing. You can accomplish what seems like miracles. In this week's article we'll explore five paradigm shifts specifically related to trading covered in my first book, Trade Your Way to Financial-Freedom. In the next article, we'll explore some techniques that you can use to make your own paradigm shifts.
Trading Paradigm Shifts
Many years ago, I taught Infinite Wealth Workshops but they were very different in structure and content than the one I teach now. The old version covered a lot of financial strategies to attain wealth. Abundance, however, is an internal state and external wealth flows out of that internal state. Without the proper mindset, the best financial strategies in the world are worthless. The new workshop version (I’m teaching it in London in October) focuses much more on understanding the wealth mindset and working on your inner self — being wealthy inside first so that then you can effectively use financial strategies that fit you to achieve infinite wealth. (Infinite wealth does not mean numerous and luxurious possessions but rather having your monthly expenses taken care of by your passive income.)
At an Infinite Wealth Workshop which happened shortly after my first book Trade Your Way to Financial-Freedom was published, I spontaneously started talking about paradigm shifts in the book. Before that, I had never thought about the book including any paradigm shifts but suddenly all of this information about shifts that traders needed to make was pouring out of my mouth. I remarked at the workshop that the book explained four major paradigm shifts. I have no idea where that number came from but I was able to elucidate them very well. After being totally amazed by this discovery, I decided to spend some time thinking about what I had said.
Since that time and with considerable thought, I came up with additional shifts but for today's article, here are the five major paradigm shifts most traders and investors need to make:
1) Trading success has very little to do with what's outside of you such as what the market does. Instead, you must determine who you are and what your objectives are. Once you have done that, you can design a trading system that fits you and that performs very well.
Most people believe that trading success has to do with the markets, indicators, analysis, or finding some magical edge that will help them perform slightly better than their competitors. This is totally wrong! Instead, trading success is an inner search. Success in the markets has to do with finding yourself. Who are you and whom do you choose to be? When you've answered those questions, you can then decide how to express the new you through the markets. This decision, however, is a major one. Most people give it no credence. Even when they are aware of it, they give it no time at all. This is the first step and without it, you cannot climb the ladder of trading success. It supports everything else.
2) There is no Holy Grail in the markets (outside of you). But there is a Holy Grail — it is inside. When you understand this, you can do much more than outperform the majority of market players. Instead, you can achieve levels of performance that others might think is impossible.
Academic psychology is full of people who study the shortfalls of average traders and these academics have done marvelous research. Perhaps by studying human frailties, economists have come to believe they can predict how the markets will perform because they are not efficient. Thus, the field of behavioral finance was born.
I consider myself to be a student of behavioral finance also but I believe I am one of the few people who helps traders really apply it. Applying behavioral finance doesn't mean predicting inefficiencies in the market, however, it means working on yourself to make sure those inefficiencies have no effect on your trading. That is too much of a major shift for most people who are into what the markets are doing and have not mastered this paradigm shift. When I talk about traders being able to make consistent 50-100% returns (or more) with little risk, people who believe “It is all outside of us” think those kinds of returns are just impossible
3) You don't have to predict the market to make money. Instead, making money comes from your exits.
This idea can stimulate an argument in many of my students — even those who have read Trade Your Way to Financial-Freedom several times and think they understand it. I'm not going to discuss this extensively because I've done so many, many times. The golden rule of trading is "Let your profits run and cut your losses short." What does that have to do with prediction? Absolutely nothing. Instead, it has everything to do with getting out of the markets using a systematic plan. Enough said!
The next paradigm shift is simply an elaboration of the third.
4) You don't have to be right to make money. Instead, you must understand R-multiples, expectancy and opportunity.
Once again, I'm going to be brief on this. Suppose you enter a rising stock but get stopped out at your -1R point, say $1 below your entry price. You've lost a dollar per share or -1R. Suppose this happens five more times. Now you've had six -1R losses. On the seventh trade, the stock takes off and you ride it for a $30 gain. That's a +30R profit. You had seven trades, six -1R losses and one +30R profit for a net gain of +24R. Let's say that your transaction costs amount to 0.5R per trade so for the seven trades, we must subtract another 3.5R. Even now, you still have a total profit of +20.5R. If that's your average for every seven trades, how much would you make if you placed 21 trades each month? You'd have a profit of +63R for the month — even though you were “right” on about only 14% of your trades.
If you have not made this paradigm shift yet, you'll probably find all sorts of reasons to refute the logic of this example. I've heard them all. They all come from people who were having trouble with the paradigm shift and needed to defend their position.
5) Making big money does not come from factors where most investors and traders focus their attention. Instead, large returns come from designing and using a position sizing strategy that meets your objectives.
Let's use the results from the example in the previous point. Suppose you risked 0.5% of your equity on every trade. After six losers in a row, your equity would be down about 3%. After your +30R win, however, your equity would be up about 12%. Further, if you made 21 trades per month with those kind of results, (even assuming huge transaction costs of 0.5R or 0.5% of your portfolio per trade), you'd be up over 30% in a single month.
If you could do that for say nine months in a year with small drawdowns in the other three months, your equity would be up hundreds of percent for the year. Now do you understand how some of our day trading clients can make those kinds of returns?
Let's assume for a moment, however, that getting three +30R trades a month is improbable — but that averaging three +15R trades every month could be realistic. Eighteen -1R trades and three +15R trades would still give you a net profit of +27R per month. That scenario makes you a 13.5% return a month risking 0.5% of your equity per trade. Let's add in the previously mentioned unrealistically high transaction costs. You would net a return of +16.5R per month — or 99% on the year. Again, you make that kind of money being right only 14% of the time and risking no more than 0.5% of your equity per trade.
If you haven't made this final paradigm shift, you'll find lots of flaws and you’ll also find logic to support your position. That's okay — it doesn’t bother the people who regularly make big profits while giving up the need to be “right”.
Getting Outside of Your Box
While my purpose in writing this article has simply been to get you to think in new ways about your trading and step outside of your current perspective, I've only scratched the surface on the paradigm shifts that most of you could make. If you would like to explore more paradigm shifts (beyond those covered in this article), there are probably at least five major ones in each of the five volumes of my Peak Performance Home Study Course.
Paradigm Shifts, Part III — How to Shift Your Paradigms By Dr. Van Tharp Trading Education Institute
The purpose in writing this series of articles has simply been to get you to think and step outside of your own perspective. In Part One of this series, I presented the idea that one of the steps to infinite wealth is to make paradigm shifts. This means get out of the box you are in (your perceptual limitations from your current perspectives) and determine what is possible from other perspectives. In Part Two, I have outlined five major paradigm shifts from which most traders and investors would benefit.
Today I will tell you how to make your own paradigm shifts. One of the greatest skills I can give you is the ability to make your own paradigm shifts -- to look at the box you've put yourself in by your thinking. Once you have done that, then you can step out. For those of you who would like maximum benefit and are really willing to "go for the moon," here is a five-step program for creating your own paradigm shifts.
Step 1) Examine who you are and what you are doing from multiple perspectives. NLP (Neuro Linguistic Programming) suggests that there are at least three perspectives of every event:
Your perspective, the perspective of another involved person, and the perspective of an outside observer watching what is going on.
A simple way you might work on this shift would be to take the perspective of an outside observer and just replay each day, at the end of the day, from the outsider’s perspective. If you were to continually observe yourself from perspectives two and three, then amazing changes will occur in you and you will be able to jump out of your box very soon.
Step 2) Examine your beliefs. Your beliefs might form a set of concentric circles. In the very middle are the beliefs that you know are true. Around that are the beliefs you think are true. The next circle contains beliefs that might be true. The fourth circle contains the beliefs about which you have real doubts, things on the fringe — maybe like the existence of ghosts or UFOs. The final outermost circle are the beliefs that you know are not true.
Most people tend to spend their lives rejecting beliefs on the outside circle. There is even a journal called The Informed Skeptic which devotes itself to debunking fringe beliefs. While I'm all in favor of questioning fringe beliefs, I think the most limiting and damaging beliefs are probably in the inner circle—those we know to be true. Many people look for lots of supporting evidence in an effort to defend these beliefs. Spend time questioning these beliefs and you'll begin to make major paradigm shifts. In fact, try questioning one or two of your major assumptions about life that you know are true. About what are you absolutely certain? What would life be like if the assumptions underlying that belief were not true? Questioning of this sort is what would be most profitable and evolutionary for most people.
Step 3) Notice your projections. What you see "out there" really reflects what is going on inside of you. This belief has deep psychological underpinnings and it is true for me, however, for most people, it is on the "fringe". If you operate as if the world is a mirror to your own mind, then you will really begin to find the boxes you have put yourself in. Once you are able to identify a box you are in, it is a simple step to get out of the box and make a paradigm shift.
Step 4) Keep a daily journal of your emotions and experiences. One of the best ways to observe yourself is to look at the way you were at some prior point in time and to compare that version of you with another version. By writing in and reading your journal on a regular basis, you will really help yourself identify paradigms, observe them, and then be able to step out of them.
Step 5) Meditate regularly. Meditation is all about listening. Listening provides you with intuition and immense guidance. As a result, twenty minutes of quiet meditation is probably the best thing you can do for yourself. For a simple way to meditate, just pay attention to your breathing for twenty minutes. Think of breathing in as "inspiration" - for it very well may be that. As thoughts come to you, simply notice them and let them go. If you notice you have become stuck in your thoughts, just let them go and return to watching your breath.
These five steps should help you to make immense paradigm shifts on a regular basis. Plan to do them for the next 30 days and let us know your results.
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