his right hand, which is rock steady. The sheriff says, that looks fine, to which the Waco Kid raises his other arm which is uncontrollably shaky, and says, yes, but I shoot with my left.

My first mast-strapping solution still had me doing the equivalent of shooting with my left. I did far too much trading in my little account. It didnt cost me any significant money, but I spent so much time on the account that I was probably making minimum wage for my efforts. After about a year of this experiment, I closed the smaller account. This more secure mast-strapping has, so far, been a total success. With no ability to trade cheaply, I havent traded impulsively.

I suggest that almost everyone, except for the top guns of trading, structure their world so that they cannot trade impulsively. The exact setup will vary for each person. Many people would still trade even at a cost of $100 a trade, so the solution that works for me wont work for everyone.

A pervasive problem with our efforts to improve by mast-strapping is that theres usually someone who would profit from untying us. Just as hotels seek to profit by leaving candy bars on the counter, there will always be firms that are happy to help us trade. We need to be crafty to construct our finances so that we wont be tempted to make bad decisions.

I helped my friend Doug (the millionaire surfer) quit smoking. He agreed that if he smoked even one puff of a cigarette, he would have to pay me $100. Furthermore, immediately after that first puff, he would have to call me to acknowledge defeat. Our agreement was set up for one year, and Doug made it for the entire year without a smoke.

Why did this silly arrangement work to get Doug to quit? The answer is that it tapped into Dougs psyche in the right way. He and I were a bit competitive, and so the prospect of paying me even a nominal sum was loathsome. Furthermore, Doug is honest enough that he wouldnt cheat and lie about smoking. Finally, the need to call and immediately acknowledge defeat was a potent deterrent.

The right answer for everyone is to avoid emotional trades. The way to accomplish that is to make structural arrangements so that emotional

trades are not possible. The details of the correct form of financial mast-strapping will vary for each individual.

Conclusion: Those who trade too much should arrange their finances so that impulsive trades are not possible. Remove temptation; do not expect to resist it.

Do Not Trade in the Red Zone

Happy families are all alike; every unhappy family is unhappy in its own way. So begins Tolstoys Anna Karenina. Similarly, successful traders avoid making self-destructive investment decisions. The specifics are idiosyncratic; the general lesson is to constrain the lizard brain that lurks within each of us.

All of the tips Ive suggested can be understood as efforts to get control back to the investors rational side and away from that lizard brain. While the lizard brain is great for lizard-like activities like finding food and shade, in financial markets, our instincts are the enemy.

My friend David the oil trader has learned how to avoid such mistakes on his way to a lucrative trading career. In Chapter 4 we heard one of Davids secrets is that he knows when the buying is real. I learned another of Davids secrets one day in the 1980s. In order to profit from an anticipated rise in oil, I bought a single oil futures contract, which represented 1,000 barrels of oil. For every pennys rise in the price of oil, I stood to make $10.

Almost immediately after my purchase, however, the price of oil started to decline. My losses began to mount: $10, $30, $70, and more. This wasnt any fun at all. Furthermore, because I was a student, these amounts became a significant portion of my net worth at the time. I took the pain of my losing position for about 30 minutes, by which time the loss exceeded $200. I turned to David and said, Ive got to get out. He said, I got you out a long time ago, I just wanted to see how much pain you could stand.

Over the years Ive learned that David almost always exits his losing positions very quickly-just as he got me out of my trade almost immediately. Hed rather take a quick and small loss instead of letting the position eat away at him financially and emotionally. He summarizes his philosophy by saying, I dont trade in the red zone. By that he means that losing trades (those in the red zone) are exited very quickly, while hes willing to ride his profits (trades that are in the black) for much longer.

Dont trade in the red zone.

While David interprets this strategy literally to exit losing positions, I interpret it more broadly. I suggest that people not trade in the emotional red zone. Whats the definition of a psychologically defined zone? The answer can be drawn from the legal efforts to restrain pornography. In the 1964 Supreme Court case Jacobellis v. Ohio, Justice Potter Stewart wrote that, he could not define hard-core pornography, but stated I know it when I see it. 19

Similarly, there is no objective definition of the emotional red zone, but I think we know it when it happens to us. If an investment is eating away at us, we should consider exiting. (Such considerations should, of course, be done in an unemotional manner.) Use the Force, Luke. Let go. The spirit of Obi Wan Kenobi suggests that Luke will know the right answer himself. Similarly, the specifics of avoiding the red zone are different for each person. The result, however, should be the same for all.

An investor who avoids the red zone, should, for example, be able to (i) go on vacation for weeks and not look at the markets, (ii) increase or decrease any position, (iii) take large price changes in all markets without having to buy or sell anything, and (iv) sleep without thinking about investments.

Those who can develop such a no-red-zone system can never be forced by their emotions nor by market dynamics to make a decision. The first step to making money is not plastics but to avoid letting the lizard brain make emotional and costly investment decisions. This is not easy because, like Michael Jordan, the lizard brain cant be stopped, just contained. Those who contain the lizard brain will have taken the first step toward profiting from mean markets.