PART 1
Think about what Sir John Templeton did in 1999 at the heart of the dot.com stock bubble. He took his entire personal fortune and shorted various dot.com stocks. At the time, that behavior might have sounded insane. After all, those stocks could move 10% each day in that period … and usually the big move days were to the upside. But John Templeton shorted and stayed with those shorts through the dot.com crash. You might consider that to be a stroke of genius.
Let’s consider what John Paulson did in 2007. He concluded that home prices had gone up over 7% per year for the last five years and would have to drop by 40% just to return to their historic trend line. He also noted that when housing prices dropped, they usually went through the trend line. What did he do? He basically made a bet that the housing market would collapse and invested almost everything in his company on cheap credit default swaps—which would rise in value if housing collapsed. He also bet against CDOs (collateralized debt obligations) by buying insurance against them. His fund took about a $5 billion position in these two categories of instruments. John Paulson’s firm made nearly $15 billion in 2007 and his personal cut was about $4 billion. Was this also financial genius?
And what about Ed Seykota in the 1960s? Ed understood basic trend following principles but he also understood position sizing strategies. In addition, Ed was one of the first automated trend followers. I was at his house in the early 1990s where all of his systems were computerized and written in assembly language. You might say that Ed was the first computerized trend follower who truly understood the power of position sizing strategies just as the inflationary trends in commodities took off. I was told that Ed opened a number of $5,000 positions in the futures market — losing them all until eventually he caught a trend. After that, he had an edge that few others have ever had and his returns are legendary. Was he lucky or a genius?
There are many more such examples in the history of the financial market. Did these people have something special? Were they financial geniuses?
Many years back, I was lucky enough to attend a rather famous NLP workshop that was only given once by Robert Dilts and John Grinder. Robert took the position that mental strategies were the key to everything while John took the position that states were the key to everything. Later, Robert wrote three books entitled strategies of genius in which he profiled the thinking processes of Walt Disney, Albert Einstein, Leonardo DaVinci, Nikola Tesla, Sigmund Freud, Aristotle, Mozart, and even the fictional character Sherlock Holmes. I’ve read all three books several times and watched Dilts’ video series, Strategies of Genius. Dilts basically said that a lot of these people’s genius was a function of how rich their internal maps of reality were. Remember that NLP adopted Alfred Korzybski’s famous postulate that says “the map is not the territory.” In other words, we have no idea what reality is. Instead, we just have a map of reality. Dilts basically says that the richer the internal map that a person has, the more likely such a person is to be a genius.
Let me share with you a few of Dilts’ conclusions from his books about how genius’s maps become so rich and about their strategies in general: (view list on-line)
1) Geniuses have very strong visualization skills, perhaps even photographic memories.
2) Everyone has five sensory modes but geniuses have developed numerous links between their various sense modes.
3) Geniuses appreciate that there are an infinite number of perspectives. For example, a politician might wonder how different people would interpret his stance on a particular topic. He might consider his stance on the topic from the perspective of a farmer, a blue collar worker, a small business owner, a billion dollar company CEO and a mother. Geniuses are great at shifting between multiple perspectives.
4) Similarly, there are three core perceptual positions:
- your perspective);
- the other person’s perspective; and
- and an observer’s perspective.
Geniuses can easily switch between perceptual positions between an associated perspective (1st person) to a dissociated perspective (2nd position) to an observer perspective (3rd position).
5) Geniuses can easily move from the big picture to extreme detail and all along the spectrum between in various degrees (or “chunk size” in NLP terms). They can also perceive different logical levels such as spiritual vs. environmental.
6) Geniuses can easily maintain a feedback loop between the abstract and the concrete (i.e., sensory specific detail).
7) Disney’s classic creative strategy involved moving between different personalities: the dreamer, the realist and the critic. Most geniuses do something like this.
8) A genius will ask many basic questions. They emphasize questions over answers being bold in their questions and humble about their answers.
9) A genius can easily use metaphors and analogies as ways of thinking.
10) And most importantly, geniuses all seem to have a mission beyond their individual identity.
I could spend a lot of time and words explaining each of these aspects of genius but I can distill all of Dilts’ conclusions down to his main point – genius is based on mental strategies. Mental strategies focus on the structure of our thinking. (If you want to learn more about mental strategies and their application to trading, review Volume V of the Peak Performance Course or consider attending my newest workshop, Peak 204, Modeling Great Traders through Mental Strategies).
For all of the value of understanding mental strategies, there is another approach to genius — via mental states or genius states. In the Dilts and Grinder workshop I mentioned, John Grinder basically said that genius was all about states. Since Grinder’s original work in the area, Dr. Michael Hall has really become the champion of mental states and he won a prize in the early 1990s for the most innovative NLP technique — the introduction of metastates.
Metastates are states “on top of” or “about” your primary state. Here’s a simple example of a metastate. First, you start with a primary state – you respond to the external environment with your primary states. Fear is a primary state. With that primary state, you then bring in another state (i.e. being mad about being scared) which is known as a metastate. In other words, you use another state to “texture” the primary state. Metastates change everything.
Here’s a short exercise to experience a metastate. Remember a time when you felt fearful and notice what that was like, feel the feeling of fear for a moment. Then welcome that fear. You can even open your arms in welcoming the fear. What’s it like welcoming fear? This is actually a Sedona Method feeling release process. In the process, you bring a metastate of welcoming to whatever primary state you are in.
You could also do something similar with a metastate of acceptance. This might sound like, “Oh, I notice that I have some fear and I accept that. Well, that’s simply what I am experiencing and I accept the feeling of being scared right now.”
Those are two useful ways to metastate but what if you reacted differently to your fear? Suppose you said, “I don’t ever want to feel scared again. But what if I do and feel even more scared than I do now? What will happen then?” This brings fear or worry as a metastate about your fear. And what does that do? It makes the initial fear much worse. You could also get angry at the fact that you got fearful saying something like, “I’m tough. Tough people should never feel scared and I’m really angry that I got afraid.” Would that help or make the primary state worse?
Are you beginning to get the idea of meta-stating? Dr. Hall has invented hundreds of new NLP patterns that all involve some form of meta-stating— including ones used by geniuses. Genius comes in when you incorporate states like optimism, resilience, self-efficacy, self-esteem, developing your personal power, the ability to find value and opportunity and take advance of it, etc.
Dr. Hall has written numerous books or manuals with “Genius” in the title and they include:
- Accessing Personal Genius
- Living Genius
- Writing Genius
- Wealth Genius
Most genius states come from meta-stating where you texture one state with another. For example, you might have a focused state which you texture with extreme pleasure. Imagine what that would be like.
Let’s apply this approach to reading. What if you could get into a focused state that promoted a very high retention for information that was textured with extreme enjoyment? That might be a genius reading state. In addition, suppose that you could add any other resourceful state you might want (such as being able to truly get the essence of the material) in order to make the metastate more valuable to you. Actually, incorporating dozens of additional states might make your reading amazingly powerful. Not only would that be a genius state (a metastate really) for reading … but your combination of states would be unique for you.
Now let’s add to that metastate one more capability — the ability to step into it and out of it at will. Say you are on a crowded train but you have some time so you step into the genius reading state and read for 20 minutes. You may have enough 20 minute periods like that to be able to read 3 hours each day. Does that sound hard or boring perhaps? Remember, however, that you also textured the state with extreme pleasure so while you are very focused in your reading genius state, you are also experiencing intense pleasure.
What if someone were to disrupt your reading by asking you a question? You can immediately step out of your state and be present with that person. And then when you have time, just step back into the state again and read. That’s a flavor for reading genius.
Certainly, there is something to be said for Dr. Hall’s genius states. He uses them himself quite successfully. One of Dr. Hall’s goals was to be a prolific writer but he found it very difficult to write anywhere near as much material as he wanted. He created a genius state for writing and applied it to himself – which he can step into and out of at any time. The net result? Now each year, he writes three books, 52 articles and usually 3-4 new workshop manuals – so the production volume is there. Besides his writing, he also reads three books each week – and he isn’t speed reading. He takes notes on each book and indexes all of his notes. As a result, Dr. Hall has developed a tremendous knowledge base inside his head.
Before I talk about a trading genius state, let me ask you a question. What would be the primary state you would want for great trading? Then with what other states would you want to texture that primary state? If you know, then you are not far away from that aspect of trading genius. Email your ideas for a trading genius state to me(van “at” vantharp.com). If enough people reply, I’ll design the next article in this series around the responses I get.
So is genius a mental state or a way of thinking? Well, I suspect that it’s both. Stay tuned as we’ll continue to explore these topics in some detail.
PART 2
In Part 1, I wrote about a core NLP principle — Alfred Korzybsky’s famous postulate that says “the map is not the territory.” In other words, we have no idea what reality truly is, we just have a map of reality instead. In his three book series Strategies of Genius, Robert Dilts said that geniuses are people with rich internal maps and such people tend to possess one or more of the following traits or abilities:
1) Strong visualization skills and perhaps photographic memories;
2) Numerous linkages between the various sense abilities;
3) Shifting easily between multiple perspectives and various perceptual positions;
4) Operating at a different logical levels while being able to chunk up to the big picture without difficulty and chunk down to extreme detail;
5) Maintenance of a feedback loop between the abstract and the concrete (specific sensory detail);
6) Emphasis on questions with an “I don’t know” attitude realizing that the answer is just a function of your internal map therefore likely to be a reality that you made up;
7) Usage of metaphors and analogies as ways of thinking;
8) Missions that go way beyond their individual identity.
There is, however, another approach to genius — genius mental states. Dr. Michael Hall is really the champion of this position having written four manuals with the topic genius in the title. Dr. Hall won a prize in the early 1990s for the most innovative NLP technique, something called metastates. Dr. Hall explained that people bring another mental state to a primary state and thereby create a metastate. Here’s a quick example — you are scared by something and then you get angry about being scared. In this case, fear is the primary state and anger is the metastate, the anger “textures” the primary state of fear.
Dr. Hall explains that genius is not a primary state itself but rather a metastate — which will be somewhat unique for each individual. Genius might be a rather unusual way of responding to a primary state — such as welcoming fear. It also occurs where someone textures one state with another, say a focused state textured with extreme pleasure. Imagine what that would be like.
In the last article, I asked readers what they thought a genius trading state would be and here are some of the responses:
- Dan: The genius trading state is joy/pleasure, discovery.
- Christina: I think the primary states are focused attention and open mindedness. The textured states are confidence; enjoyment of following the rules; detachment from the results; and learning lessons.
- Stuart: I see myself wanting a calm, detached primary state wrapped in textures of determination to execute with a craftsman-like efficiency and intense focus on the process.
- Santosh: The primary state is curiosity textured around: loving the curiosity; being focused; being present in the moment; self-confidence; readiness to act; and seeing the perfection of the “what is” in the results.
- Ben had a combination of ten primary states textured with 8 secondary states.
- Dave identified three necessary metastates:
a. Identification of trades (creativity textured with joy and spiritual awareness)
b. Stalking and action (fear textured with focus and patience)
c. Managing and exiting trades (detachment with joy?) - Ted suggested that the primary state would be a deep connection to the divine textured with the efficiency of a samurai warrior; gratefulness; courage and oneness.
- Linda said her primary state would be calmness textured with the ability to find value and seize opportunity.
- And lastly Steve suggested a primary state of looking for opportunity textured with balance.
Many of the primary states people listed are actually metastates already. Primary states are direct responses to the environment such as fear, anger, curiosity, focus, etc. Anything else is a metastate.
I suspect that some if the metastates listed might actually be genius states and the sets have various degrees of efficacy. I also imagine that each set of metastates listed is quite unique. Remember that in the last article I said genius states were probably unique to each individual?
Based on my promising research in this area so far, my plan now is to create and present a new workshop in late 2016 called Trading Genius. One main aspect of that workshop (perhaps a third of it) will be helping people get into a genius state. At the moment, however, I suspect that any particular optimal genius state relates to the objectives of the task at hand. So perhaps there’s not one genius state for everything that traders have to do but rather multiple genius states. Let’s take a look at several key areas for successful trading and see how genius states might help each one.
For example, some of the top tasks of trading such as Gratitude or Focus + Intention would have their own unique genius state directly implied by the name of the task. I believe that the overall purpose for all of the top tasks of trading is to follow your rules and make no mistakes. Thus, the genius state associated with the trading execution process would have as an objective – no mistakes.
Similarly, developing a system that fits you is another important aspect of trading and this task has three main objectives:
1) To generate low-risk ideas, that
2) meet your personal objectives, and
3) are designed to work well in one particular market type.
Thus, you would need a genius state that would help you meet those objectives and perhaps there’s a different genius state for each objective.
Thirdly, another aspect of successful trading requires that you treat it as a business, not a hobby. For this, you need to develop a trading business handbook like we request of our Super Trader candidates. The objectives for developing a business handbook are:
1) To thoroughly cover all aspects of the business of trading, and
2) to plan for worst-case contingencies.
Again, you would need two rather distinct trading genius states for the two different objectives in this task.
Finally and most importantly in my opinion, trading is all about knowing yourself, as you are the primary engine of your trading results. The genius state for this aspect of trading would allow you to know yourself, really explore your personal limitations and eliminate them.
As a result, I think there are actually between five and ten different trading genius states necessary to accomplish the tasks related to the overall mission of trading well. I also suspect that these states will still have somewhat unique qualities for each individual. For example, what genius state to you think you need to be able to trade mistake free, where a mistake means not following your written trading rules? That’s going to differ to some degree between you and any other trader.
Thanks for sharing! It’s Very generous if you.
Thanks for reading!