Introduction: Janice Dorn, M.D., Ph.D, is the author of over 1,000 articles relating to Trading and Investing Neuropsychiatry, Financial Supercycles, Behavioral Neurofinance, and Holistic Wellness and Longevity. A sought-after media personality, lecturer and trading mentor, she has provided real-time, web-based or face-to-face personal coaching/mentoring for more than 600 traders and investors around the world. Her work in 2005 on the Quantum Supercycle/Big Rollover was the first to specifically identify the 17 macrofactors that would lead to the crash of 2008 and what to expect into 2020.
She is now, or has been, a member of numerous professional societies including the Market Technicians Association, The World Future Society, The International Society for Psychoneuroendocrinology, and The American for Anti-Aging Medicine. She presently sits on the Advisory Board Of The Center For Future Consciousness. In addition to her impressive credentials, Dr. Dorn is a free-market thinker who has synthesized best-practices in trading and investing with a free-market investing approach.
Daily Bell: Thanks for sharing your views with readers of The Daily Bell.
Dr. Dorn: Happy to do so.
Daily Bell: You have a background in finance and psychiatry. What in your opinion is the biggest mistake that investors make?
Dr. Dorn: It is a privilege and pleasure to be with you today. I would like to say at the onset, that I am-with one exception-a trader, rather than an investor. Some of my comments will refer to traders as well as investors. The biggest mistake that investors make is acting on their beliefs that the behavior of the markets over the past weeks, months or years will continue into the future. This causes a kind of groupthink or herding where investors pile into assets that have been outperforming for a while, and end up getting in near the top of the move. When everyone is looking in the same direction, no one is really looking. The markets go through ever-changing cycles of fear and greed, boom and bust. The best investors know this and exploit it, rather than doing what everyone else is doing. Most investors are fearful when they should be greedy and greedy when they should be fearful.
The biggest mistake that traders make is either not having a clear trading plan or being unable to stick with their plan in the "heat of battle" during market hours. This causes them to make mistakes that are detrimental to their financial and psychological capital. Emotions, if not understood, processed and regulated, are the greatest enemy of the trader.
Daily Bell: In this day and age, is investor a misnomer? Would we need to be investors if an honest-money standard were somehow implemented?
Dr. Dorn: Investor is not a misnomer. Even after the carnage of 2008 and the bursting of the tech bubble, there are large numbers of people that continue to buy and hold. Many fund managers are mandated to stay fully invested and either do not or are prohibited from taking proactive measures to hedge against the downside.
Unfortunately, "sell" is a nasty four-letter word for many people. Unless one is prepared to hedge a portfolio (there are excellent ways to do that with inverse exchange traded funds as well as with futures and options), buy and hold is generally not a viable strategy for growing a portfolio. This is true even when "diversified" across a number of asset classes.
In 2007-2008, buy and hold morphed to buy and hope and then to buy and cry. Still, people held on and continue to hold on. Without a strong sell discipline or the ability to hedge, investors are likely to become a dying breed. It hasn't happened yet, but many people did wake up in 2007-2008 and tried to adopt the mindset of a trader, rather than an investor. This trend is expected to continue. Regarding the second part of this question, not everyone one NEEDS to be an investor. People WANT to invest to grow their financial capital. This is hard-wired into the brain and people will do this, even if there is an honest money standard.
Daily Bell: What attracted you to gold as a trading element?
Dr. Dorn: When I first started trading I tried many things, but was attracted to the futures and commodity markets. I came to the conclusion that I was not good at trading multiple markets and decided to specialize, much like I had done as a psychiatrist. In 2001, I came to the conclusion that gold was in a bull market, began studying all aspects of it and placing orders into the pit. In late 2004 when electronic gold contracts (ZG and YG) were introduced, I started watching the ZG, and found that I developed a "feel" for how it moved. In recent years, gold has become a wonderful market to trade due to the volatility and trending moves. I like the liquidity, ease of trading electronically, the spreads, the way the contract moves and the fact that it trades through the night.
Daily Bell: Can you expand on interactions between investing and health?
Dr. Dorn: Vibrant good health is the key to successful living and investing. No matter what anyone tells you, investing is stressful. In order to deal with the stresses you must be in peak physical and mental shape. Daily aerobic exercise to a sweat releases natural calming and "feel-good" chemicals into the body, increases blood flow to the brain and gets the investor away from the computer and market study. Additionally, group exercise or going to a gym offers a social outlet for investors-many of whom feel isolated and alone. Investors should set aside time for meditation or yoga 20- 30 minutes every day.
Good eating habits are critical for brain health. This means clean, preferably organic, food that is not contaminated with chemicals. Investors are instructed to avoid all alcohol, nicotine, soft drinks and limit caffeine to two cups of coffee a day. Also, the pH of the body should be alkaline, rather than acidic as it is estimated that more than 50% of chronic diseases, including heart attacks, cancer and digestive ailments are related to excess acidity in the body. The biggest culprits for adding acid to the body are fast food, fried food and any snack found in a vending machine. Foods that enhance body alkalinity include, but are not limited to: raw or steamed fruits and vegetables, whole grains, brown rice, nuts and certain poultry and fish. Supplements such as Omega-3, Vitamin B-12 and a good multivitamin on a daily basis are recommended.
Each investor must have a plan for his/her wellness and longevity as an integral part of the trading or investing plan. Just like the trading plan, the wellness aspect is individualized to suit the investor's personality and lifestyle. This is something that I focus on intensely with the investors and traders that I coach and in my personal life. Toxic brains and bodies result in toxic trading.
Daily Bell: What are some of the top ten trading traps that you write about on your website?
Dr. Dorn: We do not trade the markets. We trade our beliefs about the markets against the beliefs of everyone else trading. Everyone who signs up for my free mailing list gets each of the top-ten trading traps in detail. In essence, the major traps have to do with traders failing to plan the trade and trade the plan, inability to truly embrace and manage risk, not taking personal responsibility for their actions in the markets, and not understanding their personality and their true relationship with money.
Daily Bell: What makes a great trader?
Dr. Dorn: Passion for the markets and the ability to truly, madly and deeply commit to an occupation that is among the most demanding in the world. Also, disciplined practice and adherence to a trading plan. And a thorough understanding of the concept of risk and reward, especially as it applies to money management.
The capacity to execute ruthlessly when the time is right and to be patient until that time comes along is an additional capability. Along with the ability to think in probabilities and be comfortable with uncertainty. An ability for rigorous honesty with self and taking complete responsibility for everything you do is critical as well, along with the adoption of a strong, centered trading mind-set. Finally, sincere humility and gratitude for any gifts received from the markets.
Daily Bell: Can anyone trade and should they try?
Dr. Dorn: Of course, anyone who opens a brokerage account and has a trading platform can trade. But can they be profitable? Can they trade successfully through several market cycles? That is where the rubber meets the road.
Trading is a cutthroat game where professionals take money from amateurs on a regular basis. This is not a game of play nice or play fair. It is rampant with deception and akin to swimming in shark-infested waters where the big ones eat the little ones. If a person is interested in doing the work and trying it, they should. I have seen traders who are successful from Day 1 and others who struggle for years until they finally give up.
Not everyone is cut out to be a trader but the only way to find out is to do it. If you fail you fail and move on to something that better suits your unique ability. As a general rule, if you are not consistently successful after a few years, it's time to leave the markets and move on. After coaching and mentoring over 600 traders, I can usually (not always of course!) tell after a couple of hours if the person will have success as a trader. Very often, paying $500-$1000 to find this out saves tens of thousands of dollars in money sent to stock market heaven and out of your hard-earned nest egg.
Daily Bell: Can you explain some trading methodologies and give us a sense as to whether they will continue to work in the future?
Dr. Dorn: There are multiple trading methodologies. Some use technical analysis, some use fundamental analysis, some use quantitative analysis and some use a combination of these. There are so many different technical indicators that traders can choose from and every trader has to decide which combination fits his or her personality and works on a consistent basis. There is no single pattern, method, system or indicator that works in all market conditions. The best traders find those tools that have the highest probability of working for them in any market condition. Personality and trading style are often highly-correlated. Some traders are best in trending markets, while others excel in counter-trending or range-bound markets.
The approach and the tools are different for each one and the trader must adapt his charts accordingly. Also, of great importance: there is a big difference between the analysis and the trade. I have known fabulous analysts who were horrible traders and vice versa. As appealing as analysis is (since so many people want to know the future even though no one can really know the future), it is dangerous to trade from analysis. Trading is done from setups or signals. The analysis can be a roadmap, but one must be prepared for detours and potholes along the way as the road is rarely as smooth or straight as the analysis might infer.
This is not a black and white situation, rather probability-driven. Herein lies the essence of risk and reward. No matter what the analysis says, the instruction is to cut positions when they are going against you and add to positions or take partial profits as they move in your favor. In other words, whatever methodology you are using, do more of what is working and less of what is not working and be prepared to change direction quickly.
Daily Bell: Can you elaborate on technical analysis and quantitative analysis?
Dr. Dorn: Technical analysis is the use of any number of indicators that are plotted on a price chart for a given tradable entity. Technical analysis at its very core represents emotions plotted on a grid. Quantitative analysis employs mathematical and statistical measuring and modeling. Our trading service employs a combination of technical and quantitative analysis for many of our trades, especially the newsletter trades. During the trading day, we use primarily technical analysis to call trades since the quantitative work is done after hours when all the data for the day are compiled.
Daily Bell: Does the Internet have a role in a new trading system?
Dr. Dorn: The 1962 work of Thomas Kuhn entitled " The Structure Of The Scientific Revolution" defined and popularized the concept of "paradigm shift." In essence, this means that there is a revolutionary change from one way of thinking to another. The Internet has revolutionized the way people receive information and, in time, it will alter the way people think. Quasi-instantaneous transmittal of information around the globe, coupled with democratizing properties where anyone can write anything, is nothing short of revolutionary.
New trading methodologies will continue to develop as global brain creativity and imagination evolve through the Internet. These will be used to exploit the movements of those who for so long we have allowed to deceive and steal from us. It will become easier to track what the so-called "big money" is doing since they will have fewer places to hide. Dark liquidity pools and the movements of the Illuminati will be tracked with relentless vigor.
George Orwell said, "In a time of universal deceit, telling the truth is a revolutionary act." I believe we are on the verge of a revolution in truth-telling facilitated by the Internet. Karma is about to bite hard and is coming soon to a computer screen in front of you!
Daily Bell: Do you use free-market concepts in your trading?
Dr. Dorn: I consider myself fortunate to be able to trade in the markets. I understand and accept the reality that markets are subject to intervention at any time. It is one thing to dislike it and rant about it and quite another thing to use my skills in the face of it. I use the interventions by taking advantage of the opportunities they provide. Market distortions created by interventions are seen for what they are. Where others see challenges due to this, I see profit potential and new frontiers.
Daily Bell: What are some of the most important issues pertaining to free markets in your opinion?
Dr. Dorn: In the May 2009 issue of Investment Outlook by Bill Gross of PIMCO– probably the most successful bond manager alive today-wrote: "2009 is a similar demarcation point because it represents the beginning of government policy counterpunching, a period when the public with government as its proxy decided that private market, laissez-faire, free market capitalism was history and that a "private/public" partnership yet to gestate and evolve would be the model for years to come. If one had any doubts, a quick, even cursory summary of President Obama's comments announcing Chrysler's bankruptcy filing would suffice. ‘I stand with Chrysler's employees and their families and communities. I stand with millions of Americans who want to buy Chrysler cars (sic). I do not stand…with a group of investment firms and hedge funds who decided to hold out for the prospect of an unjustified taxpayer-funded bailout.' If the cannons fired at Ft. Sumter marked the beginning of the war against the Union, then clearly these words marked the beginning of a war against publically perceived financial terror."
It is the responsibility of every person reading this to take action to preserve and grow what you have worked for all of your life. The task may be more arduous as we are subject to bigger government with creeping encroachment into every aspect of our lives. This is the time to step up, stay strong and take personal power. No one is going to do it for you. It is up to you to do it for yourself by making yourself stronger and more independent every day. Don't let a day go by without doing something to strength your capital-be it mental, physical, financial or spiritual. Try to separate yourself from the mass media that fills people with lies and hype for its own ends. Stand up for yourself and those who support you. Traveling out of fear and into faith is a good place to start.
In the words of Marianne Williamson: "Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? You are a child of God. Your playing small does not serve the world. There's nothing enlightened about shrinking so that other people won't feel insecure around you. We are all meant to shine, as children do. We were born to make manifest the glory of God that is within us. It's not just in some of us; it's in everyone. And as we let our own light shine, we unconsciously give other people permission to do the same. As we're liberated from our own fear, our presence automatically liberates others." That's from A Return to Love: Reflections on the Principles of "A Course in Miracles", Harper Collins, 1992
Daily Bell: Thanks. Are we on the way to a near-term recovery?
Dr. Dorn: No. The details of this have been laid out in The Big Rollover thesis that I have been co-presenting with my colleague Nick Russo since 2005. We are, in my opinion, on the road to a depression of epic proportions that will equal or exceed that of The Great Depression in the United States. All 17 macro factors identified as converging to take us into The Big Rollover, the greatest geopolitical, personal, social and financial train wreck of our lifetime began to converge in mid to late 2007 and are still in action and picking up steam under the surface, even as the stock markets rally.
Daily Bell: What endeavors are you involved in that you would like to point out to our audience? What's most important to you that you would like our audience to be aware of and support?
Dr. Dorn: I have reached that point in my life where I do best when helping others. It's called doing well by doing good. My goal is to educate as many people as possible about how to protect and grow their wealth through the coming crisis. I do this through teaching people to trade, instructing how to survive and prosper in The Big Rollover and urging them to think for themselves through my writings on Trading Psychology. The future is very uncertain right now with many crosscurrents. There is a ton of information and disinformation. Radical honesty is not popular-but it is both revolutionary and freeing. You can see all of our trades: the good, the bad the the ugly. You can write to me about anything at anytime. You can sign up for formal coaching with me. I am asking for your support to help me help you.
Daily Bell: What are the most important seminal works of yours that you would encourage everyone to read? Where can they be found?
Dr. Dorn: My first book, Personal Responsibility: The Power Of You, was published in early 2008. I have written over 1000 articles and blog posts (Trading Wisdoms) on Trading Psychology. Many are on the web and people can search my name to find selected articles. I have presented at Pat Gorman's Wealth Protection Conference for the past three years and these have been very precious times for me. To obtain the full workbook and tapes of the conference (this year's was May 1-2, 2009 and the best ever, in my opinion), call Pat or Linda Gorman at Resource Consultants: 480.820.5877 or 800.494.4149
Daily Bell: Finally, give us your best estimate of where gold is headed, pricewise, over the near and longterm:
Dr. Dorn: It is no secret that the printing presses are running full steam ahead. So many are wondering why gold is not yet at target "moon" and many are frustrated saying it looks like it's "doing nothing." In order to get to the issue, I turn to the charts and what they are telling me. At present, the gold market is frustrating people by doing what is called "congesting" for what looks to be a move up. These "herky-jerky" movements in the gold market generally precede a move of magnitude and are often used to shake people out or frustrate them away.
Right now, looking at the daily spot gold chart using Fibonacci retracement tools, I see that 879 area (the 61.8% retrace) is holding. On the daily chart of the continuous contract, MACD is positive and gold appears to be carving out a bullish inverse head and shoulders pattern. A close over 920 will be a continuation to the upside with first stop at 960 and a retest of the 1000 level and as high as 1300-1500.
In terms of time frame, it is always tricky but I expect to be on board with this move by late June or early July, 2009 with the bulk of the up move to begin sometime in the fall in conjunction with an expected Wave 3 decline in the broad markets. I fully expect that sometime in the next few years, we will have a true trader's paradise in the gold futures market with moves of over $100 a day as the norm, rather than the exception. In bull markets, observant traders will use interventional moves that result in takedowns to add to their physical holdings in bullion. And yes- the one area where I am not a trader is with physical gold and silver. It is a buy and hold until everyone else in the world wants to buy it. Then I will sell to them. But that topic (and much more about precious metals!) is for another day.
Daily Bell: On behalf of all of our readers, we thank you for sharing your views with us and hope to hear from you again soon. And we encourage our readers to consider learning more about your innovative and fascinating work.
Dr. Dorn: Thank you so much! I've enjoyed sharing with you today and consider it a great honor and privilege to be included among your contributors. Let's do it again!
What's quite interesting about this interview is not the trading approach (though that's fascinating too) but the point that Dr. Dorn makes about investing. Regardless of the type of money system, she says, people would still invest.
We thoroughly agree – though we admit to having mixed feelings about this issue and that's why her answer drew our attention. We are quite aware that given the general disapproval these days with "high finance" it is easy to decide – if one is truly aware of monetary history – that the system is being driven by a number of artificial factors. We are aware of three main drivers that likely contributed to the rise of the present system.
Back in the late 1800s, corporate law created the current Western-style corporation – an entity that is recognized by courts as human and separate from those who actually run or own the corporation. That was the first leg of the stool. The second was technology itself, which allowed for mass public trading. Wall Street's brokerage firms are referred to within the industry as wirehouses – so named after the telegraph that poured out orders through the later 1800s. Investors were railroad crazy and mass financing built railroads throughout America and Europe, far more than were needed – until the initial bubble was lanced by the gathering Civil War in America. The third leg of today's global market was the creation of the Federal Reserve and gradual emergence of central banking throughout the West at the same time as bi-metalism subsided.
Today, the combination of corporate law, technology and massive money pumping has created an increasingly broad trading net that allows speculation in a variety of instruments throughout the world. It is easy to characterize such speculation as the froth cast up from a seething sea of fiat money. But that is a simplistic point of view, akin to "middleman" prejudice in which middle-men who aid in complex transactions are seen as unnecessary and greedy. Investing, as Dr. Dorn points out wisely, is an integral part of the human condition, no different an impulse than the one impelling the barter of goods, international trade, etc.
Of course, we would tend to believe that absent distortive elements, the global securities markets would not look anything like they do. They would be smaller, calmer and, without fiat money and other government meddling, less prone to booms and busts. In fact, honest money would damp the need for investment by the great Western middle class (gold and silver tend to gain in purchasing power over time absent meddling) and borrowing methodologies would not depend nearly so much on Wall Street, the City, etc.
But indeed, there would still be "investing" – speculation, whatever you want to call it. The difference would be that people's retirements might not depend on it and the pool of individuals involved would be smaller as well. The propaganda would be nowhere near as intense, either, nor would the coverage of the market and its foibles, etc. The securities industry would be a lot smaller and the players would be more adept. It would be more of a professional market and less of an industry.
But it would exist. And there would be more than enough room for savvy individuals such as Dr. Dorn. She has built a career from careful insights about trading, an act of professional creation we admire and in fact find fascinating, along, we hope, with you.