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June 11, 2019

Are you smaller than your money

“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.”
– Marianne Williamson

First, a personal story:

“You are only worth $200,000 a year.”

Imagine being asleep, and waking up to this voice.

It was the middle of the night in April of 1995 and I awoke with a start. A voice, (not mine) said these words as clear as could be. As I type this, the hair still stands up on the back of my neck as I recall that night. I sat up in bed. It was 3:00 am. My wife was sleeping peacefully beside me. No one else was in the room. I got up, showered, dressed and drove across the Golden Gate Bridge to the options floor of the Pacific Stock Exchange in San Francisco.

First, some background. After trading successfully for a Chicago arbitrage firm for four years, I bought my own seat on the Pacific Stock Exchange and went to work for myself. The first year I was very careful. I didn’t have the hundreds of millions of dollars the trading firm had provided me, now that I was trading for my own account. Carefully, cautiously, I made $125,000 the first year. The next year I cleared $150,000. The third $175,000 and the following years I pegged out at $200,000 a year.

Until 1995.

That year something very different happened. I was trading Micron options and Micron was on an upward tear with exploding option volumes. There were only four market makers trading Micron regularly and profits were pouring in. I couldn’t help but make money.

By the middle of February my account was up $200,000. In two months I had made as much as I normally made in a year! At the end of February my account was still at $200,000 and the profit opportunities continued. At the end of March Micron’s volatility was increasing, the stock was going higher and the option opportunity was still growing. But my account was up still only $200,000. I would make $5,000, lose $3,000, make $4,000, and lose $2,000 day after day.

That brings us to April of 1995. For all the opportunity in the pit, my account profits hadn’t budged. I was still up only $200,000. That was when I heard the voice in the middle of the night.

“You’re only worth $200,000 a year.”

I got to the exchange floor so early that morning, the doors were still locked. I waited for the exchange staff to arrive, and when they did, I went to the deserted pit and did something I had never done before; I stood in the best spot that would be between the two busiest brokers and right in front of the exchange’s order book official. In this spot I could hear what was going on and that gave me first crack at orders.

You need to understand that on the trading floors, no one “owns” a spot. It is appropriated by the toughest and most aggressive risk takers. They keep their alpha male spots by staying on top of the social hierarchy with various social pressures. Some command respect. Others rule by fear and keep their place as a bully.

The other market makers started drifting in a few minutes before the opening bell at 6:30. No one gave much thought to my new pit position. The guy who always stood there just stood beside me chatting. A few minutes before the bell went off, he nudged me as he stepped into “his” spot.

I didn’t move.

A jolt like electricity went through the pit. A pushing match ensued. I pretended I was wearing concrete boots. The order book official quickly warned us to break it up. We could get a $10,000 fine for getting physical. I was still in “the spot.”

When the bell went off, I became a wild animal. I normally stood near the back of the pit and carefully calculated the option values and took small bites out of large orders that looked over or undervalued. This time I bought and sold every series. I was screaming, waving my hands buying and selling as fast as I could write the tickets. The pit must have thought that Rich Friesen had lost his mind and gone berserk.

That year I went on to make many times my $200,000 limit, and for every year after that. It turned out that I had an internal thermostat set at $200,000. The voice in the middle of the night represented that limit. Once expressed, I realized that it didn’t apply to who I was anymore.

I went on to build my own options trading firm, hiring other traders to trade my account. I had an options trading methodology I had adapted from my previous firm that consistently made money, week in and week out. I hired other traders to trade my account. Some did well by following my strategies, but others would hit profit walls…and then fall back.

It occurred to me that my traders could also have internal limits, just like I did. What could I do? I got lucky. My sister, a newly minted hypnotherapist was eager to build her business, so I brought her to my offices. She worked with the traders and the results were surprising. I wish I could reveal these individual stories in print. Each trader that hit a profit wall had a limitation that was tied to a positive subconscious intent. I call this internal limit your “money thermostat.”

Now I am working with professional traders who are frustrated with their progress and want bigger consistent profits. Most of them are proven traders who have what it takes. But they have periods where they give most of their hard earned profits back. As I work with them, we can usually find a part of them that has a positive intent in limiting their profits, wealth or success.

The internal thermostat isn’t just a mechanism of traders. 75% of major lottery winners are in financial trouble within 5 years. Recent estimates show that 78% of former NFL players are broke or financially stressed after retirement and 60% of NBA athletes go broke within five years of retiring. With salaries that have been climbing into the tens of millions of dollars over the past decade, how is such a dramatic decline in their bank accounts even possible?

Normally our money thermostat prevents us from making more money than our thermostat settings. However, lottery winners and athletes make more money than their thermostat settings. And as a result, most of them HAVE to lose it.

Wealth represents loss for those who are breaking new financial ground.

This may be hard to believe because it is such a radical concept: But it is my experience personally (my $200,000 limit) and as a coach, many of us have a part that fears the changes that success will bring us. Just trust me on this.

Is it time for you to expand your awareness of your own internal “thermostat?” Could your thermostat impact your trading?

I invite you to examine your equity curve (accumulated profits and losses) and chart it like you would your trading asset. Support? Resistance? What do you notice? Could this chart be a footprint of your internal experience of success?

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Rich Friesen

Author, veteran broker and floor trader, Rich went from the "worst trainee trader ever", to building one of the most consistently profitable options trading firms on the Pacific Exchange by training his traders using neuroscience. Rich also holds a Masters Degree in Clinical Psychology, a B.A. in Philosophy, and is a graduate of the Gestalt Institute in San Francisco along with Master’s training in Neuro Linguistic Programming (NLP).

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