A few years ago the owner of a local stock trading firm asked me to run a psychological training group for his traders. They were shocked to hear a psychiatrist was coming and loudly insisted they "weren't crazy." The group got off the ground only after the manager told his worst performers that they had to join-or else. Once we began to meet and focus on psychology and money management, the results were such that six weeks later we had a waiting list for the second group.

The firm used a proprietary day-trading system. It worked so well that its two top traders took in more than a million dollars each month. Others who used the same system made less, and quite a few lost money.

In one of our first meetings a trader complained that he had lost money each day for the past 13 days. His manager, who sat in on the

meeting, confirmed that the fellow was following the firm's system but could not make any money. I began by saying that I would take my hat off for anyone who could lose for 13 days in a row and have the intestinal fortitude to come in and trade the next morning. I then asked how many shares he traded, since the firm set a maximum for each trader. He was permitted to buy or sell 700 shares at a clip, but voluntarily reduced it to 500 while on his losing streak.

I told him to drop down to 100 shares until he had two weeks dur ing which he had more winning days than losing and was profitable overall. Once he cleared that hurdle, he could go up to 200 shares. Then, after another two-week profitable period, he could go up to 300 shares, and so on. He was allowed a 100-share increment after two weeks of profitable trading. If he had a single losing week, he'd have to drop back to the previous level until he had a new profitable two-week period. In other words, he had to start small, go up in size slowly, and drop down fast in case of trouble.

The trader loudly objected that 100 shares weren't enough, and he wouldn't be able to make any money. I told him to stop kidding himself since trading a bigger size made him no money either, and he reluctantly agreed to my plan. When we met a week later he reported that he had four profitable days out of five and was profitable overall. He made very little money because his trading size was so small, but he was ahead of the game. He continued to make money during the next week and then stepped up to 200 shares. In our next meeting he asked, "Do you think it could be psychological?" The group roared. Why would a man lose while trading 500 shares, but make money trading 100 or 200?

I took a $10 bill out of my pocket and asked whether anyone in that group would like to earn it by climbing on top of our long narrow conference table and walking from one end to the other. Several hands went up. Wait, I said, I have a better offer. I'll give $1,000 cash to anyone who comes up with me up to the roof of our 10-story office building and uses a board as wide as the table to walk to the roof of another 10-story building across the boulevard. No volunteers.

I started egging on the group. "The board will be as wide and sturdy as our conference table, we'll do it on a windless day, and I'll pay $1,000 cash on the spot. The technical challenge is no harder than walking on the conference table, but the reward is much greater." Still no takers. Why? Because if you lose your balance on the conference table, you jump down a couple of feet and land on the carpet. If you lose your balance between two rooftops, you would be splattered on the asphalt.

When the level of risk goes up, our ability to perform goes down. Beginners often make money on small trades. They gain a little experience and confidence, increase their trading size-and start los ing. Their system hasn't changed, but bigger size makes them a little stiffer and less nimble. Most beginners are in a hurry to make a killing, and guess who gets killed.

Overtrading means, among other things, trading a size that is too large for you. Poor futures traders look for brokers with the lowest margin requirements. If the minimum margin in gold is $2,000, an eager beaver with $10,000 may buy five contracts. Each includes 100 oz. of gold, making his account swing $500 for every $1 move in gold. If gold goes against him, he is cooked. If it goes his way, that beginner will be convinced he has discovered a great new way of making money, continue to trade recklessly, and bust out on the next trade.

Unscrupulous brokers promote overtrading because it generates big commissions. Some stockbrokers outside the United States offer a "shoulder" of 10:1, allowing you to buy $10 worth of stock for every $1 you deposit with the firm. Some currency houses offer a shoulder of 100:1.

When a scuba diver jumps off a boat, he has a device called an octopus attached to his air tank. It consists of several tubes, one leading to his mouthpiece, another to his flotation vest, and yet another to an instrument that shows how much air he has left in his tank. If it falls too low, he may not have enough to get back to the surface, which is why scuba is such a deadly sport for illiterates and hotheads.

Putting on a trade is like diving for treasure. There is gold below the rocks on the ocean floor. As you scoop it up, remember to glance at your air gauge. How much gold can you take without endangering your survival? The ocean floor is littered with the remains of divers who saw great opportunities.

A professional diver thinks about his air supply first. If he doesn't get any gold today, he'll go for it tomorrow. All he needs to do is survive and dive again. Beginners kill themselves by running out of air. The lure of free gold is too strong. Free gold! It reminds me of a Russian saying-the only free thing is the cheese in a mousetrap.

There are tribes in Africa that catch monkeys by putting tidbits of food into jars with narrow necks, tied to stakes in the ground.

A monkey wiggles its hand into a jar, grabs a tidbit, but cannot pull it out because only an open hand can go through the narrow neck. The monkey still tugs at the bait when the hunters come to pick it up. Monkeys lose because of greed, grabbing and refusing to let go. Think of this when you feel tempted to put on a large trade with no stop.

A professional trader needs strong money management skills. All successful traders survive and prosper thanks to their discipline. The 2% Rule will keep you safe from the sharks, the 6% Rule from the pira nhas. Then, if you have a half-way decent trading system, you'll be far ahead of the game.