Andrew Smith gives some background on what NLP is, and where it came from:
So what is NLP? It is a relatively new idea, developed in the mid-1970s by John Grinder, assistant professor of linguistics at the University of California at Santa Cruz, and Richard Bandler, a mathematician and programmer by background, at the same institution. To cut a very long story very short indeed, their ambitious project was to try and discover whether excellence could be identified and copied (or modelled). Their conclusion was that it could, and this became a central strand of NLP. Another related strand was concerned with communication, and about the importance of words in thinking, recalling and communicating experiences and ideas. This has implications not only for how we produce, access and transmit ideas, but also for how we understand others. Broadly speaking, the thesis here is that all experiences have a sensory base, and that we each have preferences for ‘processing’ them in one of a number of ways. Some people, for example, think in terms of sounds, others in pictures. Others still conceive and communicate ideas in terms of feelings. To focus on the title — Neuro-Linguistic Programming — for a moment, it can be broken down as follows. ‘Neuro’ refers to the neurological basis of our thought and behaviour, and the importance of sensory impressions. ‘Linguistic’ refers to the importance of words in ordering our thoughts and behavior. ‘Programming’ refers to the way in which we choose to organise ideas to get results.
Charles Faulkner of the New Market Wizards and most recently profiled in Little Book of Trading gives more insight:
NLP is short for Neuro-Linguistic Programming. The name sounds high tech, yet it is purely descriptive. Neuro refers to neurology, our nervous system — the mental pathways our five senses take which allow us to see, hear, feel, taste and smell. Linguistic refers to our language ability; how we put together words and phrases to express ourselves, as well as how our “silent language” of movement and gestures reveals our states, thinking styles and more. Programming, taken from computer science, refers to the idea that our thoughts, feelings and actions are like computer software programs. When we change those programs, just as when we change or upgrade software, we immediately get positive changes in our performance. We get immediate improvements in how we think, feel, act and live.
People understand today that trading is teachable. But why is that so? Why have men like Donchian, Seykota, Dennis, etc. been able to teach so many? Why have trading students learned so much just by studying these men? How can anyone learn to emulate any life success for that matter? In many ways these questions are answered by Neuro-Linguistic Programming (NLP) and men like Charles Faulkner.
Charles Faulkner is a teacher in the field of Neuro-Linguistic Programming (NLP). He is an expert in applying NLP to trading and was originally profiled in The New Market Wizards. Charles has that knack for being able to see through the forest to the essence of many issues. Bottom line? He is worthy of seeking out for your own increased education.
More on Charles at TurtleTrader.
Why NLP Matters for Traders
The core NLP question is whether excellence can be identified and modelled. Applied to trading, this is the question the TurtleTrader experiment asked and answered. Richard Dennis believed that trading excellence could be identified, described as a set of rules, and taught to beginners. He was right. The rules that produced Dennis’s trading success could be extracted from his behavior, codified, and transmitted to people who had no prior trading experience. That is NLP’s modelling premise applied to trading at its most dramatic scale.
Faulkner’s software analogy is particularly useful. If thoughts, feelings, and actions function like software programs, then persistent trading errors, holding losers too long, cutting winners early, overriding signals with gut feel, are bugs in the software. NLP offers tools for identifying which programs are running, understanding their structure, and replacing them with more effective versions. The trader who consistently exits winning positions too early is running a program that values security over opportunity. Identifying the program is the prerequisite to changing it.
The connection to systematic trend following is direct. The system itself is one form of reprogramming: it replaces the trader’s real-time emotional decision-making with rules built when the mind was clear. NLP addresses the deeper layer: why the trader overrides the system, what internal programs produce hesitation at valid entry signals, what programs cause the trader to exit early, and how those programs can be identified and changed. Both the systematic rules and the NLP work serve the same goal: getting the trader’s behavior to match the approach that produces results rather than the emotional response that produces errors.
Frequently Asked Questions
Who is Charles Faulkner and what is his connection to trend following?
Charles Faulkner is a master NLP practitioner who spent years studying the decision-making strategies of exceptional traders including Richard Dennis, Jim Rogers, Paul Tudor Jones, and Tom Baldwin before becoming a trader himself. He was profiled in Jack Schwager’s The New Market Wizards and has appeared in Michael Covel’s Trend Following and Little Book of Trading. His work focuses on modelling the mental strategies that produce trading excellence and teaching those strategies to others.
Why is trading teachable according to NLP principles?
Because NLP’s core premise is that excellence can be identified and modelled. The mental strategies, beliefs, and behavioral patterns that produce exceptional performance in any domain can be extracted, described, and transmitted to others. Dennis’s Turtle experiment proved this in trading: the rules and mental framework that produced his success could be taught to beginners in two weeks with results that far exceeded what conventional wisdom said was possible. NLP provides the framework for understanding why that transmission worked.
How does NLP complement systematic trend following?
Systematic rules remove emotional decision-making from trading at the moment of execution. NLP addresses the deeper level: why traders override the rules, what internal programs produce the hesitation and emotional responses that lead to rule violations, and how to replace those programs with patterns that support consistent rule-following. The rules are the correct behavior. NLP helps the trader access those behaviors consistently by understanding and updating the mental programs that currently produce different behaviors.
Trend Following Systems
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