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What they failed to realize is that a market that is fundamentally and technically poised to move higher is not going to reverse direction because of a news item—even a dramatic one.
I don’t like to work hard at trading, and here I was just mentally and physically exhausting myself.
In other words, successful trading is a matter of trying to avoid losses, but not being afraid of them. That is a good way to put it. I’m not afraid to lose. When you start being afraid to lose, you’re finished.
He noted a tendency for the broker and client to use longer-term research for short-term trading. This misapplication of information often leads to trading losses, even when the research is right.
He advises wiping the slate clean and starting fresh. Getting
out of everything allows the trader to achieve greater clarity. Liquidated positions, if they still appear attractive, can always be reentered once the trader has regained his confidence.
Market patterns would occur over and over again, or market players would do the same thing over and over again, and you just trade it.
You don’t need any education at all to do it. The smarter you are, the dumber you are. The more you know, the worse it is for you.
probably average 4-tick profits on big positions.
you use intraday charts, since you are trading short term? No. Bar charts covering the past six months.
you have an opinion about what separates the 1 percent from the other 99 percent? Yes. It is a lot of hard work, for one. It’s perseverance. You have to love to do it. Also, in our business, you have to have a total disregard for money. You can’t trade for money.
you mean as long as you like the position, you stay with it? That you can’t think, “I’m losing $1 million on this trade, and with $1 million I could have bought a great house.” You can’t translate it into real terms. Exactly. Most people do. I guess another way of saying it is you have to have almost no fear. Right. Is that a characteristic of winning traders: They have
They are standing there trying to pick a trade here and there, but they are not absorbing everything that is going on. Right. Also,
your perspective, what does the average trader—that is, public trader—do wrong? They trade too much. They don’t pick their spots selectively enough. When they see the market moving, they want to be in on the action. So, they end up forcing the trade rather than waiting patiently. Patience is an important trait many people don’t have.
you usually have a feel for when that is the thing to do? Yes, because it has happened before.
What kinds of things do you look for in a chart? Key points such as the high and low for the week, the halfway back point, and consolidation areas. Do you use charts for short-term or long-term perspective? Short term. Short term in your case meaning? I guess as short as possible. You get in a trade, make money as fast as possible, and minimize your risk.
use the fundamentals indirectly, that is, by seeing how the market responds to the new information? Yes, but also by being the first one to trade off the new fundamental information. I know what I am going to do if a number comes out one way or the other, and I usually have the opportunity to be first.
ever use any trading systems for anything? No. They wouldn’t be there if they weren’t wrong. Do you think trading systems are a losing game? Sure. Why do they exist? You tell me. Because people aren’t confident in their own ability. If you had a really good trading system, you could make millions. Why would you sell it for $29.95?
Trading is like any other job. You work hard, put in the time and effort, and make your own luck. I was lucky that the first 100-lot I sold was a winner. But why was I lucky? Because I stood there all day for over six months, developing and honing market feeling. When the opportunity occurred, I didn’t hesitate. You have to pay your dues to get the luck. Right.
The rule of thumb is if you have lasted
the success a willingness to not always do your own thing? Right. You have to adapt to your success. If you make a lot of money, all of a sudden you start to think you are infallible. You forget the reason you were right was because of all those little factors that you followed. As soon as you think, “I’m the guy who is going to lead the way,” you get slammed.
Do you have to be somewhat of an egomaniac to be a good trader? Actually, the best traders have no ego. To be a great trader, you have to have a big enough ego only in the sense that you have confidence in yourself. You cannot let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.
“You have to be disciplined and you have to do your homework. If you do those two things, you can make money down here. You might not get rich, but you can make $300 a day, and at the end of the year that’s $75,000. You have to look at it that way.” It was like a light bulb went on. I realized that this chipping away approach was what I should be doing, not putting myself at a big risk, trying to collect a ton of dough.
everything. I consider myself a matrix trader. I trade everything on the screen as it interrelates to everything else.
there is a high correlation between the action on a Friday and the follow-through
Why was the way you responded to the market so different from the way your friend responded? He wasn’t sure what his position risk was. I always define my risk, and I don’t have to worry about it. I walk into the pit every day with a clean slate, so that I can take advantage of what is going on. A clean slate sounds like you come in with a flat position every day, but you obviously hold positions overnight. I mean that I’m always hedged, and I’m always prepared.
Do you always know the maximum risk in a position that you hold? Do you always know what your worst case is? Yes. Now, what could happen? The market sits, it explodes, or something in between. But no matter what happens, I know my worst
extensive study of the markets.
justified confidence comes from extensive testing of some sort of model
extensive commitment to being successful as a trader.
the dream is the means by which our subconscious penetrates the barriers we sometimes erect in accepting the true analysis of a market.
portion of positions on pullbacks). Trading around a position in this way may improve performance and make it easier to hold on to winning trades. As a simple example, assume you are long a stock at 50, looking for a long-term
An annual return expectation will lead a trader to trade too small when opportunities are exceptionally favorable and too large when opportunities are absent.
You cannot succeed in the markets by copying someone else’s approach, because the odds are remote that their method will fit your personality.
This maximum loss would occur on an option held until expiration if the strike price was above the prevailing market price.
market price and the strike price was less than the premium paid for the option, the net result of the trade would still be a loss.
In order for a call buyer to realize a net profit, the difference between the market price and the strike price would have to exceed the premium paid when the call was purchased (after adjusting for commission cost). The higher the market price, the greater the resulting profit.
the case of a put held until expiration, the trade would show a net profit if the strike price exceeded the market price by an amount greater than the premium of the put at purchase
Whereas the buyer of a call or put has limited risk and unlimited potential gain, the reverse is true for the seller.
Roughly speaking, the option buyer accepts a large probability of a small loss in return for a small probability of a large gain, whereas the option seller accepts a small probability of a large loss in exchange for a large
(The intrinsic value of a put option is the amount by which the current market price is below the strike price.)
Options that have intrinsic value (i.e., calls with strike prices below the market price and puts with strike prices above the market price) are said to be in-the-money. Options that have no intrinsic value are called out-of-the-money options. Options with a strike price closest to the market price are called at-the-money options.
