Any Trading Wisdom to Share?

Any trading anecdotes or tips you’d like to share?  That’s the Question of the Week, the goal being to stimulate a discussion that can help us all grow as traders. Speaking for myself, it has been a long and bumpy road. During the 1980s, I enjoyed all-too-easy success as a market maker on the Pacific Options Exchange. I’d left a newspaper job in 1978 and was soon earning 20 times my editor’s salary working in the option pits. At the time, the competition was relatively light, options premiums were fat and juicy, and retail customers – always easy pickings – were still in the game.  Anyone could have been a winner back then – it was like prospecting for gold in California in 1849. Not surprisingly, my colleagues came from all walks of life – bartenders, ski bums, film producers, cops, rocket scientists, pet groomers, marathon swimmers — you name it.

Anyone Could Do It…

That was the main appeal of floor trading: anyone could do it, at least in theory. Trouble was, the game was always mutating, and over time it came to increasingly favor rocket scientists over seat-of-the-pants traders like myself.  I left the floor in 1989 with my earnings in a steep decline and spent the next seven years wandering in the woods, working mainly as a headhunter (I was ill-suited for this kind of work, since I took unreturned phone calls personally); as a reporter for a company that used a Madison Avenue model for ferreting out promising stocks;  and as an investigator for Hal Lipset, the late San Francisco private eye.

I never lost my Jones for trading, though, and I returned to it on the encouragement of a friend who had happened on a powerful trading system. That system led me to develop one of my own – the Hidden Pivot Method – and with it a ‘camouflage’ entry technique that has greatly reduced the risk of getting into a trade. My trading career now stretches back nearly 40 years — to the early 1970s, when I was enticed to try option trading via exchange list puts and calls offered by the CBOE.

Lessons I’ve Learned

The most important and useful things I’ve learned along the way are as follows:

  • Losing trades are inevitable, even for the very best traders, and should be regarded as stepping stones toward consistent profits.
  • Taking a token profit early in a trade can do wonders for one’s confidence and timing in managing the trade from that point forward.
  • Never trade with money you cannot afford to lose – back-to-the-wall, so to speak –  nor needing to profit in order to pay for necessities.
  • Using stop losses and trailing stops, keep risk and reward in a fixed ratio throughout a trade. $1 : $3 is what I advise.
  • Wait for the perfect trading set-up, since rarely will a week go by that does not drop at least one or two of them in your lap.

This forum is eager to hear about your own trading experiences and about what you might have learned from them.  Readers?

  • Scott September 7, 2013, 11:41 pm

    I’m a newbie with HP and the thing I like about it is it helps take the emotion out of my trades. I’ve paper traded with HP for 4 days and they have all been winners (mini SP futures) at the end of the day. Some of those days I had several trades. Most of my winners have been at P with a couple going short or long at D. If I noodle around X too much, I get out with a small loss. But I’m new to HP, not to trading or investing and I have to watch out for over confidence, especially after a string of winners. That’s what I like about HP, it helps me think logically, like Mr. Spock on Star Trek.

  • DG September 6, 2013, 10:09 pm

    AAPL
    a=700
    b=400
    c=500
    d=200 (round numbers)

    That’s my prognostication. $200billion market cap? Why not? Sony’s is 21b, dell is 24, panasonic is 20…..come on. There was a time when if it wasn’t sony, it was baloney…..$500B? riiiiiiich Yes, I know about past earnings. I also know about $40 a month metro plans, $20 a month plans, and everyone is making smartphones with features that 4 years ago were revolutionary….200 might be rich.

    Oh -philosophical advice….I have a piece of paper in my wallet that basically says, “if you are making money hand over fist, shopping for things you didn’t before, thinking that you really should be a hedge fund manager…..please start selling…especially if all timeframes of macd are extended….sell it all 25% a week every week til its gone….and wait at least a year to re-enter…..in 30 years this has happened a few times….in all cases my mistake was not selling enough….when you are right and the blow off happens the profits are stunningly quick and large and generally given back equally quick…and you will likely feel like an idiot for selling….only to be revealed genius much later.

  • Jason S September 6, 2013, 6:18 pm

    Have a short memory of your trades. Presuming you have a plan for when to buy and sell, once you pull the trigger dont look back with the thought of “if” I had done this or that. If you want to look back to evaluate your success or failure, that is fine but I have found for me it is a conscious act on my part not to play the “if” game when looking back on a trade.

  • John September 5, 2013, 2:16 pm

    I can’t add much. I feel better after reading Mario’s post, because I, too, have lost thousands over the last few years in my speculative account. In my case, I was simply making all sorts of rookie mistakes, such as buying long options on a hunch. Bad, bad idea. Frankly, I was about to give up. I decided to take the HP class, and my trading has improved. I haven’t had any big winners yet, but I no longer have big losers either. It has really helped take the emotion out of it. I can only echo a few tips made by other posters. Wait for the right pitch. Countless times, I’ve made that mistake of jumping on a less-than-perfect trade because I was afraid of missing out on a big profit. I also find it useful to ignore the news. Financial news is strictly for entertainment purposes only. Anything you see or hear in the news about a stock, FX pair, commodity, etc. is already priced in. Turn off the news and respect the charts. Since I’ve been using HP, I’ve been amused at how I can enter a trade based strictly on HP, watch it go in my favor, and then turn on the news just out of curiosity to see what “caused” the move.

  • rossg September 5, 2013, 1:20 pm

    its not how much you make, but how much you lose that matters.
    its not how much you make, but how much you spend.
    learn from your losses, you paid the price, now learn the lesson.
    move on. opportunity is in front of you not behind you.
    no crying.no one wants to hear it and we all got the same story to tell.
    put yourself on the other side of the trade…how would you feel?
    you are never smarter then the next guy, ever.

  • BKL September 5, 2013, 11:15 am

    Warren Buffett’s baseball batter analogy is so simple and illustrative; Wait for a fat pitch. It’s OK to take six or seven strikes, too. You’re not out until you lose your money.

  • mario cavolo September 5, 2013, 10:51 am

    Like many others, over past years I have lost plenty of money in my “speculative” account. I’ve never put more than play money in that account but over the years the losses there are many thousands, more than I’m happy about, yet in fact yes one gains experience from the trading, again and again, and so it is reasonable to say it is in a sense the cost of tuition to learn how to play the game properly. It is not just about the management rules to follow, as many know it is more then inner mental/emotional part that dictates results more than anything else. Sticking to the rules is a battle for many, if you are blessed to be able to do so, then you can win.

    With that said, I’ll only mention one specific trading technique that works better for me as I am trading much better, consistently profitable the past three months. By the way I am trading in my avafx forex account which is leveraged account of all currencies, indexes, commodities and I follow 3-4 separate guidance sites including Ricks.

    Ok, here is the one interesting thing I might share:

    Better to be in a hedged position long and short at the same time than to be out of the market. From being in the hedge position, I pyramid my wins and losses upward and downward. Perhaps you could say that I am in a constant spread trade. As the underlying vehicle moves up and down in waves I take profits off the table, take losses off the table as I am also adding or subtracting lots along the way as the vehicle hits key target/resistance/support/ABCD-PX/ points. So for example, I am now looking at a Nasdaq SELL position with a -$70 balance. However, there are closed, profitable trades already taken off the table. So now, seeing those losing trades are relative to the overall results, they aren’t causing me any fear, and so now I’m trading with a clearer, lower emotion head.

    Its a very personal point of view, do NOT do anything I said, suggest or do as advice. 🙂

    Cheers, Mario

    • Cam Fitzgerald September 5, 2013, 10:13 pm

      Your honesty is appreciated Mario. In the past I suffered some trading losses too. At that time it was because I felt some internal pressure to trade daily which over time I learned was a big mistake. Basically it was gambling and thinking I could beat the daily movements but in the bigger picture it never paid off. So I took the foot off the accelarator. Like I said before, it just works better to read and listen and pay attention. And wait. Waiting a long time sometimes. Time matters. Doing nothing is preferred to jumping into an alligator swamp and getting eaten by the big guys. Right now I am watching Corn. It has really swooned since last summer but harvest is here again so time to sit up and take note again. It could bottom in just days around 450 or it could head all the way back to 300. All I know is tracking it near a potential turn is worth the wait. I suspect it has more upside than down though after the decline it has suffered but a little more time is needed to tell which way the wind blows on price as we head into the latter season.

    • mario cavolo September 6, 2013, 9:13 am

      Hi Cam, yep, thoughts much appreciated and have been watching corn too.

      Some little updates: I nicely exited my treasury shorts a couple days ago and I just put on treasury longs….it seems to many that this 128ish range is a fundamental or intermediate bottom there…

      Meanwhile, here’s another “tip” that I’ve noticed. Currently the Nasdaq is the most bullish and the Dow the most bearish on the charts. So, when at the bottom of ranges, if I go long I use the Nasdaq, when at the top of ranges I go short with the Dow. Again I think this called playing the spread, such as the gold/silver ratio spread…

      Just thoughts to ponder….enjoy the weekend. Mario

  • Rick Ackerman September 5, 2013, 5:57 am

    On the other hand, Kib, some music — Mahavishnu Orchestra’s ‘Noonward Race’ works for me — can sometimes keep one from steeping too long in one’s own paralyzing anxieties.

    • Kibitzer September 5, 2013, 6:19 am

      I’ll definitely put that one in my repertoire. 🙂

  • Kibitzer September 5, 2013, 5:39 am

    I can’t believe all you traders haven’t got anything to offer in the way of advice. No matter how insignificant you feel it is, your “experience”, “rule” or “ritual” could be the one thing that makes another trader successful.

    Another thing I have done is to turn off the Television. I get my “Front running” info from Zero Hedge, Barchart.com or elsewhere early on and then put on my headphones and listen to soothing classical music. Right now I am listening to Serenade for Strings in C major, Op. 48 (Tchaikovsky). Very nice. Give it a try. It helps keep me from doing anything crazy.

  • Troll September 5, 2013, 12:43 am

    The game has changed due to a lack of stability, whether it is real, implied or inferred.

    * A note to Cam: I apologize for not responding to your reply to my question from a couple of weeks ago. I have been busy elsewhere . . . not by choice.

  • Rich September 3, 2013, 9:25 am

    Great topic and comments Rick, Kibitzer and Cam.

    Especially appreciated Rick’s courage to share career biography as a fellow Frisco South Jersey Boy with mutual friends including Hal on the P Coast.

    As broker/fund manager for one of the largest financial firms in the world, got to see and try a wide spectrum of workable trading styles, especially contrary value investing.

    Rich people do like a good value story.

    Made good money for clients, family and friends buying low-cap or low-price quality stock values on the up like Alza, AAPL, BAC, C, CDE, F, SIRI and holding them a long time.

    Also lost money overtrading and selling too soon. We may not go broke taking a profit, but can suffer serious seller’s remorse.

    Noted people can hurt themselves taking too much risk (greed) or not limiting downside with mental or actual trailing stops (fear).

    Some players get addicted to the action and pay the price.

    Lost enough money trading futures and options to stop trading own account for years. Real Estate and Silver bullion investments did much better.

    To rebuild trading confidence, put out two expensive portfolio subscription blogs from 2009, one based on TopTen mid-cap stocks with a new list every quarter, and one based on Big4 Asset Allocation COT Insider trades every week. Both employed Point and Figure Chart Targets. Both returned over 1000% a year on paper trades for over three years. (Never confuse a four-year widely-doubted bull market with genius or a paper portfolio for real profit.)

    Sometimes a great investment idea comes along and we are challenged to see the green forest through the burning trees.

    Recently began accumulating a long-term position in Rick’s RPMGF idea after reviewing their Corporate Website Presentation and thinking about what happens when people realize the $125 T in unfunded government liabilities and $666 T in non Dodd Frank Bank derivatives will not be paid with even 100% taxes.

    What may not be widely discounted by Mr Market is that RPMGF management have major mining experience. RPMGF, despite the Gold name, prove as much silver as gold. Then RPMGF farms out production to local major producers, like the $10 M cash and $32 M royalty deal with CDE on the $28 M cap RPMGF company. If gold and silver hold their value, they can easily double RPMGF market cap.

    RPMGF compound the leverage of a royalty company and their own mining exploration experience, which thus far found reserves worth $33 a share for under $8 an ounce. Nice profit margin.

    RPMGF may be the next Barrick or Newmont, located in the Carlin Trend that produced 80% of American gold and saw reserves drop -33% in the last 12 years.

    What may also not be discounted by Mrs Market is that beside AAPL et al using a lot of silver in their electronic products, each $1 to 3 M Tomahawk missile may use as much as one monster box of silver eagles, 500 ounces or more. Precise numbers are hard to get for obvious reasons of national security with declining silver reserves. (Watch the declining silver reserves on the USDebtClock.)

    The Libyan War used up several tons of exploded silver. The delayed Syrian War may use more.

    Because of industrial, medical and military use, silver demand is chronically larger than silver supply. Silver is actually more net scarce than gold or platinum. Both have larger reserve values.

    Not everyone remembers the gold to silver price ratio was 10 during Biblical times, jumped to 16 with Conquistador supply, and is way historically overvalued now at 58 times. If gold goes sideways and normalizes to 10 times silver, we are talking $139 silver, more likely higher.

    Less than 2% of Americans own silver bullion or coins.

    Yet delivery times on precious metals were stretched to 8 weeks recently. If gold or silver hit new highs, prices may well go ballistic, since the $55 brief Hunt peak spot price in 1980 works out to $156 today adjusted for inflation.

    The US government went off the gold certificate currency standard in 1933 and 1971 because of deliberate debt usury profligacy.

    JFK was the last president to issue silver certificates and 90% silver coins. After his death, silver certificate paper dollars were no longer convertible into the bullion legal tender as our Constitution requires.

    Since then we have been in a real downward economic spiral, the Great Deflation as Vern Myers said, yet precious metals went up as much as thirteen times relative to fiat dollars.

    It was my good fortune to meet and learn from Ron Paul’s first Libertarian Presidential Campaign Manager. That is why I am testing the waters for a 2014 Congress Project Fresh Start in Las Vegas as a Libertarian with a blog and book:

    http://amzn.to/14T44Bh

    Ron Paul knows gold and silver are real money, even if the current Fed Chair did not admit it. Our country may not really recover until we have sound money again.

    During the last Great Depression, Dome and Homestake Mining outperformed all other investments as FDR devalued the dollar 80% from $20 an ounce of gold to $36, because he could not afford both guns and butter, war and welfare, and Congress overruled his Executive Order for 100% taxes on incomes over $25,000, changing it to 96% on incomes over $200,000.

    While miners were hit the last thirteen years by production costs rising as fast as the price of gold, the all-time low of monetary velocity suggests this may be at an end as debt default deflation rolls through our economy. When the dollar is based on debt rather than precious, it may rally to 103 as a safe haven, but not for long.

    Sometimes a great investment idea stares us in the face and we simply do not recognize it.

    Some of my biggest trading mistakes were to sell winners like CDE, CSCO, GOOG, INTC, MSFT, ORCL, SIRI and WMT too soon.

    Please don’t let me sell 19 cent RPMGF until $30 or so.

    Thanks All

    • Rich September 5, 2013, 4:24 am

      Vegas booming
      Seems greed a durable motivator

    • BDTR September 7, 2013, 5:00 pm

      Focused anger worked for me as a trader. No wisdom.

      Witnessing manipulated markets of 2k was instructive as my portfolio value plummeted. I emptied my equities account in a day and sat in cash for a year as I licked wounds and plotted vengeance.

      ‘Success’ happened for me in the metals markets, back in the day, day-scalping high volume mining stocks on their incredibly dependable, incrementally reactive intra-day clockwork bullion moves. I was simply a predatory wild-man, poised, pouncing, slashing long and short like a saber wielding Goth in a Roman blood-bath.

      No fear, no quarter, no shortage of adrenaline. Not so much a greed driven thing as purely abstract and ruthless computer gamesmanship. End of trade day scotch absolutely required.

      My one and only discipline of wisdom was converting ALL profits into physical metals asap, and forgetting it existed. ALL of my market loses derived from ‘investing’, with the one exception of RE.

      Trading like a mindless maniac was my means to financial salvation, and looking back it was as insane as anything I ever willingly, consciously and legally engaged. It never felt legitimate or satisfying beyond the rush.

      Totally amoral and merciless micro-price-trend warfare. That’s trading to me. I revile its primitive barbarity, technical facility and my willful, shallow indulgence exploiting it.

      Never again.

  • Cam Fitzgerald September 3, 2013, 6:53 am

    Nice Kibitzer. Well done. I especially like point number 2 and it suits my own philosophy. It just pays better to spend most of your time reading and keeping up to date and informed than actually making trades for the sake of trading. I have seen a dozen excellent opportunities this past year and was correct in my analysis in all but one. Can’t say I see a great trade every week but I am learning it usually pays a whole lot better to do nothing at all than try to jump on a “hot” trend and end up married to the damn thing and on the wrong side! Like Gold, Apple and Tesla (impending) as perfect examples. That recent bond decline is a great example of a play that does not come along often but pays well if you are not asleep at the wheel. I caught that one just by paying attention but it was a long time waiting and watching before it happened. And now……about that Tesla whale…..hmmmmm. Yum Yum.

  • Kibitzer September 3, 2013, 6:02 am

    Thanks for this very important topic Rick.

    Rule #1 : Don’t trade emotionally. EMOTION is your enemy. It will hurt you more than any market ever will. As you have said many times in our chat room… If you are in love with a commodity (ie gold), don’t trade it. Look for a commodity that you can trade without emotion (sic).

    EMOTION presents in many forms. Here are a few examples of emotions in trading.

    1) GREED presents as an overwhelming emotional urge to take a trade because you are sure to make a killing this time. It may also present as an unwillingness to close a profitable trade because you don’t want to leave money “on the table”. Greed can and will make you poor.

    2) IMPATIENCE is an overwhelming “emotional” urge to take a trade because you are sure that you will be missing out on the perfect trade if you don’t. As Rick said in his essay question, “Wait for the perfect trading set-up, since rarely will a week go by that does not drop at least one or two of them in your lap.” Let the trade come to you!

    3) REVENGE trading will kill you. You must not take individual trades personally. If a trade goes against you, so be it. Analyze it, understand it and move on the the next opportunity. You won’t get even by doubling down if your initial analysis was wrong.

    Rule #2: Don’t forget Rule #1! No, wait, that’s Warren Buffet’s rule #2. My rule #2: Learn to trade (ie Hidden pivot webinar, paper trading, etc) before actually trading your bank, or align yourself with a professional ( as I did with Rick Ackerman). In either case, understand your losses. Taking losses without a thorough understanding of how and why those losses occurred will doom you to many future losses? The flip side of this asks how you will create a consistent winning strategy without a thorough knowledge of whence your winning trades came from.

    Another thing we see too often in the chat room from “newbies” is the question “How little do I need to start trading?” In the majority of cases, the person asking this question is, at the same time, asking for trouble.