Wake Up!... To Reality.

I have never met anyone who does not like the movie Field of Dreams. I am sure that such people exist. For all I know, you may be one of them. But, practically every person I know who has seen Field of Dreams, loves it.
What I enjoy most about the movie is that it combines two key elements that I feel are vital to a great movie:

Sports and "schmaltz".


For other cinematic wonders that fit the description, please see The Pride of the Yankees, The Natural, Hoosiers, Rudy and, of course The Mighty Ducks. It is the ultimate male fairytale to observe the heroic struggle of the team or individual who overcomes all sorts of conflicts, both internal and external, and succeeds against all odds; all within the context of sports.
For those of you who may be unfamiliar with Field of Dreams, the basic premise is that while on the job one day, a corn farmer named Ray Kinsella, portrayed by Kevin Costner, hears a faint voice echoing through his corn field. The voice, being carried to him on the breeze, repeats a criptic message:

"If you build it, they will come."

At first, Kinsella is understandably confused. Yet, as he begins to trust the devine voice, which offers other vague clues as to his calling, Ray somehow realizes that he must build a baseball diamond, which he decides to clear out farm land in order to make room for, whereupon completion will become a Mecca for the ghosts of former baseball players.
Thus, Field of Dreams is a life-affirming tale of the power of faith, redemption, and resolve trumping doubt and reason, which are qualities that many successful traders possess in abundance.

There are countless glasses-fogging moments in Field of Dreams. Who can forget when the bewildered ghost of Shoeless Joe Jackson, one of the disgraced baseball players from the 1919 Chicago "Black Sox" team, played by Ray Liota, emerges onto the baseball diamond from the surrounding cornfield and asks, in awe of his surroundings, "Is this heaven?" Classic. How about the final scene when the ghost of Kinsella's estranged father, also a former ball player, returns to the ball field and has a catch with his son? Great stuff.

In my opinion the most poignant scene in the movie, the one that sums up the essence of the film, is the one in which Ray's brother in law, Mark, played by Timothy Busfield, whose bank owns the mortgage on Ray's farm, sternly warns Ray that he is about to go broke. He tells him in no uncertain terms that his farm will be repossessed and that he is basically a fool for undertaking this project of building a baseball field (on valuable farmland, no less), for a bunch of deceased ball players whom nobody seems to be able to see except for Ray and his wife and daughter. For obvious reasons, Mark believes that Ray's attention should be on keeping his farm productive and therefore profitable rather than destroying a large portion of it in the name baseball games that do not actually appear to even take place. Ray is undeterred as he and a couple of other "believers, " Terrance Mann and Doc Graham (played by James Earl Jones and Burt Lancaster respectively), blissfully take in a ballgame from their seats on a row of wooden bleachers that Ray had constructed along with his enchanted ball field. Mark is unaware of the ball game taking place just over his shoulder as balls whizz by his head and disgruntled baseball players have to hold each other back from trying to throw him off of the field, while he chastises Ray. Mark implores Ray to sell his farm, that he will not be able to borrow any more money and that he will bankrupt his family. Ray is still unmoved. He built his baseball diamond as a leap of faith when the mysterious voice came calling. What exactly the voice meant may never truly be known, but Ray interpreted it as a sign to create a baseball diamond smack-dab in the middle of his cornfield.

In listening to the "voice" and building his ball field, Ray puts his family at a major disadvantage because he trades something tangible and reliable (his farm) for something abstract and hypothetical (the baseball diamond and ball players). Mark makes this point abundantly clear as he pleads with his brother-in-law. Although we, as viewers have no choice but to believe what Ray sees and take it for reality, since it is from his point of view that the story is told, Mark is more sensible in both his concern and his anger because it is apparent that Ray has shirked all responsibility for some sort of fantasy. Therefore, the scene in which Mark confronts Ray represents a showdown between Ray's sense of faith and Mark's sense of reason. As you watch, you may notice how Ray's position, although entirely hypothetical to the common observer, appears to be on much firmer ground, as evidenced by his confident unflapability, a complete contrast to Mark's desperate frustration. Strangely, Mark comes across as the one who has something to prove, instead of the other way around.

In many ways, I share in Mark's frustration even if I sympathize with and believe Ray, I know that Mark is right. Mark presents Ray with a hard look at reality. He firmly informs Ray that he cannot support him in his ambition because he sees no evidence of what Ray sees and at the end of the day, it will not pay the bills. Furthermore, should Ray falter in his endeavor, his sister and niece will go down with him.
Although it has the "Happily Ever After" ending obligatory to fairytales, Field of Dreams is atypical as far as fairytales go for one big reason: In Field of Dreams, Ray has everything to lose, whereas in, say, Cinderella, our protagonist has nothing to lose. Therefore we can fully invest ourselves in Cinderella's desire to free herself from the oppression wrought on her by her evil stepmother and stepsisters, as she dreams of marrying the prince, because the alternative is not worth preserving. At the same time, while we may admire Ray's faith and resolve in building the baseball diamond, which will become a sanctuary for lost souls looking to atone for their sins against themselves, we in some ways want to cringe, smack him upside the head, and say "Dude! Enough with this. You have to feed your family."

To hope in spite of reality and to have that hope overcome reality is a fairy tale's secret to success, much like in Cinderella. The star of that narrative is a slave to her own family and were it not for her hoping against reality, Cinderella would have nothing at all. Ray Kinsella, on the other hand, is a man of means, who sacrifices plenty in his Quixotic quest, as he runs great risk in trading a comfortable reality for an uncretain abstraction.

Market Inferences: Not Always so Realistic.

Back when I was a teacher, in order to prepare them for their standardized tests in English, I instructed my high school students to apply a strategy called the If/Then hypothesis to their various reading passages. The purpose of the If/Then hypothesis was for the students to try and make inferences or predictions from reading, which would help them stay engaged with what they read. The students would make various inferences according to what they knew about the characters and the reading overall.

For example, we can apply this technique to Harper Lee's classic novel To Kill a Mockingbird, which was set in pre-civil rights rural Alabama:
"If Atticus Finch decides to defend Tom Robinson, a black man, in court, then ridicule and harm will almost certainly come to him and his family."

Presumably, a student who applied this specific If/Then hypothesis would read further to see if their inference was correct.

Every day, people base their lives around numerous If/Then hypotheses, trying to infer as to what course their lives will take if they conduct themselves in particular ways. As far as I am concerned, these If/Then hypotheses manifest themselves in three ways:

• Anticipatory (Higher probability): If I eat right and exercise regularly, then I should live a longer and healthier life.





• Hopeful (Lower probability): If I practice playing basketball every day, then I will become a professional basketball player.





• Reflective (Effects future probability): If I had known that my friend's cat was mean and might scratch me, then I would not have put my face so close to its face.

The higher the probability of the If/then hypotheses that you apply, the more realistic they are, and the greater chance you have that they will prove to be true. The first example given above is of higher probability because it anticipates a reasonable outcome based on proven lifestyle behaviors. The second example is of much lower probability because it assumes a more subjective outcome- that this person will become a professional basketball player -that is contingent upon factors beyond mere practice, such as physical attributes, natural ability, and coaching, to name a few. The final example should serve as a lesson that the person can reflect on: If I did one such thing to an unfavorable end when I was in a particular situation, then next time I am in a similar situation I will behave differently. Presumably we are able to learn from our mistakes in order hypothesize more favorable If/Then situations in the future.

***

One problem with many inexperienced traders (and some longer-tenured ones) is that they make a lot of hopeful/lower probability inferences regarding their lives, based on trading. This means that traders often opt for faith, blind faith at that, rather than sense and reason. Such a formula may work for Ray Kinsella and Cinderella in the movies, but not so much inthe real world that we live in. Many of my former colleagues from teaching applauded my decision to leave teaching in order to become a trader. To this day, I don't know if they were happier for themselves that they did not have to deal with me as a co-worker anymore, or for me because my lfe would perhaps be taking a more prosperous and more fulfilling course. In any event, they all told me how smart I was because in their opinion, "teaching aint what it used to be" and you can "leave all this crap behind" in order to do something where you can "make a lot of money".
Ah, yes; making a lot of money. That is the supposed outcome for a trader, right? In fact since it is so true that traders make a lot of money, I am surprised that everybody is not one. Therefore, the If/Then hypothesis we could apply to trading would be:

If I become a trader, then I will make a lot of money.

Unfortunately, as many of us know all too well, the If/Then presented above carries a low probability of coming true. Thus, the faith, redemption, and resolve obligatory to successful traders are not acheived over night. They are, in fact, carefully developed and well earned. After all, one of the great maxims of trading is that there is as much money lost as there is made. So, at best, with all things being equal, my chances of making any money at all, let alone "a lot" of money, are 50/50. Then, there is the issue of exactly how I plan on making the money. Assuming that you begin trading with minimal experience in or understanding of actual markets, then your chances of making a lot of money are probably less than half. However, your chances of losing a lot of money are greatly increased. So, that very generalized inference that if you trade, then you make money is precarious at best.

In order to turn the lower probability hypotheses that we hope will come true into reality, then we need to build up to them by setting up higher probability hypotheses along the way that we can reasonably anticipate will come true as we hone our skills, as well as reflect on whatever mistakes we might have made that hindered our ability to make money. To this end, one can establish the rule for oneself:

If I practice a consistent and disciplined approach to trading, then I can become a better trader and have a better chance of making a lot of money.

Notice how this If/Then scenario does not necessarily assume any particular outcome but rather anticipates a fairly realistic one based on a tangible set of behaviors. It is the behaviors described- consistent and disciplined approach -that lay the groundwork for the desired outcome, leading to a higher probability for success. Of course, what it means to practice a disciplined and consistent approach is different for each trader; so building such an approach is also subject to all sorts of other If/Then hypotheses. Traders run into trouble, as will most anybody, when they assume an outcome without respecting the process that might lead to that outcome or by not calculating the risks involved. As traders, we are taught to weigh the risks of each and every trade against its benefits and if there is not a reasonably high probability of making money from our point of entry, then we should rethink the strategy. Let us say, for example, that the markets are orderly, are fairly range-bound, and basically trade between clearly distinguishable areas of support and resistance (wishful thinking, I know!). That being the case, you are looking to trade a stock that has consistently traded between $63 and $67. In this particular situation, we could say with fairly high probability, given the market conditions described:

If I buy long at $63 or sell short at $67, then I should make money.

The If/Then given above is realistic because it incorporates a plan based on an awareness of market conditions, that should work (until, of course, it does not). If a trader tries to get long near the top of the range, before the stock breaks resistance, at say $66.30, then there is a higher probability that he or she would lose money. Yet, should such a trader be paying attention to the market, to the movements of that particular stock, and notices strength, he or she might say:

If the stock breaks the resistance then it is strong and I can consider buying it near $67 once it dips back down to that price.

Once again, a higher probability trade, based on a reasoned and disciplined process. A realistic and therefore successful trading inference is always based on something tangible, such as a discernible move in the market, and is not simply a blanket assumption based on what we hope will happen.

Looking back to our original example, Field of Dreams, we can reasonably argue that Ray Kinsella operates under an extremely low probability If/Then hypothesis:

If you build it, (then) they will come.

Ray has very little to go on here. He knows that he has to build something, which upon doing, somebody will come. What it is or who they are is entirely unknown. In reality, an If/Then will most likely come true if there is some basis for truth and a process by which it will be realized. Even if the If/Then presented to Ray was more specific: If you build a baseball diamond in the middle of your farm, the ghosts of past baseball players will come and play on it -you might think that Ray had a few too many ears of corn between his ears if he actually went ahead and built the baeball diamond.

There is little wonder why Ray succeeds in the end, as the camera pans out to reveal cars backed up for miles, each making the pilgrimage to Ray's field, while he and his father's ghost have a catch under the lights: His story is not real.

It is a fairytale and in fairytales what could never happen in reality, actually does. When we watch a fairytale, we live vicariously through the protagonist. His or her artificial victories might inspire some to strive for similar triumphs, yet many would consider one naive to think that such unlikely circumstances breed success in actual life. More often, however, we sometimes just like to lose ourselves in the fake stuff, so we can at least convince ourselves that the impossible can happen.

Reality. No Magic Wands Here

OK, so maybe it's not fair to condemn fairytales as complete bogus. The basic end result, happiness, is attainable in real life and according to our nation's Bill of Rights, we are entitled to pursue it. So, while every farmer might not necessarily get his magical baseball diamond, we cannot deny that an unlucky young girl, ostracized and belittled by those around her, may someday get her prince. In real life, it is the means to the ends we see in fairytales that we know cannot be. We can find our way from poor-house to penthouse but there will not be any fairies, fairy godmothers, magic pumpkins, magic spells, mysterious voices, or dead baseball players to help us along the way.

In order to truly succeed as a trader, you must take realistic steps toward success and, just as importantly, you must be in touch with reality at all times.

People often try to convince themselves that they are better off than they actually are. It is not uncommon to draw confidence by minimizing and rationalizing your faults. As traders this very basic element of human nature is all the more glaring because the volatile swings in the markets and the plethora of ways in which we can interpret its movements can cause constant second-guessing and uncertainty. The difference between making money and losing money is often a matter of paltry seconds and petty pennies. Therefore, we tend to take solace in our near misses. You may be very frustrated by your loses, your missed trades, or by getting stopped out of a position only to see it go in your favor the very next instant. Despite the frustration at having gains cut short or taking losses when you very well could have been highly profitable, you might still take solace in knowing that you executed trades in the right areas, that your thinking was "basically" correct but you just had a few unfortunate bounces; maybe you got swallowed up by some unexpected volatility and just came out down for the day. You rationalize the situation by telling yourself that although you did not have a good day trading, you are still a good trader because you had a good initial sense for the market but, just as both traders and the markets are imperfect, things just went against you. You resolve to fine-tune your approach as needed, iron out whatever bad habits you have that may have complimented the market, and have a better day tomorrow.

Now, this is all well and good, and yes, there are bad days in trading when you lose money; such is a reality of trading. But, what happens when you have loss, after loss, after loss? When does a bad streak turn into incompetence? When do you admit to yourself that you really might not know what you are doing? What happens when you promise yourself that you will break your bad habits, yet you keep making the same mistakes? There may come a time when you have to face reality and and admit that you are not doing well trading and that you will have to find a way to become better at it or move on from trading altogether.

There is no magic solution for successful trading. The Fairy God-trader will not appear out of thin air, wave her wand, and turn you into Benjamin Graham. The success comes from within you and is cultivated by you. As previously discussed, a disciplined approach, that takes into account appropriate risk and market conditions at that moment, which you customize to your own personality, would be a good starting point. But, to make your own personal trading system work for you is a process that can take a very long time to implement with consistent success and will require a lot of trial and error, all of which will cost you time as well as money.

Living in the Moment

As you perfect your skills as a trader, you will undoubtedly experience countless growing pains and more ups and downs than the crude oil market at options expiration. While it is of vital importance that you keep track of your progress as a trader throughout all of the triumphs and tragedies, so you can gleen perspective from your strengths and weaknesses, you must also keep aware of where you stand as a trader at that specific period in time, when you are still a work in progress. Chances are, unless you prove to be particularly gifted at trading, some sort of prodigy, you will not be anywhere near as good at the beginning of your career as you one day will be; assumming you survive your own learning curve. Therefore, you will be much better off in the long run if you accept the reality that you might not be a very good trader early on. If you are in touch with reality, you will prevent that pitfallof an If/Then hypothesis; If I become a trader, then I will make a lot of money from getting you into serious trouble.

Like most anybody who anticipates one day becoming successful, many traders try to act like they've made a lot of money before they have actually done so. After all, when operating under the idea that If I become a trader, then I will make a lot of money one might very well conduct one's lifestyle as if they have already made a lot of money, or at least with the assumption that the money will imminently be their's.

I have heard stories from older traders about the "Rio Spread". What is the Rio Spread, you ask? The Rio Spread refers to when a trader would come down to the floor with one goal in mind: To make enough money trading to pay for the two airline tickets to Rio de Janiero that he just bought for himself and his girlfriend. Once he made the money to pay for the tickets, he was done for the day. There was a good chance, however, that this particular trader would not make money that day, at least not enough to pay for the tickets. He might even lose a whole bunch of money and have to take his chances the following day to make his money back, and then some. Such reckless practices are the ruin of many a trader. The truth is, and you will read this in most any book on trading philosophy, that you should never expect the market to pay for your individual expenses. While you will need to be able to support your family and its lifestyle if you plan on making a career out of trading, you should never approach the market with the mindset that you need to take enough money out of the market during a particular month so you can buy yourself a car, for example.

A lot of traders begin building lifestyles that they cannot at the moment afford in anticipation that they will soon make enough to pay off whatever it is that they had just purchased, whether it be an expensive home, a new car, an extravagant vacation, clothes, or jewelry; whatever the case may be. Because they know that the potential exists to earn an unlimited amount of money at trading, some traders justify an overly-lavish lifestyle by surmising that they will make the money to support such a lifestyle very soon. Perhaps they even use such ostentatious possessions as motivation to become a better trader, convincing themselves that if they know they have an expensive mortgage, they will just have to find some way to make enough money to pay it off.

My father is rife with tales and anecdotes about the old-time traders and the "good old days" on the floor, some of which I have already shared with you . So, here is another:

He knew two traders from a while back, a father and son, each of whom were quite successful. One day, after a very proseprous run in the markets, the son, who was in his late 20's and had yet to experience prolonged periods of either success or failure, pulled up to his father's house on Long Island in a brand new Porsche. Dismayed, the father berated his son as he came bursting out the front door.

"What the hell are you doing driving that Porsche?" quipped the older man. "Do you think you are some kind of big shot?"

Bewildered and a little bit offended, the son remarked back at his father "But YOU shouldn't be one to talk. You always drove a Cadillac!"

To that the father replied, placing a firm grip on his son's shoulder, "The thing is kid, I never bought one Cadillac until I could afford FIVE."

Talk about living within your means! In that example, the father may be a bit extreme, but his financial due-dilligence is not without merit. I, for one, will not necessarily wait until I can afford FIVE houses before I actually buy one house. But, I think that the father makes a good point in that example, in that you should always make a concerted effort to preserve your wealth. Look, if you work hard and earn money, then you deserve to have things and you should not hesitate to buy a little something either for yourself or for someone you care about from time to time. You will not get much enjoyment out of being miserly; and while furnishing your apartment with the desk and chairs you managed to swipe from your dorm room after college might save you a few dollars, I doubt that would be an appropriate lifestyle choice for a young professional. If you happen to have some money to spend, then by all means you should spend some of it, and in saying that, I emphasize, the word some.

In order to have a realistic chance of living a comfortable lifestyle, you need to be realistic about how much money you ought to spend and how much you ought to save. Trading profits are very seductive because each trading session offers the prospect of unlimited gains. Therefore, like the young trader who impulsively bought the Porsche or the one who purchased airline tickets to Rio De Janiero before he could really afford them, it is not uncommon to mistake a brief run of success for actual competence. After all, we have the best intentions for ourselves and want nothing more than to be good traders. So, it is easy to sometimes get overly excited at the prospect of success. But, bear in mind, sometimes, the pretty new girl in class only sits next to you because that is where the only available seat happens to be, and not necessarily because she likes you.

So, for example, I have been as guilty as the next person of getting a bit ahead of myself coming off of some decent trading. I have been known to spend a large portion of a day's profit on some item or another practically the second I left my office. Doing so might feel good at the time, like you might sometimes feel like "what's the good of having money if you can't spend a little of it?" But, buyer's remorse can sure set in quickly, especially when you consider the fact that making money in the market is no guarantee. If you happen to lose money the next day, then you might feel really awful about your previous day's splurge.

Suppose, then, that you had a pretty good day trading; and I am not going to presume that I know what a pretty good day is for you any more than you can for me. But, let's just say that you made $1,000 from trading. And, if I am not mistaken, if you can regularly earn $1,000 per day, that equates to $5,000 in the average week, and that equates to a decent working salary (minus those pesky commissions, of course). Anyway, you are thrilled about your $1,000 and in a moment of carefree elation you decide to buy a jacket that just happened to catch your eye the other day, for $250. Now, in the grand scheme of things, we all spend a couple hundred dollars on something for ourselves or someone we love every now and then. But, if you have not been trading long, have not had regular success, have not amassed any substantial savings, and therefore are basically living off of your daily P/L, perhaps it would not be prudent to impulsively spend a quarter of your daily income. Just think of how quickly you would squander your wealth if you went out and plunked down 25% of it each day. It costs anywhere from 33% to 50% of the average major city-dweller's salary to maintain a basic lifestyle (meaning a home and the usual expenses, such as monthly bills, common to the home). That being the case, if you scrape off another 25% just by being frivolous, you will not have much money for anything else.

OK, so maybe you don't throw around hundreds if dollars after each and every decent trading day. But, knowing that your earnings can make you giddy, they may also cause a false sense of empowerment and status, all of which might lead to one or two times per month during which you pick up the bar tab for your friends after happy hour. Before you know it, you get your credit card bill in the mail and you are shocked at just how high it is. Believe me, I know all this because I have done it... More than once! A dream car, a fancy wardrobe, picking up checks: they are all part of life's grand fairytale. However, until you can afford such things without later regretting it or without running the risk of sacrificing other expenses, it might be better to be realistic about how much you make and how much you should spend. Traders can make heaps of money but that money does not exist for you until it is in the bank and it is better spent when there is enough money in the bank leftover, with more money coming in.

***

There is nothing wrong with trying to make a lot of money trading. Financial wealth, at least to the point where your family can comfortably maintain a sensible lifestyle, which includes not only life's necessities but also certain luxuries and the opportunity for leisure, is a reasonable goal for any hard working individual. But, when a reasonable goal becomes an unreasonable obsession, there is a tendency towards disaster. If we become obsessed with making money, we can very easily abandon our better judgment. Like a spurned lover who probably well knows that he should not constatly e-mail his former girlfriend, who has moved on from him and found happiness elsewhere, obsessed traders often act to their own detriment in similar ways. In a mad quest for money, a trader might over-speculate on the market and force a trade before the right one comes along. Fearing that he may miss a significant move in the markets, one in which he can garner great profit, a trader might get involved in a trade at the wrong time and end up painfully regretting the results. Both the infatuated lover and the obsessed trader know that in all reality they are wrong in both feeling and approach, yet they hold on to some idealistic notion that they just might be right and therefore stay their destructive courses in hopes that they are, in fact, right.

Proof=Reality

A good trader makes money. Period.

There have been plenty of times when I based my status as a trader more on my analysis of the market rather than on the actual results of my trades. For example, I might believe on any particular day that I have a solid technical sense for the market. I might be able to determine exactly where I think the market will dip down to and where it will rally up to, and I place my orders accordingly. Well, what often seems to happen (and it's happened to all of us) is that the market will trade to within pennies of my order and then reverse. Frustrated as I may be in that situation, I might find solace in knowing that I prettymuch had the right price in mind and convicne myself that it was only rotten luck that kept me out of a winning trade. I may even take heart that I am indeed a good trader because a only a good trader would be able to see the technical areas that I saw. On occasion, I have even considered such an instance to be something of a moral victory because a true understanding of the market requires being able to both see the market and make trades in the market, and on that particular day, the trades just did not come off as I had hoped. I sometimes take pride in my "moral victories" surmising that a bad trader would have lost money and tomorrow, I will get the trades off. Feeling vindicated, I pick up a bottle of good red wine on the way home.

Now, good red wine can quickly become sour grapes when I lay awake in bed that night, thinking "You know, I really haven't made any money this week. I'm not losing any money and I think I have a good read on the market but I really haven't made money the past few days."

Being able to anticipate the market's moves is a key element to good trading but the real mark of a good trader is whether or not he or she consistently makes money. Being able to execute a trade that has a high probability of being successful, whether it be by aggressively targeting a price area, or by scaling in, is an acquired skill. Inexperienced traders too often realize that the proper trade has taken place only after it is too late. It takes a firm understanding not only of specific stocks, but of the markets in general, the information and news that pertains to the markets, and how that information and news will effect the market, to have a greater chance of consistently making successful trades. Once you have a better grip on the various technicals and fundamentals, you will be able better target when and where trades are likely to occur and you can place your orders acordingly, with greater likelyhood of favorable results. I emphasize this deeper understanding of the market because it is quite possible that you can have a successful run at trading with only a rudimentary understanding of the markets and in many cases, you may get caught up in thinking that you are better than you actually are. I cannot claim to know whether or not you are a good trader. If trading has worked for you in the long run, whatever your method, then I cannot be one to argue with the results. But, it can often be the case that you trick yourself into a false sense of security, based on some early luck in the markets, but you then fall hard when market conditions change because of your over all inexperience. Again, if this had not been my own firsthand experience, then I would not be qualified to discuss it and I am sure that there are plenty of others out there who have been in the exact same situation. Therefore, we must keep guarded optimism by enjoying our progress while constantly seeking a higher level of understanding. A good week- or even a good month -does make one King of the trading jungle, so one must be sure not to gnash one's teeth too soon, lest one is prepared to be bitten oneself.

We can apply the following If/Then hypotheses in order to achieve ultimate success in the markets:

If I have a deeper understanding of the markets, then I will have a better chance of making successful trades.

If I can consistently make successful trades, then I can make a lot of money.

If I make a lot of money, then I am a good trader.

It is a multi-layered approach to trading success that will make becoming a good trader more of a reality than it might otherwise be. The only true definition of a good trader is a trader who can make a living from trading. The happily ever after is definitely out there and it is absolutely attainable. But, to have it be a reality for you, so it is not just happy for the time being, frustrated ever after, you have to take realistic steps towards your goals. Your goals must be manageable and based in your current reality. With an eye towards the future, your current situation must govern your immediate next steps more than your presumed future situation. Assign any cliche you want. How about: Don't put the cart before the horse. But you need to keep yourself grounded in reality before making any major lifestyle upgrades. We all have desires and those desires may have to do with the size of the family you plan on having the size of your home, a rennovation, what types of cars you drive, or your travel and vacation plans. Regardless of what your desires are, you cannot obtain any ultimate milestones until you are sure you can afford them. You never want to put undue stress on yourself, your trading in particular, so you do not open yourself up to significant failure.

In reality, we all need to follow a plan and understand the steps towards making that plan work in our favor. In the movies people can get by on vague and abstract ideas, usually having all go well in the end. We real folk, on then other hand, are not so fortunate because reality will find a way to put us in our proper places.

If, however, you believe that your proper place is among Wall Street's legendary traders, then when a haunting whisper pricks at your ears, as you stroll past the New York Stock Exchange building after the market has closed one lonely winter evening, carrying the fortuitous message:

"If you trade, then you will make a lot of money."

just make sure to first figure out exactly how that is supposed to happen before you toss out your dinner table in order to build a trading pit in your dining room.

Reflective Sidenote: Everything Right is Wrong Again

One sure-fire reality in trading is that we will not get every trade right. Even very experienced traders are often wrong in their market assment and therefore make unsuccessful trades. However, in being wrong, you can still be right. Let's just say, for example, you buy a stock at $30 because it came down hard from $50 and has entered good support. You see compelling reason for the stock to make a nice march up to $35. Then, after taking on the position, it immediately goes against you and the stock is trading down below $29. What do you do? Perhaps you lament your over-eagerness, telling yourself that you could have scaled in to a better position if you had been more patient. Yet, you are convinced that the stock will reach $35 like you originally thought, so you never covered any of your position for fear of giving up what you thought would be a certain profit. Now, depending on how much stock you were long, you are facing a difficult loss.

Then, suddenly, the stock creeps upward. It is back near your original point of entry and your loss is now much smaller. Do you take some stock off the table, holding only part of your position? The stock might finally be going the way you thought it would and you do not want to cheat yourself out of at least some profit. Then again, the stock already proved weaker than you had anticipated. Maybe you should just cover the whole thing and be happy you got yourself even, when only a few minutes ago you were taking a loss. Any trader will tell you that some of their best trades are pass-outs. Or, maybe you can just hold the whole position. Although you were a little too anxious getting into the trade, the stock is now moving in the direction you thought it would and you are confident that you will ride this winner for some fine profits.

It is difficult to determine what the right and wrong things to do are in any given situation. The market is very unpredictable and we often act, or better yet do not act out of fear that whatever we do will prove to be wrong. Yet, recognizing that you are wrong is important because it can help you to then do what is right. It just may turn out that you were wrong in taking on a position when you did. You can still always try and do what is right however, by covering before the loss gets too great or taking the position back if it gives you a chance to be even. Who knows? You might cover for a loss or a pass-out and the market then goes in your favor once you are out of the trade. But, it is always best to be prudent, especially when your initial inclination might not have been correct. The "homerun" trade, or at least getting all that you thought you would get out of a trade is always a dream scenario, even moreso when the trade starts out against you. In that case, it might just be best to realize that in reality, the trade just might not work out and that you should cover it before you lose a lot of money in it.

Getting Ready for "Take Off"

On several occasions during Reminiscences of a Stock Operator our narrator and protagonist Jesse Livermore decides that he needs to take a break from the stock market. The stress of trading may have worn on him a bit or he is either so satisfied with his profits or disgusted with his loses that he takes a vacation. Livermore is an extremely affable character and the reader cannot help but be charmed by his youthful confidence and optimism. At all times he seems like a child who has just mastered a new trick, like riding a bicycle without hands, for example, and practices his skill with such intensity, obviously hoping that someone will see him and be impressed. Indeed, Livermore wants his readers to see and feel his wonderment and appreciation not only for the markets but also for other pleasures that a young man might enjoy, such as cars and fishing trips.
So, when Livermore is on vacation, he describes, in painstaking detail, each of the fineries that he encounters, even if it is only something as simple as a nice stroll down the Atlantic City Boardwalk with a friend. A virtual Jay Gatz in training, Livermore lets his readers know that as a stock market prodigy and one of the most famous (and infamous) traders on Wall Street, his time off is well-earned. However, Livermore always seems drawn back to the market in one way or another while on vacation. He may be fishing off of a boat in Florida, for example, and he will somehow catch word of a development in the markets, or he may be meandering down the avenue and stumble upon a bucket shop where he sees a stock price that piques his interest. In either event, Livermore feels compelled to cancel the rest of trip and return at once to the stock market. What usually ends up happening after summoning himself back to trading, is that in the very next chapter Livermore finds himself broke, cleaned out, or at least down to his last few dollars. As readers we may mistake these episodes for comedic irony as Livermore is always so whimsical, upbeat, and confident that it is nearly impossible to think that any truly dire tragedy would ever befall him. Yet, Reminiscences was written during the Great Depression and takes place just after the turn of the 20th Century up to the years right before the Depression, when industrialization and immigration had, for better or worse, begun to leave lasting impressions on America's social, political, and economic landscape. So, the book is naturally rife with serious overtones and pointed social commentary; sort of a hybrid between the work of Henry James and Upton Sinclair's The Jungle. Therefore, Livermore's frequent failings in the stock market can be a metaphor for the idea that prosperity is fragile and uncertain, and that it must be protected and nurtured as it is cultivated, much like America itself. Yet, Livermore embodies the indomitable American ideals of tenacity, resolve, and perseverance, making him a truly All-American man.
Since, however, well-earned time off for hard work well-done is also a major facet of the American ideal, a major point of the book, which we see embedded in Livermore's financial missteps, is that you must know when to take a step back from your work. It is a two-pronged warning; the first of which reminds us to temper our ambitions because they may undo us in the end, and the second tells us that we should take time to enjoy our success as fully as we can, for it is that which not only makes the hard work and prosperity worthwhile, but also what seperates our American way of life from that of others.

Life Gets in the Way
There are no predetermined, extended breaks in the stock market. For all intents and purposes, it is always open. Also, as volatile as it has become, there is no real slow period in the markets anymore, be it equities or futures. I distinctly remember my father taking nice, long 4-day weekends in the summer when I was younger, as you could practically count on slow going in the markets on Mondays and Fridays, during the warmest months. About 10 years ago, my father was all but retired. However, the markets are now so busy, and there are so many opportunities to make money, that he is back at work, full time.
Of course, now in his 60's, and with 40 years of trading under his belt, my father can afford to take time off and he regularly does. Presumably, he has amassed the money that he feels he needs, and his children are all grown. But, he loves to trade and is taking time to teach myself and my brother how to become successful traders. So he does indeed have a full time job again because he has responsibilities to fulfill. Since we all have any number of responsibilities, it is very important to put our jobs and our lives away from our jobs in the proper perspective and balance them off of each other.



If you really like to trade and the market happens to be in your favor, you never want to miss any trading action and the truly dedicated traders will tell you that nothing could pry them away from the markets. My father told me that guys on the trading floor used to joke that if they died during a hot market, they would get up out of the casket after their funeral and head right over to the floor and continue trading. It was the camraderie of the floor that made it such a wonderful place to work for so many traders, kind of like the world's biggest fraternity house. With so much trading now being done electronically, the atmosphere and prosperity on the floor is not even close to what it once was. Still, regardless of where you trade from, the market is still as active as ever, if not even more so than ever, and every day taken off is a day without income, especially for day traders, and the possibility of a missed long-term move in the markets.



It is the fear of missing something important that often causes so much anxiety when we consider detaching ourselves from those things that we tend to involve ourselves most deeply in. For example, I have certain friends (and I am sure that we all know the type) who will never miss a party or certain other sorts of social engagements because they fear not experiencing some grand, earth shattering event, as if the long-awaited love of their life is bound to be at that party. Many people also fear that their absence might disapoint their friends and hinder their social status, causing insecurity over the possibility of diminished social relevance amongst their peers. Other times, people just like whatever it is that they are involved in want to be part of it as often as possible.

My family has a summer home on Fire Island, a long and narrow barrier beach off of the south shore of Long Island; there are no cars, people walk around bare-foot, ride bicycles, and use little red wagons to tote around their belongings. And, like the famous bar from the television show Cheers it really is a place where everybody knows your name. I have been going out there every summer since I was born and have cultivated a fantastic active and social life on Fire Island. Many of my closest, long-time friends also have homes there and my wife Blythe has embraced the island's leisurely and laid-back atmosphere as well. For me, be it for a weekend or longer, spending time on Fire Island is the perfect vacation. As with most people who have homes on Fire Island, being out there becomes a priority during the summer and they are usually reluctant to make plans of their own or even accept invitations for plans off island. Much to the chagrin of friends and acquaintances who do not summer on Fire Island, many who do have a general policy of "if it falls between memorial day and labor day, please don't invite me." As far as I know, a lot of people who hold sacred certain places and activities have a similar attitude, as self-righteous as it may sound.

When I was first out of college, I had a few freelance jobs in television. I had thought throughout college that I was going to be a newspaper journalist and that ambition eventually morphed into broadcast journalism by the time I graduated. As a freelance production assistant, I generally worked odd hours, as needed, which invariably meant plenty of nights and weekends. My first real freelancing gig was with NBA Entertainment, which produces practically every single piece of programming about professional basketball that you see on television. For a young sports fan like myself who was interested in a career in television, it appeared to be something of a dream job, which involved going to basketball games among other fine perks. Like I said, however, the hours left something to be desired. Not only did I work mostly during those times when most of the rest of the working world was not, but the hours were inconsistent. I was paid hourly, without benefits, and although I had fairly regular hours (which were unfortunately on nights and weekends, as I said), there was a limit to the hours I could work in a week. I eventaully became disenchanted with television. It was neither glamorous, nor exciting; basically a lot of time spent alone, pouring though game video, with nobody else around but the janitor. To make matters worse, I was not making enough money to move out of my parents house. So much for showbiz.


What I did have going for me was the maximum hours per week I could work, which was around 36 per week, with occasional overtime allowed. I figured that I would take advantage of the maximum hours by loading up during the week so I would not have to work on weekends, meaning I could spend my time out at Fire Island. If I was working at night, I would put in an extra hour. What did it matter? Nobody else was there, at least nobody who would care. I would find out which other PA's were either sick or on vacation and I would work their hours for them whenever I could, meaning I would either work a double shift or, better yet, not have to work my usual night hours. Either way, I had my weekends free to spend on Fire Island. One day, however, one of the executive producers at NBAE demanded that all PA's honor their actual schedules, citing the fact that too many of us were doing as I did, and adjusting their schedules as they saw fit, frequently leaving the studio short-staffed. So, it was sometime right before Labor Day, at Summer's pinnacle, that I was ordered back to work on weekends. Venting my frustration to a friend at a bar one night, he simply told me;

"Charlie, sometimes life gets in the way."

He was right. Sometimes we cannot help but to be drawn away from that which we love. As much as the idea literally nauseated me, my situation at the time required me to miss precious time on Fire Island. Begrudgingly I went back to work on weekends. Whatever happened on Fire Island for the rest of that summer is a blank slate to me. Whatever tales of merriment and melancholy that I heard from my friends have been stricken from my memory. Shortly thereafter, I left the television business. Another occupation that had always fascinated me for a variety of reasons up to that point was teaching, not the least bit because I thought that work schedule allowed time for me to engage my personal interests. Still, I have since become much more open to the idea that I cannot always do exactly as I please and time must sometimes be given over to other responsibilities.

You Always Hurt the Ones You Love
So, I was miserable when I had to sacrifice something that I truly loved (the beach) for something that I was increasingly becoming sour on (my television career). But, what happens when you have to pit two things that you love against each other? Can you ever truly win? First of all, to say that if you prioritize one such thing over another is unfair. Just because during a particular year you regretably concede that you will not be able to take your usual family vacation, for example, because the market is so busy does not mean that you do not cherish time away with your family. I distinctly remember being very young, perhaps five years old, and my distraught mother weeping as she got off the phone with my father because he told her that we would not be going on a much anticipated trip to Florida, saying that he had too much going on at work. Indeed, our bags were packed, we were due to leave perhaps even the next day, and we were all terribly disappointed that the trip would be cancelled. But, could my father really be blamed? At the time he had two young children at home and a small commodities firm that was becoming profitable. Perhaps taking himself out of the market to go on vacation at that time might have put both his family and his business at a major financial disadvantage. While I may have sulked to no end as my hopes for a pleasant chat with Goofy at the character breakfast were cruelly dashed, when I look back on my life thus far, I can honestly say that I have not suffered to any great extent as a result of that episode. Besides, as I recall, we ended up taking the Florida trip a few months later. As a man who enjoyed both his success in business and time with his family, I am sure it was difficult for my father to forego the trip at that time. But, as we know "sometimes life gets in the way." The real problem comes when we actively avoid other facets in our lives for the sake of our jobs.

As I have noted numerous times, I love to trade. In fact, I am at the point now where I enjoy this work so much that I will miss vacation time, be it on Fire Island or elsewhere, in order to concentrate on my job. In my two previous undertakings, when I was in television and when I was a teacher, that would never have been the case. Indeed, my job is a priority. And, that is the way it should be. I am married, in my early 30's, and have family goals and lifestyle goals that will be much more easily attained if I concentrate on my work. If I do not give trading the appropriate focus, I may miss my chance to meet my life's ambitions.

In most cases, however, I am delighted to step away from work, especially if the time off had been planned for, although sometimes it is difficult to pry myself away. Time off for me is very subjective because it is often based on how the overall market is acting at any given time. It would be very convenient if I could anticipate which times of year would be busiest, which would be slower, and plan my vacation accordingly. While it is somewhat true that you can count on certain times being slower than most, for example the days leading up to a major national holiday, the markets are generally so volatile that one runs the risk of missing a significant move or other major development when he or she removes oneself from the market. My wife, Blythe, who is a 4th grade teacher, has several vacations built into her work year. Therefore, I try and plan my time off for when she is off. It just makes more sense that way, that I should take off based on her schedule, rather than her taking off when I decide to if she already has vacation time available to her. Coincidentally, Blythe's breaks fall during the times when people commonly go on vacation, such as around Christmas time, spring time, and during the summer. During those times of the year, I feel rather comfortable planning time away, as many traders will go on vacation as well. Blythe obviously looks forward to her breaks (believe me, she works very hard) and when she has the time to relax or to travel, I like to be able to do it with her.

Taking time to be with one's family and loved ones is vital to overall well being. Growing up, I had frequently heard the term "workaholic" but thought of it as some overused cliche aimed at shooting down dedicated, ambitious overachievers. However, having been in the workforce for more than a decade now, I have come across numerous individuals who have put themselves at all sorts of personal disadvantages, ranging from missed experiences and opportunities, dwindling friendships, and spousal resentment (often culminating in divorce), because they hardly ever took time away from work.

In order to keep a certain Harry Chapin song from buzzing around your head because an unusually busy period at work might have caused you to miss your child's music recital, it is important to honor the time you had set aside for your family and other obligations. While there is no way to avoid every unexpected situation that might sabotage the random guys' night out or force you to not be able to pick your child up after practice, you must try and avoid letting things interfere with the highly anticipated plans that you had been looking forward to for a long time, such as a vacation that had already been booked. That way, if you have to miss something from time to time, you will not have to feel guilty that you are blowing off the other important people and activities in your life, at least from a big picture standpoint.

Hindsight Will Get You Nowhere
I find it rather easy to detatch myself from the market when I have made up my mind that I will do so, especially if others are counting on it. Whether it be for just one day because I need to take care of some appointments or if it is a week's vacation, I try not to let the markets dictate whether or not I am able to take whatever time off I had set aside. When the day arrives that I had planned on taking off, I spend barely any time looking at the markets, and will not do so until I had planned on returning to work. The reason is, that I will often get caught up in thinking about what might have been, had I decided to go to work, which will only cause me to resent myself. Anytime I take a moment to sneak a look at stock charts, or find out a market quote when I am officially not working, I grumble that I would have had a great day if I had only been trading. To say such a thing is unfair and unrealistic. Whenever I go back and look at a chart after a day when I did not trade, I convimce myself that I would made all the right trades that day, that I would have bought every dip and sold every rally. Or, if I hear that the market is higher, for example, I maintain that I knew it would be and I lament all of the hypothetical missed buying opportunities. Yet, as we all know, the word and the deed often do not match and it is foolish to say that I would have necesarily made the proper trades had I been working that day. Hindsight may be 20/20, but it is never as clear as good, old fashioned reality. Out of respect for my loved ones, the plans with them that I had committed to, and my own sanity, I try and stay as far away from the markets as possible when I have decided not to be involved. It would be to your benefit to check in with the market at the end of the day, just to see how things ended up. That will only make you better prepared for when you do return because you will have points of reference on which to base your trading decisions. There will be certain times when you have to be involved in the market, even if from afar, because you have long term positions or options positions on, which need your attention. You may find yourself calling in to your office or to your clearing house numerous times in order to manage your positions. Doing so is absolutely vital to your overall financial success and even when on vacation you may have no choice but to keep a close watch on the markets. Sometimes, you have to compromise between taking a complete vacation and not taking one at all; perhaps it is both a blessing and a curse. However, if you are off from work but are not actively involved with positions, checking in with the market should be like checking in with a sports score. You just might want to see how your team did, but you will not fixate on it. If you are exclusively a day trader, I would not recommend, for example, bringing your laptop, loaded with trading software with you on vacation. I'm sure your wife would not appreciate you sitting in your hotel room, executing orders, when you and she were supposed to be getting a beachside couples massage. On the other hand, if you had spent the day around the house and have access to your computer, it would not hurt to spend a few minutes with the charts as long as it does not interfere with your plans for the day. One thing that I make certain of, though, is to NOT TRADE if I did not intend to. I have tried on certain days, when maybe I felt guilty about taking off because I needed to run errands, to put on a few positions from my computer at home and then take care of my personal affairs. Although I may have made money on a few of those days, I usually end up mismanaging the trade in some way or another and I always end up ignoring part of my other responsibilities because I had taken time to focus on the market. Therefore, nothing I had done turned out as I would have wanted it to. Successful trading requires the appropriate amount of focus and if you cannot give the markets their due focus on any particular day, then you should not trade.

Know Before You Go

Another friend of mine, Marc Jacobsen, a trader in the copper ring on the NYMEX's COMEX division, who also trades stocks and commodities on the computer calls the computer Computer Crack. It is a terrible notion to equate the tools of our trade to a highly lethal and addictive narcotic, although many traders do indeed find the markets to be quite addictive (subsequently, there have been studies and articles written about the similarities in brain activity between a drug addict on a fresh high and a trader who has just taken on a position). It can be this addiction to trading that keeps many traders standing in the ring all day or glued to the computer every minute of the trading session. Let it be known, however, that an unhealthy obsession with the markets will not necessarily make you a better trader. Trade stalkers, which is what I call those who spend the whole day chasing trade after trade, probably end up about as successful in their endeavors as celebrity stalkers, meaning not at all. It is important to realize that at anytime during the trading day, and for whatever reason, you might need some time away from the market. Suppose you had hoped to run an errand at some point during the day or maybe you just felt like you needed to take a walk to clear your head if you had been having a difficult day trading. You should not feel obliged to keep trading. If you do not take periodic breaks during the day to either take care of personal matters if you need to or as a benefit to your own mental health, you may feel pressured in other ways and might even grow to resent trading.

Still, you should always bear in mind that there are better times than others to take a break from the markets. For example, it would not be advised to step away from the market during a time when there might be heavy volatility, such as when an important economic report is coming out. While you should probably not have any large positions on going into the report and should probably not put on trades immediately after the report, you will most certainly want to have an eye on the markets so you can see how it reacts to the report, and try and plan your trades accordingly.

Whenever you leave the office, and this is very important if you decide to keep positions on when you leave, you must know how long you plan on being away for. Otherwise, you will not be able to properly manage your positions, making both your involvement in the markets and in your errand more stressful and very likely less productive. I recently volunteered to drop off some paperwork for Blythe's pension. It was during the summer so she had off and enough time to do such chore on her own. But, the summer was coming to and end, so I wented her to have as much time to herself in her last few days of vaation as she needed. Besides, the office she needed to go to was right near mine and I figured I would let her enjoy her vacation rather than go all the way downtown just to drop off some paperwork. And since, I thought all I would be doing was dropping off some paper work, I figured I'd pick up a sandwich after the task was done, the whole thing taking less than 30 minutes. On that particular day, I had a small position on in Hess oil (HES) and although I had been losing money on the position from earlier on in the day, I decided to stay in the position and ask my co-worker Kevin to monitor it for me while I was out because I thought that the position would turn out in my favor and therefore did not want to cover prematurely. I assured Kevin that I would only be away for a few minutes but that I would call in once or twice to see how things were going with Hess.

When I arrived at the pension office, I immediately sensed that I was in trouble. First, I had wait in a line to present my ID and sign in with a security guard. That took about five minutes. But, I hel out hope that it might not be so bad after all, that it was just a high-security building and all of those in line could not possibly be going to the same place I was going.

Boy was I wrong. When I exited the elevator into the pension office, I swear I had just entered an airport boarding gate. First I had to stand in another line, amongst rows of aggravated people sitting in padded chairs, to receive the number for when I would be called to drop off the papers, kind of like when you get in line to check in for your flight. The numbers were not necessarily chronological but were coded to correspond to a particular inquiry, each of which was assigned a letter. So with "B215" as my number, I saw plenty of people with numbers like "D498" and "H874" go ahead of me. Then I had to wait around a cavernous office that was becoming increasingly more crowded, as members of the disgruntled horde began squatting against the walls, and sprawling out on the floor, looking up at the red LCD screens around the room that displayed the numbers being called up for service.

It was a tense atmosphere to say the least as each of the teachers in the room came to the horrifying realization that they may indeed end up spending one of their final, precious days of summer vacation in the offices of a bureaucratic institution. Many made frantic cell phone calls, alerting friends and loved-ones that whatever plans they had for the afternoon might not materialize, in the process sending their love. Indeed, nobody had expected such a situation, myself included, as I called Kevin back at the office perhaps 10 times to see where Hess was trading, ordering him to cover certain parts of the position at certain prices and get back in at other prices, all the while asking him his opinion of the chart since I did not have it in front of me, and doubtlessly causing him to ignore his own positions.

All in all, the whole trip took close to three hours. I left the office to drop off some papers during lunch and while the actual act of dropping off the papers took about 30 seconds, the waiting time took up half of the trading day and I got back to the office basically in time to close out my positions and go home. When I left, I was losing money in Hess and when I returned, I was down about the same amount, so at least I did not lose any more money. But, could I have turned the trade into a winner or at least less of a loser had I been in the office? Perhaps. The main loss, when all was said and done was the mental frustration that I endured by having to be somewhere that I didn't want to be, for longer than I thought I would have to be there, when my real obligation was elsewhere. Because of that experience, my trading on that day was more aggravating than it should have been and the satisfaction and peace of mind that came from knowing that Blythe's pension was in order were tempered by the fact that the darn errand took so darn long. But whose fault was it? Certainly not those at the pension office. Sure, I can think of 1,000 ways that they could expedite their services (and believe me, I had time to do it while I was waiting). But, when dealing with large, government agencies such as a public school pension office, one often finds oneself waiting around. It was not Blythe's fault. I volunteered to go to the pension office, to take time away from my responsibilities to my job. She would have gone herself. If anyone, the blame was on me. I should have found out how long I would be away for. I could have called the pension office to see what the anticipated wait time would be, or if there was some other way to file the papers, such as filing online. That way, at the very least I would have been prepared for what I had encountered and could have planned my trading accordingly. Probably, I would not have volunteered to go if I know it would take so long. Blythe understandably felt bad about what had happened and appreciated me going for her, just as I am always more than happy to help her out in such ways whenever I can. However, to be unexpectedly away from work for so long and leaving someone else to watch my positions was irresponsible, unprofessional, could have resulted in serious loses, not to mention the loss of my job.

The Most Important Person is You
Among the many positives that I took away from my years as a high school English teacher, which was my second professional stop on the way to becoming a trader, was that I had the opportunity to work for many of those five years with a wonderful man named Charles Osewalt, who was first my Assistant Principal of English, and then later became my Principal. Mr. Osewalt was an incredibly compassionate and understanding man, who never hesitated to put himself at an inconvenience if it would benefit someone else in need, be it teacher, student, or parent (not to mention his own friends and family). If ever there was someone who deserved a day off, it was Mr. Osewalt, who still works tirelessly, day and night, to provide the best possible educational experience to all involved in his school, the Morris Academy for Collaborative Studies in the South Bronx. One of Mr. Osewalt's greatest qualities was that he knew how to relate to the struggles of young teachers and to comfort them as best he knew how.
Whenever I would come to his office, frustrated at how things were going with my students, as I struggled with classroom management, absenteeism, not to mention my own personal shortcomings, Mr. Osewalt would always remind me that "the most important person is you."
This meant that regardless of whatever personal needs and issues my students had, no matter how happy or unhappy they were, for example, that I had to make my teaching experience work for ME, above an beyond anyone else. I had to make sure that my needs were met, if anyone was to be truly happy and benefit from my teaching. To that end, Mr. Osewalt always pointed out that the best thing to do at any particular time, was to take a day off.
As stressful and hectic as trading can be, teaching is as well, in its own way; and with all the time that teachers get off during the year, but with how modest their incomes are, if both were doubled, it would be well-deserved. Regardless, we all need a day off from time to time. Sometimes we need a few days off, if only for ourselves. There are countless books on trading and trading startegies, written by top traders, each of whom describe trading behaviors and strategies that have worked for them and believe can help you to become successful. Believe me, I have read plenty of them. And, as unique as each of these books can be, they all include at least something about taking a break from work. After all, you are the most important person! Mr. Osewalt will tell you that and so will all of the trading "gurus". They all know that you need to take some time off for your own well-being and peace of mind, whether it be to take care of other responsibilities so they do not weigh on your mind, or to sit on the couch all day and catch up on all the television shows you had to DVR because you did not have time to watch them when they originally aired.

Jessie Livermore knew what an important person he was and always made sure he had the opportunities to attend to his personal tastes, interests, and desires. We all have a little Jessie Livermore inside us because we are at the same time drawn to the markets and dazzled by it, as we see it as a means to satisfying our own personal tastes, interests, and desires. However, in a society and a culture where each person is important in his or her own way, we must never forget to take time to thoroughly and completely enjoy those things that are most important to us, from time to time, in spite of whatever else might be happening, even as it relates to trading.

Walking in the Land of the Experts

There is a gentleman who lives in my apartment building who must think that I am solely responsible for the movements in the stock market and the overall state of the economy. Come to think of it, I don't know the fella's name, which apartment he lives in, or exactly what he does for a living. All I know is that he is considerably older than I am and that he is married with a son. I see him out with his family at any of our neighborhood's local restaurants from time to time, or in our building's lobby or laundry room, and we exchange casual chit-chat whenever we bump into one another. However, on a personal level, I know nothing about this man, nor does he know anything really about me... except that I trade stocks for a living.

How he knows this, I am not exactly sure. I suppose he asked me at one time or another, to which there was no reason but to offer an honest answer. Other than that, this guy knows practically zero about me; and although he and his wife seem to be wonderfully nice people and his son is as sweet as most any well-raised boy his age would be, it will be no great tragedy if we do not end up becoming life-long friends.

Despite his very limited knowledge of me, this gentleman must hold me in very high regard because he seems to think that I, as a trader, have the ability to move the equities and futures markets (proving, of course, how little he knows about me and my profession).

Don't Shoot the Messenger

If you are a trader or are in any other way involved with money and investing you may have felt like people actually blame you when the stock market is down and commend you when it is up. Now, how crazy is that? Mostly, however, traders are regarded with scorn. People seem to think that we just have tons of cash to throw into the market and that we effortlessly add to our mountains of money, while they toil away at their jobs, collecting modest paychecks twice a month. First of all, it is not true, as you know, that traders necessarily make a lot of money. While earning potential is unlimited (and that is one of the very attractive aspects of trading), not all traders make a lot of money. In fact, I have heard that most traders lose money and eventually leave the business.

I was a high school English teacher for five years. I eventually left teaching because I was not very good at it and thought that I could make more money trading and possibly even enjoy my career (coincidentally, I love trading and feel that I am becoming good at it). Those whom I knew, both in and outside of teaching, were overwhelmingly supportive when I revealed my plans to leave teaching and become a trader. All of these long-time pedagogical veterans, who were so fed up with the bureaucracy of the New York City public school system and the behavior of the students and parents told me how smart I was to go into the stock market, that I could make a lot of money and leave all of the hardship behind. Well, although I am definitely happy with my move from teaching to trading, I cannot honestly say that I am making that much more as a trader than I was as a teacher, so that shows just how much everybody else knows. Actually, when you think about it, if I factor in taxes, my commissions, and the fact that I lose money some of the time, I am not really making much more than I did as a teacher. Come to think of it, as a teacher I got full-medical coverage, a pension and a variety of retirement plans, plus what equaled out to about four months off per year. Hey, maybe I was doing better facially as a teacher! The point being that it is foolish for anyone to think that just because you are involved in the stock market that you just make all this money. Of course those same misinformed people think, with a perverse level of satisfaction, that we traders have hit skid row when the market is down. Actually, that would be their investment portfolios that are down (yes, ours too), unless they managed to get involved in a solid short fund. Most people just don't realize that traders want movement, either up or down, not necessarily a direction.

But, what bothers me the most, and here, finally is my second point, is that many people have this idea that traders are for one thing, stock market experts and for another thing can single-handedly manipulate and move the markets for their own benefits and at the expense of everyone else' swell-being.

"Why is oil so high!?!" the guy from my building who I was talking about earlier once blurted out at me as I came home from a jog. "What do you think we're looking at? Maybe $3.50 a gallon in a couple months if oil comes down?" The man is hopeful that oil prices will fall and is somewhat foolhardy to think that I have any influence in the matter anyway, as if I was one of the vicious speculators accused of running up the price of oil in the first place. At the time of this writing, the national average for a price for a gallon of regular unleaded gasoline was about $4. Obviously, and this I can say I know about my neighbor, he is one of the large majority of Americans who feel the crunch of high commodities and depressed equities. He drives to work, I am sure, and has to take his son places, and fueling his car undoubtedly eats a big hole into his income. Another time the frustrated fellow accosted me as I was loading packages into my car before going away for the weekend, shaking his head "This piece of shit my broker got me involved in is down 25% this year! What should I do about it?" he barked, again looking for guidance, yet eyeballing me incredulously, as if I purposely and ruthlessly sold his stock short. Believe me, I feel for the man, just as I do anyone whose financial prospects may have dimmed somewhat (myself included). But, what can I tell him? Do I know exactly when oil is going to crack? Or if it ever will? No. Do I know whether or not the price of a gallon of gasoline will be considerably cheaper next year than it is this year? Of course not. Can I help my neighbor invest his money any more wisely than his broker did, so that he can make up some of his loses? Probably not.

Then, there is the owner of my local diner, a very friendly, older Greek man, who has made his fortune in his restaurant and now has some money to invest. Often times when I come into his restaurant, he'll ask me my opinion of stock XYZ, we'll call it, for example. He'll tell me all about the fundamentals, the dividend, the price-to-earnings ratio, the various moving averages, the stochastic (stuff I tend to know very little about) and then he'll ask me what I think of the stock. What I think of it? Evidently, he knows everything about the stock, so what can I possibly tell him? I do tell the diner's owner, as I pick up the corned beef to go (special on Thursday's only. Delicious!), that I honestly had never heard of the stock but that I would take a look at the chart in my office the next day and then I'll let him know what I think.

Psst, A Little Birdie Told Me to Go Short

So, if we traders cannot be trusted to accurately and confidently give opinions and advice on the stock market, then what good are we and how well do we know our profession after all? To this end, there are a myriad of examples and anecdotes that illustrate how useless stock tips can be.

Perhaps the most famous trading anecdote involves Joseph Kennedy, the father of former United States President John F. Kennedy, executive at J.P. Morgan, and eventual chairman of the Securities and Exchange Commission (SEC). Anyway, Kennedy was a shrewed business man who knew how to make use of a tip (often in such ways as would now be considered insider trading, a highly illegal act). But, this also meant that he knew how to disregard a tip if he didn't think he could trust it. Anyway, while getting his shoes shined one day, during a time when there was a big run on steel, the boy who was shining his shoes famously told Kennedy that he should buy steel stock. Upon returning to his office, Kennedy immediately sold his position in steel and even went short quite a bit of it. Surely enough the market for steel tanked shortly thereafter and Kennedy had booked a handsome profit. The moral of the story is that when a stock has become so popular that even the shoeshine boy is giving out tips about it, maybe its run is over and it has become time to sell.

Well, if the market "professionals" can't give you advice and if you should never listen to the shoeshine boy, then who can we count on to help us make sense of the markets? The answer to that is a tricky one. You need only listen to yourself, but only after you've had the chance to take in some information from elsewhere. I believe that INFORMATION IS POWER. In no way does this belief mean that you should act on everything that you see, hear, or read about the markets. Nor does it mean that you should believe it. Instead, it means that the more information you have, the more leverage you have to make informed decisions that you find beneficial. The fact that there is no shortage of information going around is both a help and a hindrance. For example, you might find the very article that you are reading at this moment to be very useful information and I truly hope that you do. Someone else might want to print it out and line the bottom of a birdcage with it. It is up to you decide what information best suits you, be it from television, books, newspapers and magazines, the internet, or conversation. In order to figure this out, you need to be constantly accumulating information in as many ways as you can. In the long run, it can only help. For one thing, I try to keep my exposure to information very simple, usually only using it to enhance my general market knowledge, not as a manual on how and when to invest.

The Information Hedge: Long Bloomberg, Short CNBC

So, what information do I like and where do I get it? Simply put, I like all information and I get it everywhere. For one thing, I try and read as much as possible. I like the Wall Street Journal and Barron's. I have a subscription to each and I really enjoy the "Money and Investing" and "Marketplace" sections in The Journal, which give more and timely economic reports. I rarely read the front section, which mainly reports general articles about the broader economy. Nor do I read the "Personal Journal" section very often, although sometimes it contains an interesting article on culture and the economy. Besides whichever of the weekly features catch my eye in Barron's, I read many of the regular columns in the "Market Week" section, such as The Trader and Up and Down Wall Street, as well as the stock and fund listings for the various exchanges. I also read the business section in the New York Times, although not as stringently as I do the other two periodicals. Basically, I feel that the articles in the Times are interchangeable with those in the Journal, although I can almost always find something different and engaging (I mean, come on! It is the Times, after all). But I find its charts and market data to be a bit complicated and confusing/ The purpose of reading these newspapers, at least for me, is to get an idea or a recap of recent market events and to get some new information about a company, a product, or an upcoming event that might have some impact on the markets. I started to read a magazine called Active Trader, to which I have a subscription as well. It is a great little magazine that appears to have a budget only slightly higher than that of your average, suburban high school newspaper. Still, Active Trader, with its concise articles and text-book style graphics, does a great job in discussing various technical nuances of trading and chart reading, that I have applied (with varying degrees of success) to my own trading. I especially like the "Trade Diary" section at the back of the magazine, in which a trader walks you through a trade that he or she made, and explains whether or not the trade was successful and why. The magazine also includes a glossary of key words and concepts that readers will encounter throughout that issue, and explains what each one means.

Since I am extremely fascinated by the social and psychological facets of trading and the markets, I read a lot of books on trading, the markets, and the economy; ones that are mainly concerned with the ways in which our economies are direct reflections of any number of elements of the basic human condition. It is hard to explain my attraction to such books, except for that they help me to put the markets into a broader context, which in turn helps me to understand why certain things happen in the economy. Anyway, you will have to read such books yourself in order to see what I mean and preferably make your own sense out of them. Two recent books of this kind that come to mind, that I have read and enjoyed are A Demon of Our Own Design by Richard Bookstaber and The Mind of the Market by Michael Shermer. Of course the tried-and-true classics like Jack Schwagger's Market Wizards and Reminiscences of a Stock Operator, the legendary depression-era trading tale by Edwin LeFebvre will always provide superb insight. Whatever your goals in reading about the markets and our economy, it is important to find reading material that interests you and helps you to better understand the markets. Unfortunately, not every book, newspaper, or magazine will help you to achieve these goals, but you'll never know unless you first start reading.

As far as what I watch on television is concerned, I prefer to have Bloomberg on in the office, but when I watch business programming at home, it's almost always CNBC. The reason being is that I find CNBC to be much more overly sensational, whereas Bloomberg is just more straight forward. CNBC seems to make every piece of economic data out to be some great matter of historical significance. For example, when the Fed is expected to announce whether or not it will lower interest rates, CNBC shows a graphic that reads "Fed Decision IMMINENT!" as reporters and traders scurry frantically around the trading floor, trying to brace themselves for the upcoming news. Bloomberg has more of an "umm, OK, whatever" attitude regarding the news and reports it in a very even, consistent way which appeals to me because it allows me to take the information for how I want it and to decide how I want to incorporate it into my trading, assuming that I want to at all. Besides, Bloomberg will periodically give a weather update or a sports report that I appreciate seeing from time to time throughout the day, rather than be constantly bombarded by the plethora of information that comes out about the markets.
At home, though, I prefer CNBC. That network has a much broader and much more appealing catalog of programming that I use to garner information after the markets have closed. Many traders that I talk to like the show Fast Money because it is geared towards day traders working in a very short timeframe, who are looking for strategies that they can apply to the stock market the very next day. While I do enjoy Fast Money, I still prefer Jim Cramer's Mad Money, which looks at the stock market from more of a fundamental, investment standpoint, rather than taking a technical trading approach. Although Larry Kudlow is a raging Conservative, I also enjoy his program, Kudlow and Company, which is more of a forum for how our markets affect the greater social and political landscape. Each of these shows appears right after the other, beginning at 5:00 EST, which means that they are prime viewing for your 60-minute cardio workout, on the elliptical machine, at the gym. Despite which show I like best, I really only watch them to familiarize myself with stocks and sectors that I may not know about, or to enforce my beliefs about certain stocks or sectors. It never hurts to get someone elses opinion, but you should not base your trading around what somebody on TV happens to be touting that day. I suppose I like Cramer best because of thefundamental approach to stocks that he takes, which is something that I, as a technical trader, do not take enough time to consider. Although Cramer preaches to millions each day, I believe that his investment methods are sound and can be successful when properly applied. Plus, I think that he really cares about his viewers (incidentally, I have read his books also and believe they can really help you make informed investment decisions and to better understand the ideas that he discusses on his show). Other shows on CNBC that involve the markets, money, and investing such as On the Money and The Big Idea with Donny Deutsch are worth watching as well. CNBC also has better features and specials than Bloomberg does, although, strangely, there is no weekend programming early in the day, only infomercials. Bloomberg at least has a fairly solid Sunday morning business news show, which I love to watch every weekend.
If you have a network called Mojo, which is an HD only network, channel 701 in New York (is it the same elsewhere?), you can catch a terrific reality show about traders called Wall Street Warriors. This show tracks the days in the lives of several different traders, for example, a fund manager, a stock broker, and a floor trader, and shows their experiences as traders. I love this show because it accurately portrays these traders from both a professional and personal standpoint. However, I often get frustrated watching Wall Street Warriors, either out of jealousy for what they have attained (several of those profiled are my age and are much more secure in the profession at this point than I am) or out of annoyance at their stupidity regarding the markets. Either way, it's required watching for me, just like how many a 20-Something girl must watch The Hills.
So, that is what I watch on television in regards to the markets. What you watch and why you watch it, is entirely up to you.

***

I use the internet only in a very basic way. I do not rely on it to give me very in depth information. One reason why my father is such a successful trader, and has been so after making the transition from the floor to the computer, is that he really has no computer literacy skills whatsoever, besides what he learned in order to access and read his charts. In fact, when I was still living at my parents' house and my father had just started to trade from home, he didn't even know how to turn the computer on. He would say, "Boot me up, Charlie" as I made my way out the door to do who knows what. Therefore, he does not become distracted by what the internet has to offer. He has no awareness of websites or email, and that helps him to focus solely on the markets.
Unfortunately, I am aware of all that the internet has to offer. So, you'd better believe that I have spent plenty of time on ESPN.com, YouTube, and shopping online, for example, while at my computer when the market is slow. If only I had the discipline to stay away from such diversions, I might actually take more time to study my charts and other market related information, and become an even better trader.
Anyway, I leave MarketWatch up on my computer all day. It continuously updates the day's market news and offers commentary on any number of market related issues, especially market moving events. I do not really read the articles on MarketWatch too closely. I guess I am just one of those people who likes to read on paper. Besides, I find MarketWatch to be very cliched and comically out of pace with real-time market action. For example, the website too frequently overuses the words "street", "green", and "red" in its headlines, and by the time the article goes up on the website, the market might be going in the complete opposite direction than it suggests. So, you might see the headline:

Financials Writedowns Bathe Street in Red

Meanwhile, despite the headline's assertion that the market is tanking, there might be a fierce rally underway in the indexes, so that the market is currently "basking in green!" (as the headline might read only 20 minutes later).
I will often look at MarketWatch in order to find out why a particular stock is acting a certain way. If I buy something in what I thought was a good area, let's say, and it immediately starts trading lower, I will often try and look that stock up on MarketWatch to see if there is any news on that stock or in the broader market that might be responsible for the stock's behavior. Otherwise, I tend to read MarketWatch very casually, just to look up certain tidbits on the market or to see if any of the feature articles might interest me. There are certainly plenty of other financial news sites on the internet. It would behoove you to find ones that you like. For me, with all that I read in the papers and watch on television, I just don't have the stamina to really scrutinize the web for business news.
I avoid any solicitations that I get through e-mail. I am pretty sure that these are all scams, or at the very least are not designed with my best interests in mind and definitely do not contain exclusive information. This newsletter from a well-known investor named Louis Navillier pops up in my inbox every now and then. I have seen him on Bloomberg before and he definitely seems to know his stuff, I never look at the newsletter. Although I promptly delete it and therefore never really know its full contents, the subject line for the newsletter always has something to do with investing secrets or ten stocks to buy right now; things like that.
What do I know? Louis Navillier, on his way to making millions of dollars, may have helped countless others cultivate their own small fortunes. Like I said, he seems very well-regarded from what I've seen of him. But, I just don't have time in my day to fool around with unsolicited offers from people I don't know, who may just be trying to push an agenda that could get me ripped off.
I once got an e-mail with the subject line:
I made almost $2,000 in one minute, let me show you how.
Yes, we all know how this person made that much money: He or she bought 1000 shares of some fast moving stock like Google (GOOG) or UltraShort Financials Fund (SKF) and sat there as it popped $2 in less than a minute, which each of those two stocks can easily do, before selling out for a profit. Sounds great, right? Well, you can lose that much and more just as quickly when you blindly go after volatile stocks. So, this person is sorely mistaken if they think I am going to give them any of my money to just throw at whatever stock they see fit. What do they care if they lose my money? They'll book a commission anyway, which I am sure is much higher if I happen to make money on their bet.
Stay away from any "advice" that shows up in your e-mail inbox. Just delete it the second you see it. With all the information you can seek out and use on your own, it will do you no good to waste your time on junkmail that you never asked for in the first place.

One thing that I find the internet very useful for is to find out which various pieces of data will be coming out in the upcoming week, that might have an impact on the market, the stocks I trade, or both; for example a key housing number or pricing index, or when companies are due to report earnings. On it's website, Barron's has a great little feature called Economic Calendar that you can pull down from the Data and Tools menu at the top, right hand side of the homepage. The Economic Calendar gives a rundown of the important economic reports due out that week. It assigns a red star to the reports that will potentially have the greatest impact on the markets and a gray dot to the ones that will have less sway but are important nonetheless. To aid you even further, you can click on each report, for example jobless claims, and you will see an explanation of what jobless claims means and why it is important. I look at the Economic Calendar every Sunday night, so that I know which reports are coming up that week and I keep checking back to remind myself. As we all know, economic data has a profound influence on the market and I always want to know which pieces of data are on the horizon, so I can plan my trading accordingly.

Since I always make sure to update my Fantasy Sports teams on Yahoo each day, it's never an inconvenience for me to take a quick look at Yahoo Finance where I can see an earnings calendar, which tells me the companies that are reporting earnings each day of that week and beyond. I look to see which of the companies whose stocks I trade regularly, if any, will report earnings in the coming days, as well as any other key market components (such as Apple or Goldman Sachs). A company's earnings report always has some bearing at least on its stock but can also loom large for a particular stock sector, an entire index, or the market as a whole. In anticipation of an earnings report and within the context of the overall market, I will consider ways to trade a particular stock, always taking into consideration what I will do if the report is negative or if it is positive. While looking at the Yahoo earnings calendar, try and scroll slowly down the list because during prime earnings season, a lot of companies report and if you are not careful, you might not notice a particular listing and will not be aware that one of the stocks that you follow, or some other key stock is reporting. Then, when you get caught unawares and either a trade you have on or the market is moving against you, you might find out too late that it is because of an earnings report that you did not know about.

One Final website that I find very useful is Tradingday.com. If you scroll down a bit from the top of the homepage, you will see links on the left hand side of the page for the previous trading session's most active stocks, those that had the greatest gains or declines on many of the largest indexes. I like to look to see which stocks had the greatest moves in price that day in order to try and figure out, for one thing, why it might have had such a move, also if it might have moved into an area where I can begin trading it, or finally, to just familiarize myself with a stock that I may not have known anything about. Uusally, I do not find an overwhelming amount of new stocks that I would trade. But, if I find two or three per week, that is often more more than enough to keep me actively exploring new markets and new opportunities for profit.

Looking at the ticker at the bottom of the television screen on Bloomberg or CNBC is another great way to keep abreast of new stocks and new trading opportunities. Any trader has better access to realtime price information than you can get from the ticker, so I do not use it for up-to-the-minute price information. However, every now and then, a stock comes across the screen that catches my attention. Maybe it had a significant price move or just traded at high volume. Maybe I just like the name that the stock symbol makes, of which there are plenty (HOG-Harley Davidson, YUM- Yum! Brands, MMM-3M, ZEUS- Olympic Steel). When I look into a stock simply because I liked its name, I just might find something that I feel I can make a trade in. In any event, that is how I utilize basic economic numbers and stock symbols, most of which I find out about online. I don't necessarily let this information dictate my trades. For that I always make sure to think for myself. However, such data can be excellent as points of reference.

Pay Attention to What you See; Especially in Denmark

There is a famous scene in The Godfather Part II, during which Michael Corleone goes to Cuba to meet with Cuban president Fulgencio Batista, Hyman Roth, and a slew of other investors with whom he plans to open casinos and resorts in Cuba. On his way to the meeting, Michael witnesses a man accompanied by two guards, get into a limousine and promplty shoot himself in the head. Taken aback by what he had just seen, Michael continues on to the meeting.

At the meeting, Batista introduces the investors to each other. The attendees are in a poorly lit room, standard for mob movie "sitdowns" and seated around a long table, each wearing an impecably tailored suit, smoking cigarettes or cigars, with displays of fresh fruit set out, adding a hint of cheer to the otherwise somber and smokey surroundings. Batista, meanwhile, is jubilant and optimistic, talking about a new era for Cuba during which lavish hotels and casinos will be built and that each of the investors involved stands to prosper grandly in the deal. He is even so bold as to proclaim that any of the civil and political unrest that Cuba had been experiencing at the time would never make its way into the casinos. As a symbol of both his confidence and of the prosperity to come, Batista unveils a solid gold telephone, given as a gift by one of the investors, United Telephone, and passes it around for all to admire. While Batista basks in his own optimism, Michael Corleone does not share his sentiment.

"I saw something today," Michael interjects, and then begins to explain the suicide that he had witnessed earlier.

How could Batista be trumpeting a new era of wealth and prosperity for Cuba and for the casino investors, when Michael saw, with his very own eyes, a seemingly prosperous man with so much to lose, get into a limousine and blow his own brains out? Michael was very uneasy about the whole project as he could obviously see the devil in the details, despite Batista's triumphant bias. One of Michael Corleone's greatest qualities throughout the Godfather films was that he was constantly aware of his surroundings and knew when things might not be exactly as they seemed. It was this characteristic that helped him keep pace with the responsibilities of his perilous job and to earn the respect of his contemporaries, in spite of his relative youth. Batista was eventually overthrown by Fidel Castro in 1959, bringing about the Cuban regime that is still in place today. With the Godfather movies taking place right before the time of Castro's uprising, Michael Corleone was certainly correct in his apprehension as his investment in the Cuban hotel industry would have surely been toppled by Castro's forces.

The ability to make decisions based on what you actually see in front of you, rather than what you think is supposed to happen is key to successful trading. Any trader can tell you when one thing or another is supposed to happen in the market. For example, a weak housing number, that shows a sharp drop in the amounts of homes being purchased is a tell-tale sign of economic decline. Therefore the market should sell-off. But, what happens when such information is released and the market does not sell off? How about if it even begins to rise? Like Michael Corleone, who took something that he saw as a clue that the situation he was about to get into in Cuba might not be what it seemed, a good trader might say to himself, "I saw something today," knowing that if the market is not selling off when it is supposed to that it might be a sign that it will not. Joseph Kennedy saw the sign that the rally in steel stocks might be over when even the shoeshine boy was talking up steel.

That sort of situation happens all the time, such as when a favorable earnings report comes out, which is supposed to sway a particular stock to the upside, and for some reason the stock just does not go up. That is a pretty good sign that there might be something else out there that is keeping that stock down. So, instead of buying, you might have to consider selling the stock or at least look to buy it much lower. When the market is not behaving as perhaps it should, Mark Lane, a wise and experienced trader in my office, and therefore a true mentor might say, to paraphrase a line from William Shakespeare's Hamlet:

"There's something rotten in Denmark."

When Mark makes his wary proclamation, that there is something rotten in Denmark, that is his way of saying that the market is not acting how one might think that it should, and perhaps one might want to reconsider his approach to the market. The character Marcellus, from Hamlet, knew that something was rotten, was not quite right in the state of Denmark once angry, vengeful ghosts started turning up. He figured that that would be bad news for someone. Both Michael Corleone and Joseph Kennedy knew when there was something rotten in Denmark (or Cuba, or New York City) and were able to conduct themselves accordingly, helping them to save capital and, in Corleone's case, his own life.

Often times, the overall market environment will dictate how information sways the market. Jerry Budashevitz, another old-time trader in my office maintains that a strong market will shrug off bad news and run with god news, and vice-versa. So, if the economy is generally strong, a negative earnings report might not have a deep negative impact on the market, meaning that maybe the market can still be bought. This is why you need to absorb news and information and be aware of all the factors that could impact your trading one way or the other. If you get too carried away with information and act impulsively on what you see and hear, you are bound to make mistakes. When I take the Subway to work in the morning, I see numerous other people reading the Wall Street Journal just like me, and while I might be getting some good information that General Motors (GM) has reduced its earnings outlook and has scaled back production, I dare not sell it short when I get into the office. Why? Because I notice that everybody else with the Journal is reading the exact same article and there is a good chance that they all might run into their offices, sell GM, and become overwhelmed by some big, institutional buyer who knew that there would be traders out there, clamoring to sell GM based on that article, and will run the price of the stock up in their faces. It is so important to let the market come to you, rather than chase after it. That is why someone elses advice is never any more valuable than that which you know. Also, that is why information should never directly dictate your trades, but should instead help to guide your trades. My father always says that once you hear about something it's already too late, like when you start getting stock tips from the shoeshine boy. Jim Cramer advises his viewers to never buy anything right after he discusses it on his show. He always suggests following the stock for a few weeks, in order to familiarize yourself with the stock's movements and fundamentals. Although I look at them from time to time, I do not place much value in the more mainstream business magazines like Fortune or Money, for the simple fact that I feel like their primary purpose is to explicitly convince you to approach the market one way or the other, with their features on the top fund managers and best places to live, and so on and so forth. Not to mention the fact that anyone who has ever sat in a dentist's office has probably leafed through countless back copies of these magazines. This is not to say that Barron's is not read by countless millions as well, but it just seems to have more of an appeal to market professionals and is therefore not read by just anyone hoping to procure a little something extra for their retirement.

Appreciating That Which is Golden

The real truth of the matter is that there is simply too much information out there as well. Since we all know how sensitive the markets are to news, I sometimes wish that the news outlets simply did not report. That way, I would not have to sit there with baited breath at the prospect of a report. I know full-well that should a crude oil deficit be announced on Wednesday, at approximately 10:35 am, EST, its regularly scheduled reporting time, that there will be a flood of buy orders in the energy sector, which usually sends the overall equities markets into a downward spiral. Is this real trading? Yes and no. Volatility, whatever its cause, is a fact of trading and it helps to keep our markets moving. But volatility is also often the result of knee-jerk reactions to news and a bunch of traders trying to play a big swing in the market for a quick profit, which can totally throw off your trading positions if you are not careful.

The fact that we have more information available to us, through numerous outlets, than at any other time in our history is certainly to our advantage and those who provide it have a responsibility to do so. But, we who receive the information also have a responsibility to utilize it in an intelligent manner that not only benefits ourselves, but also does not harm others. Being primarily a technical trader, who trades off of chart formations and looks for areas of support and resistance, I get so frustrated when the market starts to go haywire and blows right through all the areas that I had planned on making trades, only to find out two hours later that some mid-level manager at a European investment bank misallocated $1billion worth of funds, and for that reason everybody on Wall Street started selling the banks. The point is, if it were not for the news, so much of it late breaking and "urgent", I get the feeling that the market would just do what the charts say it should, which is take the path of least resistance to the point at which it should reverse. But, the noise wins out, the news gets reported, the market reacts. So, for my own well-being, I may have to adjust my thinking. I might have come into the market that day really looking to buy. All the technicals in the indexes and in the stocks that I follow suggest that things must be bought. But, perhaps because of some news, the market defies my logic and begins to sell off. If I stick to my plan of buying, I am likely to get hurt. So, I must do what the market tells me to do, which is to either buy much lower, or to look for areas at which to go short.
I try and extend my appreciation for silence to the office as well. There are five other traders in my office and we all like to share market philosophies and discuss trades with one another. While I think it is very constructive to talk about the market with other traders, I do not like to discuss live trades with anybody. I feel that there is no better thought process than your own and presumably you entered a trade knowing how you want to approach it: where you will take your profits and where you will cover if you are wrong. Since nobody in my office knows more about the stocks that I trade than I do and nobody is more in tune to my own thought processes than I am, I resist asking my co-workers about a trade that I am currently involved in. If I am not sure about a trade, I usually cover it or at least lighten my position. However, I go into every trade preparing to be wrong and accepting the fact that I might be. If I ask others what they think of a trade I have on, I am, for one thing taking them away from their own trades, but am also replacing my thoughts with someone else's, meaning that the trade is no longer my own. Furthermore, if I allow someone else to suggest how I ought to handle a trade, I risk getting talked out of a position that will turn out to be correct. If it you are a competent trader, it is more likely that another person's advice will force you to cover a good position prematurely than it will rescue you from a bad position. If you find yourself asking people to help you navigate your own trades, then you are not yet a competent trader or a confident one, and maybe should not be trading.

You will undoubtedly miss out when you take somebody else's advice when you should follow your own heart. Suppose you had tickets to a baseball game that you had really looked forward to going to but saw on the news that rain was expected that evening, meaning that the game could get rained out. What would you do? Would you right then and there chalk the evening up as a loss and decide not to go to the game based on the weather report? Sure, the report might have disappointed you because you wanted to see the game. But, think of how disappointed you would be if it did not rain that evening, or at least rained lightly and only for a little while, not enough to cancel the game, and you had decided not to go. Any baseball fan would at least give it a shot to go to the game, would head to the stadium, umbrella in hand, having checked the weather throughout the day. If it ends up raining after you arrive and you decide not to wait out the weather, you may be disappointed as well, but at least you will feel vindicated in having done what you thought was right. Because if it turned out to be a beautiful evening and better yet, an excellent baseball game, you will be glad if you did not let the weather report influence your decision before you took time to assess the information and the decide for yourself.

During busy times in the market, I need to focus and cannot handle outside distractions. I turn the TV to mute and become very annoyed should anyone start talking in the office. I am prone to outbursts, where I yell at the computer screen and cheer on my trades. I am sure that that must annoy others in my office (not to mention those with whom we share the floor of our building), but it is my own personal pathology that keeps me focused and involved. Besides that, when the market's action provides enough noise, I try and enjoy the silence.

That said, it is an unquestionable benefit to talk about the market with other traders, to share trading strategies, discuss different stocks, and to get different points of view on the markets. Just be sure to do it outside of regular trading hours. Yes, information is power, but a philosophical conversation about the markets and a new way of looking at charts will not help you to safely cover your live day trading positions.

So, with all of the information that I take in each day, I still have no idea what to tell somebody who asks for market advice. In my opinion, to do so would be irresponsible. The average investor should be accountable for their portfolio and at the very least know whether or not their stocks have gains or losses, so that they can get out of their positions accordingly and move money around to best reach their objectives. But, asking somebody else what they should do just because they are frustrated is not the proper way to go about being accountable. After all, I have no idea what their overall financial picture looks like, how much they want to invest, what their investment goals are, what they think about options, or anything else like that. It is the job of the broker or financial advisor to sit down with a client and decide an investment strategy based on a variety of personal information. Random stock tips are generally ill-informed and do not work. Still, should anybody really want my advice, I just tell them all the same thing, which is what I told the guy in my building: Get out of stocks and buy Municipal Bonds. They may not have the potential to double in a virtual blink of an eye and although not too sexy, the 6% ROI that they are guaranteed to yield is a lot better than losing 25% and then yelling at some stranger about it.

Reflective Sidenote

While I try and take in as much information about the stock market as possible, I still have vastly more interest in things outside the market. However, there is always an opportunity to gain insights into the market and the economy, and you don't have to be constantly reading the Wall Street Journal or watching CNBC to get it. I am generally much more interested in sports, for example, than I am the market. So, when I am sitting on the couch at home, I am far more likely to be watching a ball game than I am business news. Also, I think I spend as much time watching the various programs on Bravo and E! that my wife has turned me onto, and that I can't seem to get enough of, as I do sports (admit it, guys. You like Project Runway). However, in each of these programs, there is as much chance to garner market information as there is in reading Barron's cover-to-cover. Just watch the commercials, look at what people on the shows are wearing, which cellphones they use, or what they drive. Pay attention to the advertisements you see around the stadium when watching a football game on TV. After all, so much of television is about marketing and marketing is what helps moves the market. Maybe you will notice a product or company that just looks interesting to you for some arbitrary reason and you can plug that company or product's name into a finanial website or look it up in the newspaper, see where its stock trades (assumming it is publically traded), and maybe begin trading it. While I may have the financial networks on in my office each day, I only actually turn to watch them every so often. Similarly, I rarely sitdown to watch even a solid hour of financial programming when I'm home. I like to see what the Fast Money team, for example, or Jim Cramer have to talk about on their shows for a few minutes, and then see if maybe I can gleen a little extra knowledge in that amount of time. I also do not sit with my eyes glued to the financial newspapers, carefully combing through every article. I just read a few of the articles, in hopes that whatever I read can better inform my trading and my understanding of the markets in general. Maybe if I more fully immersed myself directly in the markets I could be an even better trader. Who knows? But right now, I do my best to get whatever information I can and use it as best I know how. I have a broad array of interests, reponsibilities, and activities that I involve myself in, all of which I need time for. However, like a seasoned reporter who has a "nose for news" and can therefore sniff out the newsworthiness all around him, an active and involved trader should always be receptive to any piece of economic data, so much of which is floating around everywhere he goes and in everything he does.

One more thing: Shares of United Airlines (UAUA) lost $9, or 75% of its value, in a matter of
minutes on Sept. 8th, 2008, dropping from from $12.30 down to $3.26. The massive sell-off happened because Bloomberg reported a story that it picked up from a Florida newspaper that claimed that United had filed for bankruptcy. The problem was that the newspaper found the article in its archives and for some reason thought it was current. The bankruptcy filing was, in fact, six years old and United had exited bankruptcy four years later. If ever there was an example of yesterday's news that was it. However, a story reported in error both by the newspaper and a credible financial television network sent United's stock plummeting so quickly that NASDAQ actually had to halt trading in the stock as it reviewd trades tried to asses what had happened, and the entire market was thrown into chaos. United actually had a print of a penny for a 100 share trade that took place on another exchange after the temporary stop in trading began. That trade was nullified, but all of the trades that took place between $12.30 and $3.26 stood after NASDAQ had finished its review. When trading in United resumed, it opened up at $11.28 and stayed roughly at that price the rest of the day. The entire day was uncertain in the stock market. I ended up down a mere $150 that day. But, the volatility that resulted from the United story forced me to cover some positions when I otherwise might not have and stay in others when I might not have wanted to. I tried doing what I felt the market told me to do. Yet, the market did not know what it wanted to do. I was down big at one point that day, a few thousand dollars, which is big for me at least and had to fight my way back to almost break even. Would I have done better that day had the false news on United not come out? Who knows? But, the market's reaction to the news caused it to move in a way that was so uncertain that I could not trade as confidently as I would have liked to. So many people just traded the news, knee-jerk reactions to sojmething that was irresposibly reported on two fronts. I tried to base my trading on the market, but the market was not behaving in a way that gave me anything to grab onto until it seemed to pick a direction at the end of the day, when I was able to make back my money. Before that time, I tried to play the chop and I got chopped up! All because of the news. So, while it may pay to listen to the news and to be as well informed as possible, we all must take time to consider the news first, no matter what it is or where it came from. So, the moral of the story is to be careful of that which you hear and of the information that you take in. We would all be better off to take a step back and actually evaluate what we hear and see. That way we can make even better decisions on the markets and the news can actually help us! Unfortunately, there will always be gut reactions to the news and sometimes the best we can do is wait out the madness until it subsides and things become clearer to us.