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The Greatest Myth About Trading

Elementary school can be a brutal place if you are not careful.  It’s not so much the possibility of being bullied, shunned, or made fun of as much as it is the fear of being “branded.”

Yes, this is the place where if you didn’t play your cards right, you could end up with a nickname that would scar you for life.

Enjoy your grilled cheese sandwich a little too much at lunch one day, well guess what….your new name is “cheese.”  You might as well just get it tattooed on your forehead because it is going to follow you wherever you go for at least the next 20 years.

This nightmare scenario became a reality for a guy I knew named Chris Stevens.  To be honest, Chris wasn’t really a friend of mine.  In LinkedIn terms he would have been considered a “2nd degree contact,” meaning I was acquainted with him, but really only hung out with him because one of my good friends was friends with him too.

Back in the 70’s they had this weird annual event called the Presidential Fitness Council Test, where elementary school kids would be tested to see how many push-ups, pull-ups, and “line straddles” they could do.  Arnold Schwarzenegger was even Chairman of the Council for a while.

The winners in each grade would get a medal and a certificate signed by the President. There were always a couple of pre-pubescent über-athletes at each school that took it seriously, but most of the kids just sleepwalked through the process, doing enough of each exercise to be deemed respectable.

The test started out okay for Chris.  He got through the line straddles with a decent score and was able to post a reasonable amount of pull-ups.  But it all fell apart at the push-up mat.  He did seven.  Seven measly push-ups.  I still can’t figure it out to this day.  He wasn’t a weak or scrawny kid, but for some reason that was all he did…..seven.

I’m not a religious guy, but I will swear on a stack of Pumping Iron DVD’s that I never heard anyone call him “Chris” again after that.  He was simply known as “Seven.”

There was no committee meeting to decide it.  No decree from on high.  Just an instinctual understanding from all those who knew him that this numerical scarlet letter was to be his new and permanent moniker.

The transition through intermediate and high school did nothing to erase its hold.  Just like with Norm on Cheers, in any room he walked into, the occupants would simultaneously raise their heads and shout “Seven!”  And eventually, in some twisted linguistic derivation, the nickname ultimately just ended up morphing into “Sev!”

Sev was a solid guy, but not too smart and the one thing I remember about him (besides the push-ups), was how on one 4th of July he tried to pull a stunt that would have made the Jackass crew shudder.

We all had few packs of firecrackers, and like any normal young male pyromaniacs we were trying to see what the “coolest” thing we could do with them was.   One guy threw some in a hole, another put a few in a tin can, and still another chucked a whole lit pack into the air at once.

Sev thought he could do everybody one better, and decided he was going to light one and drop it in the gas tank of a car.  Like I said, Sev was not the brightest guy, and since I am actually writing this post you can infer that his plan did not work out, but it was one of the riskiest things I ever saw anybody do.

Risk is something that most people associate with trading.  In fact, to the public at large, you are often likely to get the response, “isn’t that risky,” when you tell them that you trade for a living.  However, I think that is one of the biggest myths about trading, and I assert that trading is no more risky than most other jobs.

When I ran my own business, on the first of each month, the moment I woke up I was 60K in the hole.  That meant that in order to just “keep the lights on” I had to generate 60K in revenue each month, even before taking a dime out for myself.  And every month that I decided to keep my company going, I had to take the risk that I would not meet my nut.

Trading has no operational costs (or very minimal ones), which makes the decision to pursue the endeavor a relatively risk free one.

“Yeah, but where else do you have the possibility of losing more money than you started the day with,” is the lame rebuttal I often hear.  Really…?  These people obviously have never run a business.   If one of my employees damaged a client’s merchandise or backed a truck into a parked car I could easily lose more money than I started the day with.

Trading has no operational risk.  No employee is going to hurt his back and jack your workman’s comp rates up.  No douche from OSHA  is going to unexpectedly show up at your office and tell you that you are not in compliance with a new law passed the previous week and are on the hook for a large fine.  And you are not going to have a piece of equipment go south on you that you have to drain your bank account to replace.

But that is only for business owners right? What if you do the “dance” by getting a four-year degree and going to work for a solid blue chip company?  Well in some ways that is one of the riskiest things you can do.  Now you have turned over the fate of your continued employment to some mid-level management asshats or fair weather board of directors. Take a look at how many people took that “safe” path to corporate security and got tossed out on their ear when the economy imploded in 2008.

Trading has no asshat risk.  Nobody will even come into your trading room and tell you that you are being downsized, or that the macrame conglomerate you work for is going out of business after 75 years because the board of directors couldn’t resist getting involved in arbitraging high risk CDO’s.

At the end of the day, trading is one of the rare businesses where only you decide the amount of risk you are willing to take.

The reason that most people go off the rails and blow their account out is not because there is any outsized risk associated with trading, but because the barriers to entry are so low, they are able to jump in feet first without really knowing what they are doing (or they are a seasoned pro who lets their ego get the best of them).

Being a pro football QB is risky.  Being a firefighter is risky.  Being a jet fighter pilot is risky. But the average Joe can’t just jump into those positions without a shitload of training and without attaining a high level of competency.  And thus the risk is less for a Tom Brady, for a fire Captain, and for a Top Gun pilot.

Trading gets a bad rap due to the “Sydney or the bush” portrayal it has received in pop culture and OWS type propaganda.  It’s perception has been “Gekkoized.”  But in reality it may be one of the safest professions if you do it properly and make the choice to keep your ego in check.

20 Books Every Trader Should Read

A question I get asked on a regular basis by those interested in trading is, “what books do you recommend?” Perhaps you came to this article thinking the same thing?

Well, you’re in luck because I’ve spent the last 30 years – and a ton of money – buying and reading every trading and investing book out there so you don’t have to. This list represents the best of those books, the ones I can, with no reservations, 100% recommend – except of course for those at the end that I’ve declared are “avoids.”

As with every list, there will be disagreements.

“Why is that book on the list?”

“Why isn’t that book on the list?”

Because it’s my list, so shut up!

But seriously, I’ve picked 20 books that stood out for me as a trader that were a #valueadd for one reason or another.  That doesn’t even have to mean that they are about trading.  For example, the “General Interest” section is made up of books that appeal to a trader’s mindset.

I hope you find this list of value, and if you do, please pass it on to someone who will appreciate it.

Update:

Since I first wrote this post, hundreds, if not thousands of books on trading and the stock market have been published. Most of them are real bad.

But a select few are so good they deserve a place on this list, so I have added this updated section.

Technical Analysis Using Multiple Timeframes – Brian Shannon is one of the original trader/bloggers and his book has been a reference companion that I go back to time and time again.

The way he illustrates the power and simplicity of using multiple time frames in a trading methodology will make you shake your head and wonder why you’ve been making things so complicated.

A must have addition to any comprehensive trader’s library.

Trading Options: Using Technical Analysis to Design Winning Trades – Greg Harmon is a friend and a good guy, but that doesn’t mean I’d put his book on this list if it didn’t deserve it. I can’t say enough about this book.

Don’t let the “options” part of the title fool you. This is a book that teaches you step by step how to identify trade candidates and create a methodical plan to take advantage of them – both with and without options.

If I could only recommend one book on trading, this would be the one.

The Next Apple: How to Own The Best Performing Stocks In Any Given Year – From the book’s description;

This is not a book about the company or the stock Apple. This is a book about finding the next Apple or at least finding hundreds of “mini-Apples.”

$10,000 invested in Apple in 2003 is worth $1,500,000 today.

Ivan is a great trader and master at finding hot momentum stocks. He does a great job in this book showing you how you can find stocks that have the ability to become the next Apple, aka, big winner.

Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere – Tadas Viskanta has spent the last 10 years on a daily quest to find the most interesting, compelling, and informative financial and stock market content. This has made him an expert curator of investment ideas and strategies, the best of which he lays out in this book.

From active trading to ETFs and global investing, Tadas covers it all in a smart, thoughtful way, with a smooth style that is both easy and enjoyable to read.

The Market Wizards Series – Chances are, you’ll find these books on the shelf of any serious trader. They are without a doubt the most comprehensive collection of interviews with superstar traders ever published (Market Wizards,  The New Market Wizards, Stock Market Wizards, and Hedge Fund Wizards).

However, their dirty little secret is that although they capture perfectly a moment in time, they are extremely dated and will give you almost no insight into today’s markets or how to trade them.

Their contemporary value is showing how even the greatest traders initially struggled and often blew up (repeatedly) before becoming successful.

They are like benign candy, enjoyable to consume, but won’t help or hurt you.

Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets – This book was the first to quantify one of the most important concepts in trading; the four stages in which stocks move, which are the basing, advancing, topping, and declining stages.

Despite the fact that the cover of this book has not been updated since it was published in 1988, stage analysis is still relevant today.

How to Make Money In Stocks: A Winning System in Good Times and Bad – As an unnamed trader friend of mine recently said, all you need to do is review the charts in the first 150 pages of this book and you will be good to go.

These charts, along with O’Neil’s annotations give you a great foundation to understand the patterns stocks form before they go on massive runs.

Reminiscences of a Stock Operator –  Tough call on this book, only because I don’t think it is the Rosetta Stone of trading books that it is often described as.

The language is dated and colloquial, which though strange, is actually part of its charm. There are definitely some foundational lessons for trading in this book, but you as the reader have to do the historical conversion in your head from venues like “bucket shops” to today’s market.

How I Made $2,000,000 in the Stock Market –  This book should really be called, “How I Made$18,000,000 (adjusted for inflation) in the stock market,” because that is how much it would be in today’s dollars.

That would be phenomenal for anybody, but for someone who did it while traveling the globe, in a pre-internet, computer, iPad, Smart phone world……while working as a professional dancer? Well, that is just epic.

His “Darvas Box” system, though crude and in need of adjustment to factor in today’s HFT, is still a foundation of a solid trading style/discipline.

Trading Education:

The Stock Twits Edge: 40 Actionable Trade Set-Ups from Real Market Pros –  Okay, before you accuse me of trying to kiss the ass of the folks at StockTwits, let me just tell you that I’ve been recommending this book publicly forever.

This is the book I wish existed when I started trading 30 years ago.

It is the “Market Wizards” for the retail trader, and more importantly, each chapter is written by someone who currently has an active presence on social media.  Plus it’s the only place you will ever see @The_Real_Fly write two whole pages without saying “fuck!”

The Trading Book: A Complete Solution to Mastering Technical Analysis and Trading Psychology – I like Anne-Marie, but if she had asked me if it was a wise choice to add another trading book to the world, I would have advised against it.

And I would have been wrong.

I was amazed at the scope of material that this book was able to cover in such a meaningful way. Anne-Marie’s economical (and often humorous) style takes you right to the core of each concept, doing away with irrelevant and superfluous information.

I don’t think it is hyperbole to say this is an instant classic for the beginning/intermediate trader.

Japanese Candlestick Charting Techniques –  There are a lot of books out these on candlestick charting, but almost all of them are derivative of Nisson’s tome.  This book does a great job explaining the basic concepts as well as the most relevant patterns related to candlestick charting.

Unless you really need to know about the “three-drunk-salarymen-rolled-by-the-hooker-in-the-Shinjuku-train-station” pattern, this book is all you will ever need for candlesticks.

Trade Your Way to Financial Freedom –  Yes the title is cheesy and sounds like something from a late-night infomercial, but this book has one of the best overviews of the different types of methodologies you can use to make money in the markets.

More importantly, it shows you how to go about formulating a methodology for trading in the markets.  The information on risk and position sizing alone makes this book worthwhile.

Psychology:

The Disciplined Trader  & Trading In The Zone –  These are the definitive books on trading psychology.  I know traders who went from perpetual losers to consistent winners after reading these books.  The way Douglas climbs into the psyche of a trader is scary and there is a good chance you will wonder aloud how he managed to plant the hidden camera and microphones in your office to take notes on your trading deficiencies.

Real World Trading:

Pit Bull: Lessons from Wall Street’s Champion Day Trader – Extremely dated, but still the only full auto-biography (I believe) of a “Market Wizard.”

It is a look into the mind and process of an extremely disciplined trader who is still putting up crushing numbers to this day.

One Good Trade: Inside the Highly Competitive World of Proprietary Trading – If you want to know what it’s like trading in the real world of a prop firm, this is the book.  But even more so, this book shows you how to focus on process instead profits to become a successful trader.

There are a number of great trading lessons in this book, all wrapped around relatable stories (kinda like this blog).

General Interest:

The 50 Best (and Worst) Business Deals of All Time –  This book is like eating a piece of candy – you will enjoy it so much and will be sad when done.

Clocking in at under 200 pages, it gives concise, informative, and fascinating insights into some well-known, and some not so well-known business successes and failures.

The chapter about the ABA’s settlement with the “Spirits of St. Louis” alone is worth the price of admission.

Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments –  Sure, once again you can accuse me of kissing ass to a heavyweight financial blogger, but really, if you have read Josh’s blog for any amount of time, you know he’s the real deal.

This book pulls no punches and will probably be looked back upon years from now as the clarion call against the entrenched Wall Street establishment instead of those Occupy Wall Street douchebags.

Mean Business: How I Save Bad Companies and Make Good Companies Great –  Dunlap made his name as a “turn-around” specialist for near-death companies, and this book chronicles some of his most famous successes.

I get that Dunlap’s career ended in shareholder actions, SEC investigations, and his banning from ever running a public company again, but just because Michael Jackson’s final few albums sucked doesn’t mean that “Off the Wall” and “Thriller” weren’t masterpieces.

Dunlap was an asshole to be sure, but often times an asshole is what is needed, and his excesses in restructuring were merely a response to the bloated corporate excesses of the times.

It’s hard to fool guys like Kerry Packer, Sir James Goldsmith, and the principles at KKR who used Dunlap as their secret weapon, so “Chainsaw” Al must have been doing something right at some point.

The New Financial Capitalists: KKR and the Creation of Corporate Value – Every time I re-read this book I get financial wood.  Love them or hate them, KKR changed the way M&A was done and left an imprint on corporate financing that is still felt today.

It is hard to forget in the wake of the 2008 credit crisis that KKR was always responsible – and almost always successful – in using debt and leverage to save failing companies and create or unlock value for shareholders and their investors.

This is an authorized biography of the company but done in a truly objective fashion and it highlights how the key to a successful KKR deal is not so much about the money (or debt) they brought to the table, but the wealth of managerial talent they brought to their target companies.

Avoids:

Trading For A Living: Psychology, Trading Tactics, Money Management  – This is the gateway book that every new trader seems to come through on the road to trading, but  I have to say, I have never been a fan of Dr. Elder.

It stems for my suspicion that he makes (and has always made) more money from writing about trading and putting on overpriced seminars about trading than he has from actually trading.  In this book he espouses a multiple time frame method  that is rudimentary at best and his nod to trading psychology is done better and in more depth by Douglas.

The only interesting aspect of this book is his explanation of how trading is NOT a zero sum game, but that is really only worthy of a blog post at most.

The Education of a Speculator –  I have a friend who not only is a 100x better trader than I could ever hope to be, but is a connoisseur of art and literature, and even surfs. He is also a friend of the author, Victor Niederhoffer, and thinks highly of him.

That is why it pains me to say that “Education…” is probably one of the worst written books that I have ever read.  It would be better titled, “Let Me Tell You What A Great Squash Player I Am.”  And even though I am sure there was meant to be some subtext in his narcissistic stories that relate to trading, it is written in such a purposefully exclusionary way that you can’t find it.  Since I am part of the “chattering classes” it is probably that

It would be better titled, “Let Me Tell You What A Great Squash Player I Am.”

And even though I am sure there was meant to be some subtext in his narcissistic stories that relate to trading, it is written in such a purposefully exclusionary way that you can’t find it.

Since I am part of the “chattering classes” it’s probably that Niederhoffer, a true intellect, is just writing above my level. But unless you are picking this book up on the way to your Nobel Prize luncheon, it’s probably best to just skip it.

Hey, don’t forget to check out my book Trading: The Best Of The Best – Top Trading Tips For Our Times destined to be on this top 20 list someday.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

How You Will Know That You Are Truly A Trader.

Assassinations.  Acts of war.  Man’s capacity to visit death and destruction upon his fellow-man. These are the originating events that spark that age-old question used to mark a moment in time, “Do you remember where you were when…..?”

For my grandparents and parents generation it was Pearl Harbor and JFK respectively. For my generation it’s 9-11.  With my kids generation I’m pretty sure it will be the day they discover that Justin Bieber is in fact a zombie cyborg, sent to this planet by an evil alien race in order to hypnotize us through musical pablum, before starting the invasion where they will rightly lay us to waste.

But life is also full of many other memorable though less dramatic events, and the way in which we remember them varies from person to person.

For example, my wife remembers places and events by the food associated with them; a typical conversation between her and I will often go like this….

“Hey honey, do you remember that cool little restaurant we went to up in Los Angeles for our anniversary?”

“Hmmmm…..no I don’t really recall the place.”

“C’mon, you remember!  It was where they had the great view of the ocean?”

“Yeah…um…its not really ringing a bell.”

“I can’t believe you don’t remember. There was a five alarm fire in the gunpowder factory right across the street during our meal!”

“You know…..I am just not good at remembering things like that.”

“But it was that place where a bunch of movie stars were eating, and I got into a fist-fight with Brad Pitt after I yelled ‘Salt sucked!’ at Angelina?”

“…..It’s just uh…nah,…. not getting it.”

“You had the grilled Chilean sea bass with mango salsa…..!”

“OHHHHH….That place!”

It’s my belief that one of the criteria for truly calling yourself a trader is not related to what your job is or even if you make money in the markets, but your ability to always have an answer to the question; “What was your position when…….?”

And I don’t just mean during macro events like when the market dropped 23% in one day back in October of 87′.  That doesn’t count because it was on every mainstream TV newscast as well as the front page of newspapers across the world.  Even my mother knew her portfolio got crushed that day (I told her not to fade Paul Tudor Jones).

No, I am talking about when you say to someone “flash crash,” and they instantaneously reply, “short 500 shares of $AAPL, covered one point from the low tick of the day.”

Or say, “short sale ban on financials?”  And faster than a HFT algo comes the response, “long out of the money $ICE calls.  Fucking suweeetttt…..!!!”

Traders are, in the very best “Bill Murray in Stripes” sense, “mutants…and there is something very, very wrong with us,” that these positions are forever tattooed on our cerebral cortex.

Wife’s birthday……”uh, give me a minute.”

First time you got really drunk…….”must have been that one summer…..?”

First time you had sex……..”yeah probably around June of my senior year!”

First time you had sex without actually being drunk………”uh, that’s a tough one.”

Day Buffett announced he took a stake in $GS…….”Long S&P index options, and day traded the shit out of $SKF.”

I can tell you exactly what position I had on October 17th, 1996.  I was long 1000 shares of $OO (Oakley Sunglasses).  I can also tell you what time I woke up that morning, what I had for breakfast, what I did most of the day, and what time I went to bed that night.  That day is burned into my brain because it was the day that $RAYS (formerly Sunglass Hut) decided they were closing a number of their stores.  This would cut into Oakley’s sales, and the stock dropped 25% while my account lost 50% of its value.  And here is where it gets weird.

For over 15 years I didn’t tell that story to anybody; not because I was ashamed or embarrassed about it, but because nobody couldn’t relate to it.  My friends and family aren’t traders, and although they could understand it in an “oh, you lost money” type of way, they just wouldn’t get it in a “yes I’ve read all the Market Wizards books three times” type of way.

But then a magical moment happened.

I was out at the Trader’s Expo in Vegas last October and was having a drink after the day was through.  I struck up a conversation with the gentleman seated next to me at the bar, who happened to be in town attending the expo as well.  As the drinks went down and the night went on, we began to trade “war stories” about our trading over the years, and I brought up my $OO trade.

Suddenly time stood still.  His gaze met mine and as if a thousand drops of glycerin were placed in them, his eyes began to water. The lights in the casino dimmed and one lone spotlight shown down on us.  His lips began to tremble and his voice began to quake as he uttered the cathartic words….

“I was long $OO on that day too……”

In this moment I had found a soul-mate. Someone who without speaking a word knew my long suppressed pain.  Someone I wanted to take into my arms, rub with baby oil, and cradle in my arms in the most heterosexual way possible.  A trader.

The other criteria for calling yourself a trader is when you become completely and pathologically fluent in symbol-speak. When you inner dialogue, even away from the markets, automatically begins to use the three or four letter, capitalized, abbreviated language of the markets.

This weekend I went shopping with the family at $TGT and $COST and I couldn’t believe they had better prices on flat screens than $BBY.  After that we had lunch at $MCD and then went back home where right away the kids started fighting over the $AAPL iPad.  I just said “screw it” and started watching Breaking Bad on $NFLX.

You think I am kidding right?  Well let me tell you how this trait manifested itself not too long ago.

After being together for 16 years my wife and I finally have our “mall” strategy down pat. She hates the stores I like, and I hate the stores she likes, so after years of getting her to first bring her cell phone, then actually turn it on, and finally taking it off of “silent” mode, we are now able to split up and then call each other when ready to meet.

We headed to our respective stores and after a while I decide to check out the Nike store on the other side of the mall.  So I send her a text to let her know she can find me there when she is done with her shopping. Almost 30 minutes goes by as I am engrossed in all the cool workout shoes and clothes that I will never buy or use, and then finally I wander out into the mall atrium area…..and there she is….steaming mad.

“What’s the problem,”  I say.

“Well to start with, I tried to call you three times and you didn’t answer.”  (Turns out it was me who had the phone on “silent” mode by mistake this time. D’oh).

“Yeah, but you knew where I was because I texted you,” I said.

“Really?” she annoyingly replied.  “Cause I have no idea what this is supposed to mean……”

With that she turned her phone screen towards me to show the message that I had sent her.

It read, “I am heading down to the $NKE store.”

I looked up at her, and although the husband in me gave a sheepish look, the trader in me was grinning from ear to ear.

10 Tips If You Are Losing Money In A Bull Market

There is really no such thing as an “easy” market to make money in, however some types of markets are more conducive to success than others, and right now we are in the middle of one those types of markets.

If you are not making money in the market right now, you need to seriously re-evaluate your trading (and conversely, if you are making money hand over fist right now, you need to make sure it is because of your trading, not because everything is just going up).

So if your trading P/L is currently bleeding red, here are ten tips that might help put it back in the black.

1.  Cut your position size – Everybody goes through losing streaks, and if you are in one right now you should be progressively cutting your position size down until you return to your winning ways.  This ensures that you are trading the smallest size during your worst periods. Think of it like an out of control night in Vegas; as it gets later in the evening you should be drinking less, not reaching for the beer-bong.

2.  Stop trying to short stocks –  No matter what type of market we are in, short selling is probably the hardest thing for a trader to do profitably on a consistent basis. Those that can are part of a very small and specialized group of traders.  It may seem “cool” to try to make your money selling short, but what is really cool is just making money. Besides every time you short a stock, somewhere a kitten dies.

3.  Trade less (make more) – Take it easy Racer X, you don’t have to be going full bore all the time, (besides you’ll never catch the Mach 5 anyway).  There is no law that says you have to trade every day of the week.  If you are consistently losing money right now, trading more often will just increase your rate of loss.  Dial it back a bit and take that extra time to review your charts and find optimal set ups.  Then maybe Trixie will finally pay attention to you.

4.  Stay out of low-priced stocks – Trading cheap stocks may seem tempting, especially if you have a smaller sized account, but these types of stocks are often illiquid with wide spreads relative to their price.  Not unlike short selling this is a very specialized trading niche, and right now there is no lack of well capitalized and liquid stocks making nice moves in this market.

5.  Pay attention to what the market is telling you – If out of the blue your wife starts going to the gym, getting “elective” procedures, and wearing high heel boots to “work,” you better pay attention or know a good divorce lawyer.  Each time the market takes a nosedive I see the streams come alive with traders closing out their longs, or going short. But that is not what the market has been telling you.  It has been telling you that this is a “buy on the dip” market, where you add to your longs on support and you certainly don’t short there.  At some point this will change, but until then don’t try to go against the grain.

6.  Trade in the best sectors – The overall market tone is the most important factor in moving individual stocks, and right behind that is sector performance.  If you are not trading stocks in the sectors that are moving with the market, you are putting yourself at a great disadvantage.  Just look at the coal stocks during this recent rally; they have been nothing but dogs.  Make sure that you are trading stocks in the sectors that are moving up with the broader market.

7.  Check your methodology – Or more importantly, make sure you have a methodology.

8.  Review your risk/reward ratios – Are you averaging larger losses on your losing trades that profits on your winning ones?  If so you need to adjust your risk/reward parameters when entering a trade.  The minimum you should strive for is a 1:3 ratio, which means you can “win” on a smaller number of trades and still be profitable.  For more info take a look at my “Deconstructing A Trade” videos where I cover that subject so often you will want to puke….but in a good way.

9.  Eliminate external distractions – One day in 2005 I was battling a bad market, a bad Wi-Fi connection, and was forcing bad trades.  Even worse than that, my wife kept bugging me every three minutes or so. “Honey, can you come over here?”  “Yeah, yeah, just give me a minute,” I would say. Finally she said, “honey, I think the baby is coming!”  Out of deference to her, and the doctor, and the nurse, and the intern staring at me, I closed my laptop and stopped trading for the day.  (Oh man, I wish I was kidding about this story). Point is, if there are distractions in your personal or professional life, they can often cause you to lose focus in your trading.  If you can’t eliminate them, it might be best to hold off on trading until you can get a handle on them.

10.  Subscribe to a trading service – As I have written about in the past, I am a big fan of quality subscription services.  If you are a beginning trader it is like having an experienced mentor, and if you are a seasoned trader, it is like having an extra pair of eyes on the market. The money you make in trading spends the same way no matter if you found the trade yourself, or somebody else gave you a heads up on it, so put your ego aside and make good use of this “tool.”

And of course most importantly, finding an interesting and informative free blog that talks about the relationships between the markets and life, in a humorous and relatable way, will take your mind off your trading losses and let you relax.

 

The Market Is Not Closed For President’s Day.

why-do-we-celebrate-presidents-day-2-41941

The stock market has been closed for a number of reasons since its inception, some that you may feel are valid and some that you may feel are not.  They include:

  • The centennial celebration of Washington’s inauguration
  • The death of Queen Victoria, King Edward VII, and King George V.
  • The death of J.P. Morgan.
  • Draft Registration Day.
  • No heat on the trading floor.
  • The return of General Pershing.
  • Parades for both Charles Lindbergh and General Eisenhower.
  • National Day of Mourning for Martin Luther King.
  • The “Paperwork Crisis” of 1968.
  • Heavy snow.
  • National Day of Participation for the lunar exploration.
  • Hurricane Gloria.
  • 9-11 (multiple days).

The markets have also been closed for a National Day of Mourning for the funeral of every president up to Gerald Ford’s in 2007.

Today some people think that the markets are closed for a holiday called “President’s Day,” but that is not the case.  In fact, according to the NYSE’s own site, it is closed for Washington’s birthday:

Washington’s Birthday was first declared a federal holiday by an 1879 act of Congress. The Monday Holiday Law, enacted in 1968, shifted the date of the commemoration of Washington’s Birthday from February 22 to the third Monday in February, but neither that law nor any subsequent law changed the name of the holiday from Washington’s Birthday to President’s Day. Although the third Monday in February has become popularly known as President’s Day, the NYSE’s designation of Washington’s Birthday as an Exchange holiday (Rule 51) follows the form of the federal holiday outlined above (section 6103(a) of title 5 of the United States Code).

When I was in was in school we had Lincoln’s and Washington’s birthday’s off as separate holidays.  Then somewhere along the line Lincoln’s got dropped and Washington’s mutated into this amorphous, beige-paint type holiday called President’s Day.

When Abe and George’s birthday’s were both still around there were TV specials, memorials, and school plays where you could actually learn something about the life and times of the two greatest presidents in American history.  There was some meaning to those two holidays and some significance past just being a three-day weekend and an excuse for department stores to have a sale.

I mean what sort of bullshit holiday is President’s Day anyway?  Who are we honoring, both Lincoln and Washington?  Are we honoring all the presidents?  If that is the case then I am sure there are a lot of people whose heads will explode when you tell them they are honoring George W. Bush or Jimmy Carter today.

And I for one will tell you that there is no way in the world that I will honor in any way, shape, or form that bastard Franklin Pierce.

Some will try to indulge in revisionist history and say that we are honoring the “Office of the President” today, but don’t even try that crap on me because it doesn’t even make sense.  I once broke up with a girlfriend who tried to pedal that BS to me, and she was a stripper.

The whole concept of a generic President’s Day just seems so politically correct to me, like when they do away with first place awards in children’s sports and just give everybody “participation” trophies.  I don’t want my Hoover’s, Nixon’s, and Clinton’s mixed in with my Roosevelt’s, Truman’s, and Reagan’s.  One of the keys to the American ideal is identifying exceptionalism, and that should apply most when honoring the leaders of our country.

So tomorrow, after you have bought a new pair of shoes in honor of William Howard Taft or grilled some steaks while thinking of Rutherford B. Hayes, take a few minutes out of your day and email you representative and tell them you want them to get rid of this communist based President’s Day holiday.  Tell them you want a return to presidential holidays that mean something, and while they are at it, tell them to bring back Columbus Day as well.

Why Would Any Serious Trader Subscribe To A Trading Service?

Back when I used to work out with martial arts legend Bruce Lee, he constantly emphasized three important concepts to me….

1.  Be like water (my friend), be like water.

2.  Chuck Norris is a wuss.

3.  Always use every tool available in order to be a successful trader.

It’s not well-known, but Master Lee was a pretty bad-ass trader himself.  Often, after a long night of nun chucking the vast minions of some evil warlord, Bruce would spend the day arbitraging index options on the floor of the Pacific Stock Exchange.  The locals used to call him Bruce “Alpha” Lee.

Being a retail trader back then was hard work as well, not so much because of the markets, but because of the lack of tools you had access to.

When I bought my first stock in 1985 there was no such thing as real-time quotes or charting software for a retail trader.  If you wanted to get a chart on a stock you had to subscribe to a service and they would actually mail you a paper chart.

These services were so expensive that most families could only afford one chart, and once you got it, that was your chart for life.  Parents would pass the family chart down to their children, and if you wanted to trade another stock, you had to make enough money in your stock to afford another chart.

Traditionally, it was the eldest son’s responsibility to update the chart by hand every night, which was a tedious job that could lead to big problems if you were not careful. One of my best friends, Eric Phillips, actually spilled a Slurpee across a chart during this process, ruining it and causing his family to miss a cup-and-handle breakout in Xerox that could have moved them into a higher tax bracket.  He has never entered a 7-Eleven since.

Information flow on most stocks was non-existent as well since there was no Investor’s Business Daily, no StockTwits, and no CNBC (perhaps a good thing).

Nor was there online trading, and it was a 50/50 shot to even be able to reach your broker via his single line, land-based phone.  And if you did get through, you were charged what was then considered a “reasonable” 2% of the total trade amount as commission. By the way,  you were lucky if you could get a trade confirmation back in a few hours.

Back then, when I wanted to trade a stock, I would have to brave the harsh Southern California weather and drive to my local Sears where the Dean Witter offices were located. Just in back of the Craftsman tool section was the office of my first broker, Randell Woodworth. Randell would take my order, hand write me a receipt, and then ask me if I wanted to look into whole life insurance from the Allstate rep at the next desk.

             My very first “trade ticket”.  This was cutting edge technology in 1985.

But the worst thing of all about being a retail trader at that time was that there was no way to communicate with other traders, especially those with experience.

These days, with the click of a mouse button, you have at your fingertips an unending array of tools with which you can use to be a profitable trader.  And the number one tool as far as I am concerned is a subscription to a quality trading service.

When I made the transition to full-time trading I had the luxury of time; time to sit at my computer and review 100’s of charts, run scans, and read all the news flow…..but I hated doing it.  There I said it.

I HATED DOING IT…!!!!

Call me lazy, call me a slacker, call me handsome, it doesn’t matter, that’s just the way I have always been wired.  When I was learning Spanish, I didn’t like sitting in a classroom conjugating verbs, I wanted to be down at the cantina, drinking cervezas and actually speaking the language.

It’s the same with trading; I love finding the setup, figuring the risk/reward, stalking the entry, managing the trade, and then trying to exit at the best possible point.  But back then I didn’t have the choice, I had to do the “homework.”

In 2008, I was asked to join a start-up, and that, combined with the fact that I now had two young children, created time constraints that meant doing the homework was no longer just an annoying necessity, but a virtual impossibility.

That was when I slowly started to add subscription services to my tool bag.  I say “slowly” because since I was in essence handing over the analysis part of my trading to a third party, I needed to be sure that I felt totally confident in their capabilities, as well as their ability to communicate information and ideas in a way that I could relate to.

Now these services are an indispensable part of my trading, and I wouldn’t have it any other way.  And to be totally clear, I am talking about a trading service, not a trading system.  I have already covered why as a retail trader you will never be able to purchase a viable trading system.

I’m sure that there are some hardcore purist neo-Luddites who think that because of this I canmno longer call myself a “serious” trader.  Okay Jebediah, here’s an idea; why don’t you grab your typewriter, your telegraph, and your Victrola, throw them on your mule, and come join me here in the 21st Century?

If you really think about it, using a service to find trade candidates is no different than using a scan to do the same thing.  You are filtering down the universe of tradable instruments into a more focused and actionable list; the only difference being that the “filter” is not a bunch of code or if/then variables, but an experienced trader.  The bonus here is that you can also interact with that trader in a real-time way via social media.

Most of these services clock in at about $49.00 per month, so for basically the price of a Saturday night bar tab with your buddies you can get a tool that I would have killed for back in the day. And I will tell you now, if I ever go back to full-time trading, I would keep every one of the services I currently use, and maybe even add some.

The real question then is “why wouldn’t any serious trader subscribe to a trading service?”

The list of quality services out there is long, but if you want a head start on finding one, check out my list right here.  I am not associated with any of these services nor do I get any compensation for mentioning/listing them. However, I can tell you that with every single of them, I either subscribe myself or have followed their trading close enough to feel comfortable recommending them.

Once you have a few trading services as tools, the only thing you are missing is access to a witty, intelligent, and insightful blog about the markets and life in general. If you can find someone who offers that type of subscription for free via Followable, you should really follow them.

The Best “Deli” Is Not In New York, It’s In Los Angeles

Growing up in a WASPy family, I was late to the world of deli food.

Then one day, in my early twenties, I found myself in Los Angeles during lunch time. LA was not (and still isn’t) my “hood”, so I had no idea where to eat besides the usual fast food joints.

Fortunately, I happened to be on La Cienega Blvd, home to a number of fine delis.  I wandered into one, ordered a roast beef sandwich, and that was all she wrote. I’ve been a deli fan ever since.

Over the years I’ve sought out great deli food, both at home and abroad. One of my favorite things about going to Las Vegas was treating my Saturday morning hangover to the soothing relief of sour pickles, matzoh ball soup, and kreplach at The Stage Deli in Caesar’s. Alas, it is now gone.

That said, I am not an expert in deli, however, Bill Handel, the well-known LA morning talk show host at KFI 640 is.  He states unequivocably that Los Angeles has the best deli food in the world, adding that the key to knowing if a deli will be good is that “the waiters have to be rude, the waitresses have to be over 80 years old, and have to have smoked for at least 40 years.”

According to Handel, the best deli in America is Brent’s in LA.  On this point, he has some serious allies.  Zagat’s has rated Brent’s as the #1 Los Angeles Deli for 16 years in a row.  And even The Food Network has sung its praises in “The Best Thing I Ever Ate.”

Handel’s other suggestions for the best deli food in LA are Nate & Al’s, Goldblatt’s, Junior’s, Langer’s, and Labels.

And what of the better-known delis such as the world-famous Jerry’s Deli?  Handel has one word for it.

“Inedible.”

Listen To Bill Handel’s Complete Los Angeles Deli Review On The Fork Report.

Making Trade Setups Come To You.

About once every five years, against my better judgment, I get roped into going to a professional baseball game with my friends.  I always rationalize how “it might be fun this time,” but sure enough, by the time we get to the fourth or fifth inning I am bored out of my mind.

I mean I can only put up with so much….

…..ball…..strike….step out of batter’s box…..foul ball……foul ball……throw to first to keep runner honest……foul ball……foul ball……naked guy on field…..foul ball….foul ball…….balk……

If I’m going to go to a sporting event it has to be something with some action, like hockey, or basketball, or curling.

Last season I ended up going to a Los Angeles Angels game, and just as I suspected, it was a snoozefest.

However one of the things that I have to admit was pretty cool was how the servers now come to your seat to take your order, and then deliver the food right to you.

In life we are taught from an early age that we have to go after what we want, and that anything worth having is worth is worth pursuing.  But sometimes it’s nice to just sit on your ass and have a mega-beer and a double jalapeño nachos placed gently in your lap.

When trading, it can also be to your advantage to have setups brought to you instead of having to hunt them down.  By using the “Triple F” method, you can set up your watch list’s to do just that.

The first “F” stands for “filtering”, the process by which you take your macro list of stocks and bring it down to an actionable one.  This can be done with EOD technical and fundamental scans or by just visually reviewing charts one by one in order to find candidates that are approaching entry points.

The results can then be put into three different groups; day trades, swing trades, and long-term trades (or no setup).  Transferring over your day trade and swing trade lists to your real-time charting software then sets the stage for the second “F”, which is “focus.”

Here you can configure and organize your stocks in a way that will keep non-movers out of your way, and bring potential trade setups right to you.

Swing trade candidates by definition will usually be farther away from entry points than day trade candidates, and you don’t want them to get in your way until they are ready to go.  Set alerts on these stocks at 50 cents below your intended buys points, and then minimize the list so it does not take up valuable screen real estate.

Now focus on your day trade list.  Set alerts there as well, which will tend to be closer to entry points than those on the swing list, but also make sure to set your list to auto sort every 5-10 seconds.  If your software has the capability, you want to sort by the “% change in average volume” column criteria.

This will then constantly push stocks to the top of your list that have the highest increase in volume relative to their average, and volume is what moves stocks.  If you don’t have that column criteria available, you can just use “Volume” instead, which although not as effective, will still push movers to the top of the list.

You can now limit yourself to monitoring the stocks on your day trade list that are constantly being brought to the top, and forget about those at the bottom.  If any stocks on your lists get near entry points, your alerts will trigger causing them to automatically be loaded into your chart windows.  Setups literally are brought to you.

This gives you the freedom to watch the indexes or market barometers, monitor news feeds, or look for intraday setups without worrying that you will miss a potential trade.  This system works best when looking for breakout trades, long or short, but can be modified to work for trades off of pullbacks to support or resistance.

And the third “F”….well there isn’t really one, but the “Triple F” system just sounded better than the “Double F” system.

How To Determine Overall Market Health: Talk To Your Dentist

The market has been on a nice run lately and many people think that the worst of our economic problems are behind us.  In fact recently somebody told me that they were beginning to buy stocks “like crazy.”

The problem is, the person who told me that was my dentist.

There is an old saying that goes something along the lines of “when your dentist tells you to buy stocks, it’s time to sell,” (a variation on the “Time magazine cover” theory).

The concept behind this saying is that there always has to be a “greater fool” to sell your stocks to at a higher price in order to make money.  This greater fool is also referred to as “dumb money.”

Your dentist’s day is presumably filled up with important dentally things like patients, cavities, and spit.  He doesn’t have time to watch the markets on tick by tick basis because his focus is on running his practice.  The theory goes, that by the time the markets have come into his purview, it’s usually via the constant attention given to them by the general mass media.

By that point everybody that is going go be in the market already is, and when the dentist buys he will have nobody else to sell his stocks to at a higher price and thus becomes a “bicuspid bagholder.”   Hahaaa…hah…hah….biscup bag…..see….cause he works on teeth…hah…hah…..get it?   Meh….!

Besides the dentist indicator, I have seen other non-traditional indicators of market health over the years.

For a long time, the amount of space my local bookstore dedicated to “Investing” titles could give me a clue.  When the market was going crazy in the dot-com bubble of the late 90’s, it seemed as if they occupied shelves that went on for miles.  But after the bubble popped they were reduced to one lonely “Charlie Brown” type shelf in the back corner of the store.

The sudden appearance of TV commercials for trading services or study courses can often be an indicator that you might want to start raising cash.  And if you hear the terms “Ka-Chin-Go” or “Gorilla Trades,” run for cover.

30 Years Of Time Magazine Covers & The Stock Market (via The Big Picture)

The American Dental Association

The Blog Post That Changed My Trading Life.

Ever since I bought my first stock at the age of eighteen, I always had a job to rely on for my steady income.  This meant that I felt no pressure to trade and could be patient in waiting for the right market environment and right setups to arise.

However that changed when I sold my business in early 2005 and decided to trade full-time. I suddenly felt a “pressure” to trade, knowing now that this was my only source of income.

I had just come off of a twenty year run in a business in which sixteen hour days and six-day weeks were the norm.  If I was not constantly driving my business on a daily basis, not only would it stagnate, but it would ultimately fail.  Because of this ingrained mentality, NOT trading on a daily basis felt counter intuitive to me.

I abandoned the previous style of trading that had worked for me so well and switched over to a “hyper trading” mode.  I felt a need to constantly find setups to trade and thus I was continually switching between methodologies in an effort to drive my profits.

As you can guess this added up to a lot of frustration, a lot stress, and a lot of losing trades.

Then one day I came across a blog post on Trader X’s site called “Chasing Success.”

I talk to numerous people through email every week who are struggling to be successful at trading. And, I find two common traits in most of them:

1.) They trade too much – most of the people struggling make multiple trades daily, some as many as 10+ round trips.
2.) They have a lack of focus.

……I call this “chasing success”. The bottom line is the person does not spend enough time on any one method to really understand and execute it properly. They bounce around, and before they know it a lot of time has passed and they are still struggling.

If you pick something and stick to it, you get good at it. Once you get good at it – once you perfect it, THEN you can add something else to your arsenal. 

Remember, this was in  pre-StockTwits days, and up until that point I had never heard somebody talk so plainly and in such a common sense way about trading.  It was as if a lightning bolt struck me and shocked my out of my sinning ways.

It took a while to completely sink in and I had a number of stumbles along the way, but it was the beginning of the transformation of my trading life.  I began to take a “trade less, make more” approach and narrowed the types of trading setups I took to just a handful.

Trader X doesn’t post much anymore and he doesn’t seem to want to engage in tweeting (can you blame him), but he was a minimalist trader before it became the trend.  And from his site I not only learned a ton about trading, but it was my first introduction to other great trading teachers like Trader Mike, Trader Jamie, and the High Chart Patterns Group.

I can only wonder what would have happened if I had never found that post.

See The Complete “Chasing Success” Post (Trader X)

Wall St. Warrior (Trader Jamie)

High Chart Patterns Group (HCPG)

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About Brian Lund

About Brian Lund

Great father. Good friend. Decent writer. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.

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