The Art of the

Trade

What I Learned (and Lost)

Trading the Chicago

Futures Markets

Jason Alan Jankovsky

John Wiley & Sons, Inc.

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The Art of the Trade

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The Art of the

Trade

What I Learned (and Lost)

Trading the Chicago

Futures Markets

Jason Alan Jankovsky

John Wiley & Sons, Inc.

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Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as
permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the
prior written permission of the Publisher, or authorization through payment of the appropriate per-
copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978)
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permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River
Street, Hoboken, NJ 07030, (201) 748–6011, fax (201) 748–6008, or online at http://www.wiley.
com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts
in preparing this book, they make no representations or warranties with respect to the accuracy
or completeness of the contents of this book and specifi cally disclaim any implied warranties of
merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales
representatives or written sales materials. The advice and strategies contained herein may not be
suitable for your situation. You should consult with a professional where appropriate. Neither the
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site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Jankovsky, Jason Alan, 1961-
The art of the trade: what I learned (and lost) trading the Chicago futures markets / Jason
Alan

Jankovsky.

p. cm.
Rev. ed. of: Dancing with lions / by Trader X. c1999.
Includes bibliographical references and index.
ISBN

978–0–470–13899–1

(cloth)

Jankovsky,

Jason

Alan,

1961- 2.

Commodity

exchanges—Illinois—Chicago—

Biography. 3.

Capitalists

and

fi nanciers—Illinois—Chicago—Biography. 4. Businesspeople— Conduct

life. I.

Trader X, 1961- Dancing with lions. II. Title.

HG172.J36A3 2008
332.64'4092—dc22

2008014643

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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We do not see things as they are; we see things as we are.

—Anaïs Nin

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Contents

Read Me First

Foreword xiii
Introduction xix

Chapter 1

The Early Years

Chapter 2

The Day I Bought the Low

Chapter 3

Technical Analysis

Chapter 4

Adversity

Chapter 5

The Meaning of Life

Chapter 6

The Trading Police

Chapter 7

The Last Word

103

Chapter 8

In Conclusion

109

Appendix A

For Traders Only

115

Appendix B Insight into the Person of “ Trader X”

133

More from the Author

155

Postscript 159
Notes 167
Index 175

vii

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Read Me First

his is my second book for John Wiley & Sons. It was originally
published under the title

Dancing with Lions by Trader X.

Although it was received well by readers, it was not considered

a mainstream book by the trading community. It was only after my fi rst
book for Wiley, Trading Rules That Work: The 28 Essential Lessons Every
Trader Must Master, had established itself as a good seller that my editor
Kevin Commins approached me with the idea of writing another book.
I told him I already had written another book years ago, which had
been published with a different publisher. The book had initially sold
well, but it was now out of print. I told him that I thought this book
could reach a new and wider audience with a new publisher. Kevin read
it and felt it had good insights. However, it was, in his words, “ a little
rough. ” He suggested that I update it and let him see what Wiley thought.
The result is The Art of the Trade.

As my career has grown and changed, I have had to let go of many

of the original points of view that I held as a young trader. Dancing
with Lions was published at a time in my trading career when both the
industry and I were going through changes that eventually would alter
things signifi cantly. In the case of the markets, technology has given

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r e a d m e f i r s t

birth to fully online market access, global market opportunity, and a
host of innovative new trading products; something that had never hap-
pened before. During this time we also saw the tragedy of 9/11 and the
inevitable fi nancial repercussions that a seminal world event like that
can create. The markets went on to recover more quickly than I could.
In my case, I was knocked - fl at for years.

My trading suffered dramatically during the months after 9/11. It

would be unfair to the reader to suggest that all markets can be traded
by all traders at all points in time. My emotional and mental state was
devastated by 9/11; I was not capable of a strong market presence. The
demons I thought I had exorcised to achieve the level of success that
I once had had come back in greater force and numbers. I lost every-
thing and eventually quit the business for a period of time. My think-
ing was so convoluted that I honestly felt that I would never achieve
my goals as a trader or even as a person. I went through the hell
I describe in the fi rst chapter for a second time. I laugh about it now,
but when someone asks me now about the experience I usually reply,
“ I went from being Trader X to being Waiter X. . . .

” Yes, I actually

waited tables for a few months. I was serving drinks to people I could
have bought and sold a few months earlier. It was humiliating.

I think it is important for readers to know that now more than

ever, I sincerely believe that trading is more an art form than a science.
As an artist, there will be times when we are at our best, times when
maybe we are just getting by, and times we are under extreme adver-
sity. As I mention throughout this book, a lot of what we perceive to
be our unique adversity is sometimes self - created. If we are self - aware
enough, we can see this relationship. If we are committed to our suc-
cess enough, we can learn to stop creating adversity for ourselves as
well as resolve the adversities that we have created. Indeed, some of the
best art ever created has come from an artist who has struggled through
extreme personal tragedy and pain, only to fi nd his or her divine spark
of excellence that now expresses itself on the canvas, in stone, or on the
manuscript page. In my opinion, trading is no different and could be
considered an equal expression for this spark of excellence. Some peo-
ple are familiar with Vincent Van Gogh ’ s issues; try learning about the
life of Galileo or Jackson Pollack if you want to see how far adversity
can take you. Those men amaze me with their tenacity and skill. They
would have made great traders.

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Read Me First

In my case, I experienced a deeper and more purifying kind of

adversity, and part of what made those years good for me (in the end)
was the fi nal acceptance that no matter the circumstances that I fi nd
myself in, it is always my response to them that either moves me for-
ward or moves me back. Sometimes people get beat down so hard that
they just lie there and quit. I came very close to that point for the
second time in my life. I remember the day and the hour. I remember
the climb back in the darkness. Before you pass judgment, you might
be there too one day. . . .

I couldn ’ t control the events that happened to me any more than

you could. Some group of fanatics (without using a harsher word)
chose to do something horrifying and affect millions of people nega-
tively; and we all suffered to some degree. The fact that in my case it
meant the potential to lose large sums of money, lose opportunity, and
almost lose my sanity (again) had nothing to do with the actual events
that transpired. That remained my choice in the end; even if I didn ’ t see
that at fi rst or was unwilling to accept it at fi rst. Making the conscious
choice to pick up and start over was entirely mine and even though
I discuss this in the book, I know that truth at a deeper and much
more complete level than ever before. The trader I am today is a dif-
ferent trader than I was then. To the outside observer that relationship
may not be fully apparent, but inside me I know the difference. I think
that in my years since the catastrophe I am better equipped. I have not
recovered to the level I was prior to 9/11 and I don ’ t even need to. No
matter what happens for me going forward, 100 percent of it will be
mine and all of it is exactly what it should be.

Regardless, what you read from here forward was written at a

different time in my life. Some of the material has been edited and
amended to refl ect the changes. Wherever I think it is important, I note
that for you. While you are reading, I hope that you take time to refl ect
back on your own previous trading past and ask yourself some hard
questions. Perhaps, in addition to the insights I share or the unique
point of view I hold, you will personally be able to use the past years
of your trading career in a new way. Much of what I found in the mar-
kets has not changed in spite of my personal experience during the
last several years; mostly what has changed is my level of self - awareness
and self - acceptance. No matter what happens in the markets, my trad-
ing account balance is my responsibility and no one else ’ s. Sometimes

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xii

r e a d m e f i r s t

that means I am positioned on the wrong side of a world event; some-
times that means I did something stupid to myself. But in all cases, the
responsibility lies with me and it can never be lip service. I must own
that level of responsibility.

Lastly, before we get started, in fairness to the reader, most of what

you see here is as close to the original text as my new publisher would
allow. Much of my more colorful language has been edited to a “ PG ”
level, but most of the content is as I wrote it for the fi rst edition. My
intention was to preserve the original purpose of the book without a
lot of change. I say that because, if you are one of the traders who sin-
cerely want to get as far as you can go, some things won ’ t change while
others things get better/worse. The trading environment evolves just
like you do. For example, in today ’ s electronic marketplace, the risk of
your account balance being affected due to a brokerage house internal
issue (as described in Chapter 4 ) is a lot smaller. On the other hand, the
regulators are another issue (as described in Chapter 6 ). In my opinion,
I think that they have gotten worse during the last few years. I think
the U.S. markets will lose market share and skilled people as the regula-
tors overregulate, increase costs, and waste time and resources.

Anyway, rather than take up space with a whole new book, let me

let you get to reading The Art of the Trade. I hope you fi nd value in my
experience and wish you the best in your trading.

J ason A lan J ankovsky

Formerly “ Trader X ”

Chicago,

Illinois

Spring 2008

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xiii

Foreword to the

First Edition

t is the author ’ s intention to write this book only as a journal of his
personal experience through being in the business of futures and
options trading and how he discovered the true nature of reality as

he sees it. Therefore, he could exploit the apparent function of the mar-
kets by discovering their real function, as well as how to exploit every-
thing else. He did not intend to write a how - to book. He has made this
narrative as brief as possible and that holds at least two real benefi ts for
readers. First, because the author believes he has nothing new to add to
the business of trading per se, the reader will not have his (or her) valua-
ble time wasted looking for something that really does not exist. Second,
the author will force the reader to wonder what he is really getting at by
a consistent reference to the fact that the author knows what some over-
riding principle or reality related to the markets is and the reader does
not. The reader will then form only one of two conclusions: Either (1)
the author is nuts and this book was a waste of time, or (2) the author is
on to something. The reader will then really start the process of getting
what the markets actually represent for him.

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Trader X

receives two benefi ts from this hypothesis as well. First, if

the reader believes this book was a total waste of time, Trader X knows
that particular reader will probably remain enough of a losing trader to
provide a constant fl ow of money that becomes available to him and
those that fall into the second group, although he knows that will con-
tinue anyway. Second, Trader X can draw new distinctions about the
nature of reality from those traders who read this, and believe he is
on to something, should he meet them personally without them know-
ing it was he who wrote this book. He believes their thinking would be
infl uenced somehow by meeting a “ famous trader ” and, therefore, they
would never really share the true nature of what they see, but some-
thing else of little value. Because a very large group of traders who
could be potential readers live and work side - by - side with him, Trader
X believes he would lose these benefi ts. He would become a

direct

target of criticism or congratulation that would infl uence his trading
because they could “ fi nd ” him and, therefore, infl uence his clients to
whom he feels a high degree of personal responsibility. The author
believes this could only lead to losses. Trader X believes this would be
the case if only one copy was sold and he only met one individual.
Since he cannot predict what would happen

“ positively ” or

“ nega-

tively ” in either case, he decided not to take that risk, or reduce it as
much as possible, especially if the book sold well within the industry.
This is why the book is anonymous.

The author assumes the reader will already have a basic knowledge

about the trading business. For those who know little about the mar-
kets, or are not in this industry, outlined next are some of the basics he
refers to.

The Arena

The futures and options exchanges are a central meeting place for the
purpose of trading in some necessary element that affects everyone. This
includes consumable commodities such as corn, crude oil, orange juice,
and the like. It also includes fi nancial instruments such as Treasury bonds,
currencies, stock indexes, and so on. Exchanges do not set prices; they
provide a place for price competition from all participants who choose

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f o r e w o r d t o t h e f i r s t e d i t i o n

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to trade. Those who do not trade receive a benefi t intangibly by keep-
ing prices as fair to them in their daily life as possible. Membership to
the exchange is not a requirement to trade through the exchange. This
provides a way for anyone to exploit price competition for their personal
benefi t or to earn profi t from some perceived opportunity. There are two
kinds of market participants who are in direct competition with each
other. It is this competition that will create prices or cause them to move.

One participant is the speculator and the other is the hedger. The spec-

ulator is attempting to take advantage of price movement solely for per-
sonal profi t. He (or she) is taking the risk of price action, either for or
against him. The hedger is attempting to take advantage of price move-
ment for the purpose of reducing his production costs or to improve his
profi t margin when he markets his fi nal product. He is transferring his
risk to the speculator and assumes little or no risk of price action against
him. Should prices move in a direction that further reduces his beginning
cost of business (or further improves his profi t margin), he cannot take
advantage of that from the point he transferred his risk to the speculator.
The hedgers benefi t from the markets is a “ known ” permanent cost of
business. The speculators benefi t from the markets is an attempt to profi t.

A futures contract is a standardized agreement between two par-

ties to either make or take delivery of a specifi ed amount of a particular
something at a specifi ed future point in time. This agreement can be
created or liquidated at any time prior to that date. As long as any mar-
ket is “ open ” for trading this agreement can be created or liquidated for
any length of time either side wishes to participate. This time frame can
be months or years and also as short as just a minute or two. Any indi-
vidual, whether a speculator or a hedger, is obligated for the total value
of that futures contract for the time he holds it. On a specifi ed date he
must either pay for it completely if he is a buyer in the market, or actu-
ally produce the product traded to the buyer if he has been a seller in
the market. That is called taking or making delivery. Until that point the
exchange requires a fi nancial commitment bond to secure this relation-
ship and to protect both parties against default from this contractual
agreement. This is called margin. The exchange typically requires that
each party wishing to enter into this agreement from either side deposit
2 percent to 5 percent of the face value of the contract. In some cases,
the hedger does not have to make this commitment. He only needs to

Foreword to the First Edition

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prove to the exchange that he actually owns or controls the product
to be traded in suffi cient quantity. In either case, this can be in cash
or something that is considered liquid enough to be converted into
cash within a reasonable time frame. Once this has been done, you
may trade. When you choose to participate as either party to the trans-
action, you are opening or taking a position. Because of the relation-
ship between entering the agreement, and not having to fully accept
fi nancial obligation until a future date, a futures contract is considered
a leveraged instrument for the period of time leading up to the deliv-
ery date. Typically, about 98 percent of all futures contracts are liqui-
dated before that time. This is called closing a position. The time between
opening a position and closing the position is called holding a position.

If you open a position in a futures contract by buying the price

currently being traded, you are going long. If you open a position in
a futures contract by selling the price currently being traded you are
going short. When you do either, it is called an execution. To close any
futures position, you must make another execution. If you are holding
a long, and you wish to close your position, you must execute by sell-
ing into the market at the price currently being traded at that time. If
you are holding a short, you must execute by buying the price currently
being traded at that time. You will be assigned the difference between
the two prices executed against the margin in your account as it relates
to the full value of the position.

In other words, if you buy one futures contract of corn for $ 2.75

per bushel and sell it for $ 2.77 per bushel you would have a profi t of
2 cents per bushel. The corn contract size at the Chicago Board of Trade
(CBOT) is 5,000 bushels. Therefore, you would have a profi t equal to
$ 100 (2 cents

⫻ 5,000 ⫽ $ 100). If the opposite has occurred you would

have lost $ 100. The amount of cash in your margin account would have
gone up (or down) by $ 100 if you would have bought and sold corn for a
gain (or loss) of 2 cents a bushel, aside from any fees.

If you complete a transaction as described, you will have either

a profi t or a loss against your margin at that point until you decide
to execute another transaction or close your relationship with the
exchange and ask for payment to be made to you. If you went long
by beginning this process on the buy side, and you closed your posi-
tion with a sell execution higher than your buy execution, you would
have a profi t. If the opposite occurred, you would have a loss. If you

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went short by beginning this process on the sell side, and you closed
your position with a buy execution lower than your sell execution, you
would have a profi t. If the opposite occurred, you would have a loss.
Because you may begin this process in either fashion, you can attempt
to profi t as prices are rising or falling. The hedger is not obligated to
both sides of this process unless he chooses to. He may close his posi-
tion by making or taking delivery, depending on which side of the
market he is hedging from.

Hedgers use both sides of the market depending on their business

needs. For example, if you make candy bars you might want to buy
sugar ahead of time if sugar is at an important low price relative to your
cost of production. If you grow cocoa and sell it to candy bar makers,
you might want to sell cocoa in the market ahead of time if cocoa is at
a higher price than you normally could get from a candy bar maker. In
either case, the buying or selling hedger is not obligated to liquidate his
transaction. He may make or take delivery.

The entire process must occur under the authority of the exchange.

This is the

clearing corporation, which must ensure that both parties

to the transactions have been assigned their positions and that suffi -
cient margins for every transaction are available and on deposit with
the exchange. This is done to make absolutely certain that those who
have traded for profi ts receive them and that those who have traded for
losses will pay them.

An option on futures is slightly different. It is the right but not the

obligation to enter the futures contract until a specifi ed date. If you
choose to exercise this right you are now in the futures contract itself
and subject to the obligations as described above. There are two par-
ties to an options transaction as well; the grantor, or writer, and the owner,
or buyer. The grantor is obligating himself to take the other side of a
futures contract, which he will provide to the owner at a specifi ed price
called the

strike price. He is under this obligation until the specifi ed

date called the expiration date. The owner of the option may exercise
his option, or sell it to someone else, at any time prior to the expi-
ration date. The grantor may also close his position at any time prior
to the expiration date by buying it back from anyone who owns the
option, or another grantor, prior to the expiration date. This is called
offsetting. The grantor does not have to own any futures contracts at any
price when he writes an option, but will be assigned his obligation if

Foreword to the First Edition

xvii

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the option is ever exercised against him. This is called uncovered option
writing. If the grantor enters a futures contract at the time he writes an
option, or at any time prior to it being exercised, this is called covered
option writing. The price paid for any option is called a premium. The
grantor keeps the premium paid by the owner if the option is exer-
cised, or a portion of the premium if he offsets it prior to expiration.

There are two kinds of options. A call is the right to buy futures at

the strike price specifi ed. A put is the right to sell futures at the strike
price specifi ed. If you write a call, you are giving someone else the right
to go long. If you write a put, you are giving someone else the right to
go short. Approximately 98 percent of all options written are offset or
expire with no value that can be exploited from further price action in
futures. If they do have some value, this is called an in - the - money option.
An option can go “ in ” or “ out ” of the money any time prior to expira-
tion. If the owner of an option does not liquidate or exercise an in - the -
money option at the time of expiration the exchange will do it for him.
Conversely, an option that has not gone in the money is called out of the
money. At the time of expiration, all out - of - the - money options, whether
calls or puts, are worthless. The grantor will keep 100 percent of the
premium, or the portion that he had before that date. The owner of
the option receives nothing.

Whether you are participating in futures, options, or both, the rela-

tionship both parties function under is a zero - sum transaction. This means
that all the participants who hope to profi t will be paid those profi ts
from the other participants who have losses. The money paid to a win-
ning transaction is paid from the money in the losing transaction. This also
means that anyone who executes any position will be at risk that price
action could move for him or against him at anytime. It is not possible to
participate in futures, options, or both without accepting this risk. All the
infi nite possible combinations of futures and options and the price action
between the two are an attempt by every participant to take as little of
this risk as possible while attempting to maximize the potential for profi ts.
In any case, the losers will always have to pay the winners. The clearing cor-
poration will deduct the money from the losing positions and deposit the
exact same money to the holders of the winning positions.

G hostwriter X

Fall 1998

xviii

f o r e w o r d t o t h e f i r s t e d i t i o n

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xix

Introduction

very trader has a story. This is my story. When I sat down to put
my story on paper, I asked myself some hard questions. After
giving some deep thought to those questions, I came to some

conclusions. First, as far as the markets themselves are concerned, I really
have nothing new to say. It is my belief that everything that could be
written (or said) about the markets has already been done. All of it.
I think the people who write books about the markets basically do
a tremendous disservice to the true student of trading by simply reiter-
ating what has been said already. Or worse yet, publish a lot of worthless
psychobabble. They make it harder to uncover the real truth.

I didn ’ t want to write a book that would slow down anyone ’ s quest

to become the best trader he or she could become. Nor is it my inten-
tion to “ teach ” anything. I tried that. Most people who teach trading,
with few exceptions, never walked the road I did. Not even close. In
fact, there is at least one person who I think should be in jail for what
he sells the public under the guise of a “ trading course. ” After what I ’ ve
been through, I would never, as God is my witness, attempt to cheapen
the price of admission to this business and sell it to Joe Public for $ 195
knowing full well that his equity is cannon - fodder for men like me. It ’ s

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a disgrace. I don ’ t know what ’ s worse, someone who palms himself off
as an “ expert, ” or the fact that the public is so willing to believe him
and others like him. I guess they deserve what they get. As you will
learn, I deserved what I got, but for different reasons.

Second, trading is an intensely personal and subjective endeavor.

There is nothing else like it on Earth. I thank God I was born at a time
in history when this kind of trading exploded onto the world fi nancial
stage and I got to be a part of it. It truly is an art form. And like all art
forms the result is clearly observable, but the hidden part of the artist is
never fully revealed. What I wish to communicate in some way is my
personal “ behind the scenes ” view of my experience. I wish there were
some way to really do that. I ’ ve had the best and worst part of all of it;
I wish someone could have been there to share it with me. But I know
that because no one was there, that too is part of the story.

For the individual who is looking for some

“ secret knowledge

”

regarding the nature of price movements, I think you will be disap-
pointed. I used to think that way and probably read every book ever
written on price action. If there were a Ph.D. in markets and trading
I would have it. But I think we all know how much most Ph.D.s are
worth. As I said, I think it has already been done. What I think about
price action can be said in the phrase “ Buy low, sell high. ” When any-
one asks me today, “ How do you know when it ’ s high or low? ” My
answer is, “ Read what I have to say very carefully. ” That ’ s it. There is no
easy way. Don ’ t waste your time looking for it. As you might discover,
trading is really not about price action anyway. Don ’ t rip yourself off by
trying to reinvent the wheel.

Lastly, I hope you experience everything that I have — all the pain, the

glory, the money, the broken dreams, the unexpected joy, all of it. I don ’ t
think you will ever become a lasting success at anything, certainly not
trading, until you do. The markets are the absolute best place to fi nd what
you are looking for. If you truly and completely desire to become what you
could be, very few places will give you such a perfect and lasting oppor-
tunity to do so. It took me a long time to accept the lessons you could
learn in these pages. But, I suspect most people won ’ t learn anything and
will continue to do it the hard way. That is the razor ’ s edge. It takes a lot of
effort to swing a dull axe. Be wise and sharpen the blade.

i n t r o d u c t i o n

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Like a canvas or a piece of music, the whole is based on the sum of

its parts. Each part contributes, some more than others, and they must
be understood in the context of the whole. This book is not in any
chronological order; it all relates to the whole picture. While reading it,
feel free to skip around and take the material in any order you like.

When I was younger I would sometimes skip to the last chapter

of a story to see how it ends and then go back to discover how it got
that way. That is certainly one way to look at life. You might learn more
that way. The raw material of your trading art is the unique part of you
found within the context of the whole. No one can fully see things
the same way you do. You will never see things exactly as I do. No one
can take from you or me what we have paid the price to know. It ’ s my
opinion that the reason so many people never become a lasting success
at trading is because they have never paid the price to really know. The
only reason I have achieved what I have from the markets is because I
discovered the right questions to ask and eventually had the courage to
answer them. What are those questions for you ?

Let me say this before getting started. Some who are close to me

asked me why I wrote this book under a pseudonym. Most who know
me won ’ t even know I wrote this. I think the answer to that will also shed
some light on my experience. I didn ’ t want to make enemies in this busi-
ness. Some of those who are on pleasant terms might recognize them-
selves in these pages. I didn ’ t want to make it easy for lawsuits to fi nd
me or lose friends by sharing my experience. Some clients might even
recognize themselves. The worst part is that everything here is completely
factual; I tell it like it is and how it really happened to me. Parts are dirty.
Many people won ’ t believe it ’ s like this. Some will be angry. Some will
think I stretched the truth. Some will say its outright fabrication.

Some of the people I ’ ve known in this business are so completely

lost to any form of common sense that they would do God knows
what to profi t or cause pain to me for no other reason than their super -
sensitive egos are offended somehow just because they think they rec-
ognize themselves in here. I hate to say it, but trading is a brutal world.
You don ’ t win unless someone else loses. That ’ s their journey and their
story. If it ’ s such a big deal, write your own book and “ slander ” me. I ’ ll
put it on the shelf with the rest of the stuff that doesn ’ t matter. . . .

Introduction

xxi

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Finally, if you the reader doubt the authentic nature of the contents

here, I will give you the acid test. Open a trading account. Become a
broker.

J ason A lan J ankovsky

Formerly “ Trader X ”

Chicago, Illinois

Fall 1998

xxii

i n t r o d u c t i o n

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Chapter

The Early Years

Illusion in the midst of Reality

No minute lost comes ever back again. Take heed and see ye do
nothing in vain.

— London Clock Tower Motto

hen I decided to become a commodity broker, I had no
idea what I was eventually getting into. It began in the
spring of 1987. I answered an ad in the Chicago Tribune

and interviewed with the sales manager

of a commodity - trading fi rm.

I was very impressed. They had a beautiful offi ce in Oak Brook, Illinois,
a very affl uent Chicago suburb. Everyone there wore expensive suits, the
parking lot was full of German and Italian cars, the whole scene reeked
of high fi nance.

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t h e a r t o f t h e t r a d e

After some discussion of my background and what I thought I could

do in the brokerage business, I was hired. The interview was brief. They
didn ’ t ask me for a r é sum é . They just wanted bodies. I was given a big
book to study so I could pass my Series III commodities broker ’ s test. I
was given a start date with the rest of the new hires. I really believed
I had scored the job of my life. I was 26 and thought that in no time I
would be earning $100K a year, driving a Ferrari, and fl ying the Concord
to spend the weekends in Paris.

It was largely from my initial experience with this brokerage house

that I chose to keep trading as a career no matter how it turned
out. That fi rst commitment had a lot to due with how my success was
measured over the years. If I hadn ’ t made up my mind that come hell
or high water I was going to be a commodity broker, who knows
where I would have ended up? Over time, the pressures of the trad-
ing world gave me every opportunity to quit and do something else. In
fact, my family tried everything to convince me that I was out of my
mind for sticking with it during the rough years. No one saw what I
saw except for my mother. Moms are like this, aren ’ t they? One immu-
table thing was her absolute support of what I wanted to do. Suffi ce
it to say, at that time when I fi rst started, the lure of money was so
strong that you could have promised me a ride on the Space Shuttle
to quit and I would have turned you down. I wanted it that bad.

To put this in perspective, as an Air Force ROTC student with a

good academic history, I earned an Air Force Academy appointment
with a good shot at the space program (according to my recruiter). As
a side note, there is a commercial space tourism company selling rides
right now aboard a privately built spacecraft just for people who want
that thrill.

I was surprised to learn after missing what seemed to me

a once - in - a - lifetime shot at the time (I turned the Air Force down), I
was able to do it anyway. The concept of “ regrets ” and “ missed oppor-
tunity ” fi gures high in this story. Sometimes life gives you a second
chance at something. The markets will always give you another chance.

I was totally unprepared for what would become the

“ normal ”

process of working in this industry. My fi rst day on the job at a
Midwest brokerage offi ce went something like this:

I walk in. The “ sales manager ” brings me to an empty desk, points

to the phone and says, “ Here is a phone. ” He drops a stack of papers

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The Early Years

on my desk and says, “ Here are some sales leads. Your job is to con-
vince people to send money for trading. Once you have opened a few
accounts, we ’ ll show you what to do with the money. ” He then said,
“ Good luck ,” and walked away without saying another word.

Okay, no problem. I was so excited about what I was doing I really

thought everyone I called would talk to me. I didn ’ t see it as telemar-
keting. I believed that everyone wanted to make big money. I thought
everyone would see the wisdom and “ common sense ” of the particular
market opportunity that we were selling. I just watched the “ seasoned
professionals ” sell and did what they did. What made this whole expe-
rience intoxicating was that what we were selling actually happened.

We were suggesting that the public buy silver. At the time I started

on the phone in 1987, silver was selling for about $5.10 an ounce. The
company I worked for was marketing call options. I had scored 100
percent on the part of the Series III that covered option hedging and
speculating. I had basically succeeded at everything I had done before;
why should this be any different? There was no way you could convince
me that I had anything to learn. Besides, the company was making the
recommendations; they were telling me what to do. I fi gured between
me and them, “ we ” knew exactly what “ we ” were doing. Needless to
say, as long as silver kept moving higher, the money rolled in. I ate the
phone. I was the top “ rookie ” in the offi ce. Silver soared to almost $12
an ounce in less than 120 days. I thought it was always that way in this
business. I was making more money in a month than some people I
knew made in a whole year. I felt like I had arrived in a big way.

Then I got fi red.
The company stole my clients (of course). In this business there is

a curious concept that companies “ own ” clients. How can you “ own ” a
client? Aren ’ t you supposed to be working for him or her? Doesn ’ t
a client have the right to do business with anyone he or she chooses?
I was told that if I contacted any of my clients I would be sued. They
refused to pay me my remaining commissions — something about being
covered in case of potential lawsuits. They never told me when to
expect payment if there weren ’ t any lawsuits. Maybe they just expected
them. As you will see, this happens every day. They basically didn ’ t like
me, I guess. As I found out later, the egos of people in this business are
beyond belief. Never will you meet people, as a group, with absolutely

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t h e a r t o f t h e t r a d e

no justifi cation for what they think they are. Still, I never found out
what happened or why I was let go. I certainly wasn ’ t sleeping with the
boss ’ s wife. (Or his girlfriend for that matter. That ’ s another thing that
happens every day around there.) All I knew was that I no longer had a
job and I really wanted to be in this business.

Believe it or not, it never occurred to me that maybe every other

commodity company could be this poorly run as well. As any Series III
broker can tell you, every retail commodity house is run like an accident
waiting to happen. You would be absolutely amazed at the sheer chaos
and complete lack of even the most basic business sense. The people
working in the markets every day, as a group, I don ’ t think could run a
newsstand without help.

Here ’ s just one story: At the time of this writing a personal friend

of mine just left one brokerage house to go to another. The reason?
The owner ’ s cousin, fresh out of rehab, wanted to get in the business.
My friend simply told the owner, “ It might not be a good idea to have
a recovering heroin addict trading someone ’ s money and exposing the
company to risk. ” The owner called him a “ Jew bastard ” and fi red him
on the spot. My friend had been there for years and was a top producer.
In a split second, my friend ’ s whole life was turned upside down and
his income dropped to zero because some psycho - egomaniac thought
a convicted felon with a drug problem would be a good addition to
the staff and completely capable of servicing clients. If the boss was that
stupid, how well could he manage clients in the fi rst place? How long
would a guy like that last as a manager at Microsoft? How long would
that guy last in any business? The Equal Opportunity people would have
a fi eld day with a racial slur like that. In the case of my friend it really
was easier and more cost effective to just fi nd another brokerage house,
forget the whole thing, and move on. Not to mention that the “ sales
manager ” at the offending brokerage house told all of my friend

’ s

clients that he was drinking on the job anyway and “ we ’ ll take care of
you. ” It was an outright lie. But, of course, they “ own the client. ”

This happens every day in this business. Retail brokerage houses

are run without any common sense at all. They come and go faster
than GI ’ s at a nickel whorehouse. The sad thing is that people don ’ t
care since there is so much money in it they can afford to be that reck-
less. It ’ s like this: If a thief kills another thief and you are a witness and

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The Early Years

a thief yourself, what do you do? Tell the cops? Forget it. You ’ re in a
whole other world. The constant lack of integrity really got to me over
the years, as you will see. I really believed that people in “ high fi nance ”
were supposed to be a personally responsible lot. Boy was I wrong.

So I went to work for a new fi rm, which at the time was a real

trading house, but of course it wasn ’ t what I thought a trading house
should be like. My idea of a

“ professional house

” was nothing like

this place. They had a tiny offi ce, with steel desks, quote systems eve-
rywhere, and they let you do whatever you wanted to do. There was
no organized market research, selling effort, nothing. You came and
left when you wanted. No sales hype or $2,000 suits. Just a bunch of
whackos taking $500 a day out of the markets trading one - lots.

one talked about the markets. They didn ’ t need to. Some of the guys,
who were real traders, only had one or two clients and had had them
for years. What was wrong with these people? Didn ’ t they know what
kind of money was out there? Looking back, I would give my right
arm to be working at a place like that today, but at the time I was so
disgusted with that environment, which I perceived as apathetic to real
opportunity, that I started looking for a new house. I should mention
that that owner was one of the most respected men in the business
at that time and had a reputation for fair and equitable treatment of
his staff, customers, and support people. But back then, I didn ’ t know
how rare honest and equitable business practices were. I really thought
I could fi nd the best of both worlds. I found a new brokerage house
about April. My timing to reinforce this misconception was perfect.

Right about then the drought of 1988 hit. My new fi rm was sell-

ing call options on corn and soybeans. Corn went to almost $6/bushel.
Everyone was talking

“ Beans in the teens!

” My book of customer

equity went to almost a million dollars. A book of equity is the slang
term used for the customer list a broker has that includes the current
cash balance of each customer. A book can be any size number of cus-
tomers or account deposits. This is also called money under management
or an equity run.

So after my book of equity went to almost a million dollars, I took

a few days off. I was in bed fl ipping through the TV channels when I
saw a fi nancial broadcast telling the world that Chicago soybeans had
traded to a near - record high of $10.97 that day before closing lower.

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t h e a r t o f t h e t r a d e

I think it was around $9.50/bushel. Of course, that was the top. As I
had no idea what I was really doing, I was only mildly concerned that
the market was below the previous day

’ s close. I didn

’ t know what

“ volume ” and “ open interest ” were, or “ reversals. ” Nothing. I absolutely
believed that commodity trading was huge moves, high profi ts, lots of
sales hype, all that Gordon Gecko stuff.

I kept selling clients and buying calls until September of that year.

Not an easy thing to do when the market is lower every week. As the
market kept moving lower, I started asking the boss what was happen-
ing. When would the market turn up again? He told me to keep selling.
“ But it looks like it ’ s over. What about the clients who are going to
lose? ” I asked. “ They don ’ t know that. You don ’ t know that. You want
to get paid don

’ t you?

” was his answer. At that time, I just agreed

because these guys knew what they were doing, right? One of the bozos
working there drove a red Porsche 928. He also brought in a 500 - gallon
saltwater aquarium into the offi ce. He wore big rings. He didn ’ t talk
much, but he was defi nitely into the “ look at me ” type of thinking. He
really thought he was the thing. I remember him being called into “ the
boss ’ s ” offi ce to discuss his lawsuits. No Porsche, no rings, the fi sh tank
sold at auction along with the rest of the company ’ s stuff. You guessed it;
the company went out of business.

There was a huge National Futures Association (NFA) investi-

gation. The NFA is the self

- regulatory body authorized to sanction

people to work in the industry, mediate arbitrations, and generally har-
ass or intimidate those responsible for providing access to the markets.
By the way, the fi rst fi rm I had worked for was also shut down by the
NFA. I had no idea how any of this would later come back to haunt
me. Simply put, because I had worked at these two companies, I was
on the “watch list” at the NFA (yes — they have a watch list; ask them
about the “ tainted broker ” program if you want to see the constitution
completely ignored). It never occurred to me that guilt by association
was a real thing that would make it harder to work in the business. My
thought was that since I hadn ’ t done anything wrong, even if there was
a problem, I would be cleared. I had this problem more than once. So did
many others, honest and crooked alike. The funny thing was, most of the
guys who worked at these companies moved on to other fi rms like rats
from a sinking ship. And all the other houses wanted the “ big broker ” type

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The Early Years

to work there. They offered these brokers huge deals to play the same
show in a different town. Did it ever occur to any of them that if this
technique generated lots of lawsuits, it might not be a good idea to
hire these brokers? Maybe they all just wanted the money so bad they
didn ’ t care. I found out later why that didn ’ t matter, but I made the
same mistake. I was on the sinking ship too.

So now I was broke, having spent my huge income like a drunken

sailor. After all, just get on the phone and wait for the next big haul,
right? I went through a succession of companies and repeated this
entire scenario

over and over again for the next several years. I even

“ started ” a company with a partner. That ’ s a story in itself; I ’ ll cover
that later. During this time I met some “ professional ” traders. Because
I was beginning to consider that this boom - and - bust cycle might be
avoidable, I actually listened to a wheat pit trader explain the concept
of overbought to me. I picked up a book or two on market analysis.
“ Maybe there is something to this, ” I said to myself. Over the years I
kept buying books, attending seminars, listening to tapes, and subscrib-
ing to newsletters. I spent thousands and thousands of dollars doing
this. I routinely listened to what pit traders thought and what they read.
It never occurred to me that pit traders might be some of the least
educated people in the business. This whole process of “ analyzing and
studying ” the markets was another roadblock. I think you will be sur-
prised at how little that whole process can help a trader.

This period became a huge emotional struggle for me. I couldn ’ t

accept that I wanted to do things “ right ” and yet no one else wanted to.
Believe it or not, I never lied to any client about anything. I never mis-
led them or promised they would make money. I sold clean and really
wanted them to win. I genuinely liked my clients. I returned phone
calls promptly and never asked for more than a reasonable amount of
money for my services. I always did what I believed a true professional
should do when he has a fi duciary responsibility — and still do to this
day. However, the fact was, I was grossly misinformed about the true
nature of the markets and the industry. I honestly thought the solution
to this problem was more market study and fi nding the right broker-
age house. Although that wheat pit trader and the others all meant
well, I actually lost years “ studying the markets. ” I found that there is
no “ right ” brokerage house and that no book can ever tell you about

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t h e a r t o f t h e t r a d e

how to become a trader. You have to live it to understand. Let me
fi nish setting the stage for where and how I fi nally became the winner.

Someone once told me that all progress in the world depends on

the unreasonable man. The reasonable man persists in adapting himself
to the world; the unreasonable man persists in adapting the world to
himself. Therefore, all progress depends on the unreasonable man. At
this point, my career in the commodities markets had been less than
spectacular. I had worked at many companies and all of them had gone
out of business. All the money (literally millions of dollars) I had raised
was also gone. I had spent all my income and was once again without
a place to work or a client base of any kind. What was wrong with this
picture? Was it me? Was it the industry? I wanted to be reasonable about
it, but what was the true answer? I was spending a lot of time dealing
with this same problem. I was working for people who couldn ’ t get a
job cleaning toilets in the “ real ” world, but were operating companies
that made tons of money (on commissions — never in market profi ts).
I was attempting to learn the markets to reduce the loss factor but still
losing all the time. I got really angry with myself, the markets, and the
companies — everyone and everything. What was wrong? Why wasn ’ t
this working? Why wasn ’ t I a success at this like everything else?

The year was now 1993. I won

’ t talk about the catastrophe that

I created for myself during the fi rst Persian Gulf War except to say this:
When it was all over it took from 1991 until 1996 to pay all the debits,
unpaid taxes, unpaid debts, and recover from the emotional trauma that
an unregenerate mind is capable of infl icting on its owner. But during
these previous years, all the raw material for ultimate success were given
to me. At the time I saw it as complete and unmitigated adversity. Even
fi ling bankruptcy, and all the embarrassment that goes with it, was a huge
stepping - stone to prosperity. When the Department of Justice subpoe-
naed me while I was working for a company that was doing a Ponzi scam
through the legitimate markets; even that was important. By the way, I was
never charged due to my phone records showing I wasn ’ t involved in any
way. But at the time, my point of view was: “ What is going on? What is
wrong? I ’ m trying to do this right . . . ” and so on. The years of frustration,
bitterness, and disappointment were beginning to boil over.

Let me draw all this together for you. I ’ m in my early 30s. I ’ ve

made and lost a million dollars twice. I

’ m broke, almost homeless,

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The Early Years

without any income, behind in my bills, and no longer have any credit.
I ’ m too confused to work at my best, angry at life. Feeling like I ’ ve
hurt people. Feeling like I ’ ve let people down. Embarrassed in front of
my family and friends; earning an undeserved bad reputation. To make
matters worse, watching everyone I know get on with their lives; get-
ting rich, being in love. The women in my life lost interest in me. And
let ’ s not forget drinking too much; even a brief fl ing with cocaine. I
could go on with all the rage, hatred, and blame. For the sake of mak-
ing the point, here is the bottom line to all this:

At no time during the whole experience did it once occur to me

that everything I ’ ve been through was completely and utterly of my
own doing. It was not the fault of anybody but me.

If you read between the lines of this short description of my early

years, you can see how easy it might be to say things like: “ It is the
market ’ s fault. ” “ It is the company ’ s fault. ” “ It is my stupid clients who
won ’ t listen.

” “ This research sucks.

” “ If only I had done

_______ __

(fi ll in the blank). ” “ If only so and so hadn ’ t done _______ __ (fi ll in
the blank). ” “ What a rotten fi ll ” or “ The market ’ s gonna come back. ”
“ Markets don ’ t do this. ” “ My girlfriend left me, that bitch! It ’ s her fault I
can ’ t think. ” And on and on, ad nauseum. If you are in the business, and
honest, you know you have said or thought the same things. Or at least
heard it from someone you work with.

In my state of mind, I was doing everything I thought was right,

expecting the whole world to see things as I saw them, holding others
to a standard of behavior they weren ’ t capable of or didn ’ t see the need
for; and all the while not considering the possibility that the world I
was in was nothing like the world I was certain it was. I was com-
pletely amazed during my period of recovery to learn that somewhere
around 80 to 90 percent of people who trade lose. The average length
of a commodity broker ’ s career was less than seven years, and they are
broke when they quit. The average company goes out of business in less
than fi ve years. All this despite the fact that the industry as a whole was
growing faster than ever. How can these seemingly contradictory posi-
tions be true? Whose “ fault ” was it? Where was all that money going?
And to whom?

Now before you assume that I never experienced these deep con-

fl icts, or I had some kind of detached concept of what was happening

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t h e a r t o f t h e t r a d e

inside of me, let me set you straight. I felt completely trapped. I could
not fi nd an answer to what seemed like a huge injustice being per-
petrated and worse yet, against me personally. I couldn ’ t see the true
nature of what was really happening. I actually thought that God him-
self was out to get me. I was “ insane ” to a certain point. This entire
confl ict was more than a war inside of me. It was literally a personal
struggle between life and death. There is no doubt that if I had lost
control of the last part of myself that I still controlled, I would have
committed suicide. I know how those poor souls who actually kill
themselves feel. That ’ s how deep of a confl ict I was in over why noth-
ing was working like I thought it should. It is almost impossible, even in
a thousand books, to adequately communicate the emotions I was feel-
ing. Feelings that were so real I could taste them. Despair really tastes
like burning copper and gin.

No one reading this will be able to appreciate the intensity of that

experience unless he has been through at least some of it. To those
people who say, “ I would never get that far gone over money. That
could never happen to me. ” Let me say at that time I believed the same
thing. I never thought I could get so upside down in every part of my
life. I literally found myself at the end of a rope that I didn ’ t even know
could exist; certainly not for me personally. I actually believed it was
all about money and how money works. Remember, I have a higher
I.Q. than most and had succeeded at everything I had done up to that
point. Women loved me. My family loved me. I had friends. I made
money. I was young and ambitious, respected by strangers. Then I got
into the markets. Why should it be any different? I began to experi-
ence a world without the same “ base ” of reality. This thought never went
through my mind.

In fact, at one point early on my little brother bumped into me

on LaSalle Street and asked me how it was going. I started to shake
and told him, “ I ’ m losing over $100,000 so far today alone and I can ’ t
handle it. ” My brother took me by the hand like a fi ve - year - old and
walked me over to St. Peter ’ s Cathedral on Madison Street and sat with
me. He prayed while I cried. My world was unraveling and I couldn ’ t
stop it. My entire concept of success and what it meant to be a suc-
cess was turned upside down and blew out with the wind. I felt like
I was detached from the rest of the human race. I felt as if everything I

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The Early Years

had ever been taught or learned on my own was either a lie or wasn ’ t
meant for me personally. I resented the success others had and felt pow-
erless to create it for myself. I can ’ t really tell you how abandoned I felt.
I didn ’ t understand that what I was going through was actually creating
within me the potential for a truly glorious thing. Something priceless.
I wouldn ’ t wish it on anyone, yet now I would never trade those years
for anything. I was literally only hours from the “ low of the move. ”

Up until this point I was using every tool in my toolbox I could

fi nd or invent to make sense of what was happening in my life. Still,
nothing was working. I knew there was an answer. I knew I could fi nd
it. I didn ’ t know where or what it was but I was committed to fi nding it. I
didn ’ t care what I had to do. I wanted to win. I believe it was this resolve
that fi nally made the difference.

Then I had the turning point.
The rest of the book is about all the pieces that were there and

how they came to fi t together. As I stated in the introduction, this book
isn ’ t written in any chronological order. All of the chapters and sec-
tions fi t as part of the whole. The end result is that I ’ ve learned what
the markets are really about. I ’ ve also learned that anyone can be a net
profi table trader and do it anyway he wants. It is my “ baptism by lava. ”
It ’ s all here and the “ secrets ” too.

Now don ’ t misunderstand me, I still made a lot of stupid mistakes

and repeat some of my previous errors, but something had changed.
When that change became clear, the emotional difference is what peo-
ple call an “ epiphany. ” And the markets, of course, had no idea this had
happened to me .

c01.indd 11

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c01.indd 12

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Chapter 2

The Day I Bought

the Low

Clarity of Observation

Unless there be correct thought, there cannot be correct action, and
when there is correct thought, right action will follow.

— Henry George

ometime in the fall of 1993, I began referring to myself as a
“ trader ” instead of a “ broker. ” To most people, the surface differ-
ence is that basically one guy is upstairs on the phone (the broker),

and the other guy is in the pit doing trades (the trader). The truth is the
line isn ’ t really that clear. Some “ brokers ” trade and some “ traders ” simply
broker their transactions. If you are in the business you know what
I mean. For those who don ’ t, let me take a minute to clarify these

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t h e a r t o f t h e t r a d e

relationships. The side of the business I was fi rst exposed to was retail
brokerage. I worked from an offi ce and solicited accounts from the
public — typically with a market concept easy for the novice to grasp —
trades such as soybeans during a drought, cattle during the barbeque
season, that kind of thing.

The interesting part is that even though the markets can be traded

from the long or short side any time, and often represent more profi t
potential from shorts, it is very diffi cult to communicate this to a public
client who has never traded before. Consequently, most brokers prefer
to open accounts by marketing a trading opportunity from the long
side. The most popular one I ever did was the “ heating oil during the
winter ” play. It didn ’ t seem to matter that no one uses heating oil in
enough quantity anymore to make a real energy difference. I believe
the New York Mercantile Exchange (NYMEX) still trades heating
oil only because it has so much public interest from all the broker-
age houses selling it each fall. Maybe they view it as “ free money ” for
their members. I ’ m ashamed to admit that I too did the “ heating oil
play ” for many years like everyone else. So, when I say “ broker, ” I mean
“ somebody who provides access to the markets. ” A lot of brokers help
the client trade. They suggest when to enter or exit the trade, when to
add to the trade, how to protect equity, and the like. During the time
I was a broker, I did all of this. By doing so, I acted in the capacity of a
trader. I had little knowledge of how that really worked, though, which
is one reason why I created so much pain for myself.

A trader, on the other hand, is entering and exiting the market (under

any time frame you choose) with the intention of making a consistent
profi t. His perspective on price action has more to do with where he
feels the market is at, where it might be going, how long it will take to
get there, what to do if he is wrong, how much to put on, when to add
to the position, whether to add at all, when to lighten up, and what to
do if something changes; basically, how to profi t without his head being
handed to him. This all seems very understandable until you consider that
to broker an investment (a trade) is a completely different skill, and is no
way even in the same universe as trying to profi t from that trade.

Let me show you what I mean: In the typical retail broker ’ s offi ce

there is a group of brokers on the phone selling, sometimes 12 to 14
hours a day. Stop to consider that selling a fi nancial intangible over

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The Day I Bought the Low

the telephone is one of the hardest things to do, period. Some rookies
work for months and quit before ever opening an account. This often
happens after a fi nancial trauma hits them, such as getting their car
repossessed. At one company, every rookie who started got the same
desk. After a while an ex - fi ghter pilot in the offi ce started calling it the
“ ejector - desk. ” Statistically, fi nancial sales over the telephone are one of
the hardest things to consistently do because both the state of mind
and the skills needed to remain successful are very hard to develop and
maintain. In addition, remember that commodity trading represents less
than about 5 percent of the public investor ’ s interest in the fi rst place.
Add to this the fact that all brokers are paid only a percentage of com-
missions generated and you have a very volatile income situation at its
best. The bottom line is that even with a superior, never - ending - sales -
lead fl ow, the average broker has to bust his rump to bring in accounts
and hope that the commissions generated becomes a decent income
before he goes broke. This is why there is such a high temptation to do
trades just to create a commission, which is also known as churning.

“ Churning ” is a term to describe a certain behavior brokers do to

generate their income. It is considered unethical and is, in fact, illegal.
If a trade is done without the client ’ s knowledge, that is a “ churn. ” The
idea being that if your relationship is strong enough with the client, he
won ’ t mind. Since those trades are always losers, some clients do mind.
Now the broker has to do a “ dog and pony ” show around it. Some
clients buy this — but the ones who don ’ t, the broker knows that client
will complain if he does it again. Therefore, if any trades are performed
that include this client, the broker will make the phone call to get the
client ’ s approval. The broker does run the risk that the client will say
“ no. ” This client will probably be closed out at some point because the
broker can ’ t earn an income from him. Or the income is “ too small. ” If
a client doesn ’ t mind, that broker knows he can now trade that client
with impunity and will make a good income from that client until all
his money is gone. This whole show will happen until the regulators
“ catch ” this broker and then either a fi ne will happen or he is expelled.
If a client who allows this to happen changes his mind (usually at the
point of total loss), then the broker might get sued. So he settles.

This whole problem would not exist at all if brokers would call

their clients on every trade; but since most trades are “ thought of ” at

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the moment the broker turns his screen on, there isn ’ t enough time
to call all his clients before the “ market gets away from him. ” If bro-
kers would plan their trades out, then there would be lots of time to
call everybody and get approval. This problem also wouldn ’ t happen if
owners would pay their brokers a base salary and train them on how
to trade. Or fi nd someone who knows how to trade. But that is too
much work. Additionally, if a broker would take power of attorney on
his accounts, then he could trade anyway he wants; but then the regu-
lators assume if you do that you intend to churn them anyway. So the
NFA immediately asks this broker to “ prove ” he wasn ’ t churning. How
do you do that? If you tell the regulators, “ I have power of attorney, ”
they say, “ Why do you need it? ” Sooner or later any broker who has
power of attorney will give it up because he says, “ How can I prove I
wasn ’ t churning? If I like a market, but I have a loss, the NFA thinks
I did that trade just to get paid. I can ’ t win. ” The end result is that if
you want to trade for your clients, and stay out of trouble, you can ’ t
have more than a handful of them because you can ’ t call them all — all
day long — while the markets are moving. If you plan out a trade and
call everybody, what happens when something changes? Do you put
the client in anyway, knowing he would lose or do you make all the
calls all over again? Suppose you couldn ’ t reach someone and he sues
you because you “ missed ” the trade for him and he just assumed you
would take care of him because you “ know what you are doing. ” This
happens.

The bottom line is that if you try to run your business effi ciently

by using all the tools that you have a right to use, the

regulators

assume that is “ churning, ” no matter what your intention is. Therefore,
most guys just do it anyway and hope for the best. You can make
$100,000 a year for years before someone says: “ Hey, you can ’ t do
that. ” Now you can afford the right attorneys. So who cares? Also,
many owners simply ask the broker

“ Did you call your clients?

”

Unless the owner has brains enough to hire a “ sales manager ” smart
enough to require the brokers to hand in the tapes of every con-
versation regularly, the broker just says “ yes ” and that ’ s the end of it.
Often, the broker has only one tape, and he just keeps recording over
the old conversations. If the client doesn ’ t say something today about
what was done yesterday then it is “ old business .” Personally, I think

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The Day I Bought the Low

the issue of “ churning ” is total B.S. The purpose of the markets is to
provide unlimited opportunity. Sometimes that means fi ve executions
in one day, sometimes it means nothing for a week. If all those trades
are done during the last day of the month, the regulators say: “ You
were trying to pad your commissions before the end of the month. ”
What do you do? If I saw an opportunity, and the markets gave it
to me on that particular day, now I ’ m “ churning ” instead of provid-
ing an opportunity to the client and myself. If I ’ m a day trader, that
means I ’ m looking for something every day. If those commissions
add up to some number the regulators arbitrarily conclude is “ churn-
ing, ” then someone else decides how much opportunity my clients
can have from the unlimited opportunity the markets provide. Why
don ’ t they just pass some law that says, “ No one can be as successful
at this as possible because we have to protect people from churning ” ?

Regardless of what anyone tells you, many brokerage houses actu-

ally encourage churning, although they pay lip service to regulators and
customers by saying, “ We have every control in place to prevent that. ”
The fact is, when a broker churns, they just hope he makes enough
to pay for whatever lawsuit might come in. Now consider that most
clients are losing anyway. So the broker is doing two things with most
of his time: trying to replace the losing clients with fresh equity AND
trying to convince the loser that he should stick around a bit longer.
The average commodity broker is not able to handle both on a consist-
ent basis to keep his book of tradable equity growing every month.

This is exactly what I went through. I would raise a group of clients,

put them in a trade, hold their hand as they lost, and do it all over again
next month. If I was good enough, I could make $10,000, $20,000,
$30,000 (my end) each month. Then my head would explode from the
pressure. I would take a break for a week or two. More often than not
this would coincide with the next “ sell an up market ” recommendation
from the company. Sometimes I would come back to fi nd the company
shut down without anyone thinking to call me or mail me my pay-
check. This was often around the same time my personal income was
gone. Add to this the pressure of looking for work once or twice a year.
Is it any wonder that friends or family think you are crazy? Or that
brokers drop like fl ies? To this day I question the sanity of some of the
wives of the brokers I worked with. Why put your family through that?

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t h e a r t o f t h e t r a d e

True, there is a certain romance with “ being on the edge, ” the thrill of
doing something that would turn most people into lawn furniture; but
the fact is that kind of life will kill you. I saw it happen.

In August 1990 the fi rst Persian Gulf War began, which eventu-

ally created the amazing move in the crude oil markets. At that time
the markets literally went wild with euphoria. It was something truly
amazing to witness. We were on the phone 18 hours a day raising
equity. No one had time to spend the money we were making. There
was no end to the people willing to invest to get rich. The guy at the
desk next to me opened a $1 million account in less than two min-
utes on the phone, the fi rst time he ever talked to the client. The “ sales
manager ” was actually charging the brokers more money for leads so
that he could pocket more for himself. The brokers, myself included,
were paying it gladly. It was insane. It was without a doubt one of the
most unique experiences of my whole life.

One day a buddy and I went to lunch for about an hour and when

we returned there were paramedics taking one of the brokers out on
a gurney. Apparently, this broker actually had a fatal heart attack right
there in the offi ce and died while on the phone talking to a prospec-
tive client. The buddy I went to lunch with didn ’ t miss a beat and said,
“ Who gets his leads? ” Such was the greed factor in play at that time.
Where could I fi nd time to become “ expert ” enough at market price
action to make winners of my clients?

Now let ’ s talk about traders. I know some people won ’ t like this,

but as a group, traders are some of the least knowledgeable and least
skilled people involved in something that is considered a “ professional ”
occupation. There is no formal process to get ready for trading. It is
basically on - the - job - training. Most pit traders net out less than $75,000
a year. In other professions, such as doctor or attorney, that kind of
money is a given. To become a “ professional ” trader, you have to put
up a reasonable amount of money as your starting capital, pass a test
to trade on the fl oor, and buy a seat or fi nd a clearing house to lease
you a seat.

That ’ s it. Most of these traders blow all their equity in a

short time and go back to being doctors and attorneys. Some traders
start by being a fl oor runner, work up to clerk, and then fi nd some-
one to stake their entry into the pit. This is done through the “ buddy
system ” on the fl oor and is a highly political, good ol ’ boy network.

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The Day I Bought the Low

You would be amazed at how many people end up trading in the
pits for no other reason than they were drinking pals with a local
who wanted to retire.

No real training just cojones — and believe me,

the cojones factor is responsible for more losing traders, fi nancial catas-
trophes, and general market mayhem than you would like to believe.
Consider that about half of fl oor traders are undercapitalized in the fi rst
place, and you can begin to see why trading is not an easy thing to do
well. Suppose this guy is supporting a family? What do you tell your
spouse when you blow out and you have to sell the house?

For the typical, off

- the - fl oor trader (an upstairs trader), getting

started is even easier. All he has to do is fi ll out an application with a
clearing fi rm and give them a check. Then he simply calls the fl oor and
gives his order to a trader in the pit who executes it for him. Upstairs
traders, or people who trade their own account, are no different than
pit traders.

They are all attempting to profi t from price action. Most of the

time they have done nothing more than the most basic research or
understanding of what is going on. The fact is, of these two groups of
traders plus the public client, about 80 to 90 percent close out their
account (or have it closed for them) at a loss. The average account
lasts about four to six months. Where does all that money go? I ’ ll talk
more about that later.

Now in fairness to the good traders out there, and the ones who

have net winning years most of the time, I

’ m not trying to dispar-

age the whole group. Some trading groups take a very professional
approach to their market presence. Many large fi rms require university
degrees, certain market knowledge, and require their traders to work
under very close scrutiny. But this approach is not as common as you
might think. My point is only to illustrate that the world of trading and
the world of brokerage are not easily integrated.

To their credit, some people realize this problem is real. Some bro-

kers never advise their clients of anything; they simply charge a fee for
doing what the client wants. Many traders do the same thing and never
trade for themselves, they just stand in the pit and wait for someone to
hand them a piece of paper and simply execute the order.

I have a close friend who is always the number one or two pro-

ducer in commission income to his brokerage house. He makes about

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$250K every year, year in and year out. He never went to school, never
did anything else. He doesn ’ t care at all about his client ’ s gains or losses.
He expects them all to lose and he really considers himself a “ white
collar bookie. ” Over a few beers he has told me more than once he
can ’ t believe this business is legal. If a client happens to call a winner
for himself, he just expects that money to be converted to more com-
missions over time. He is never wrong. He is truly a “ broker. ”

As a side note, I actually worked with him side - by - side for a while

because I fi gured, since his customers were such consistent losers,
I would clean up if I listened to what they did and did the exact oppo-
site in the markets. “ Fade them, ” so to speak, which actually happened
for a short time until I couldn ’ t stand working there from all the other
stuff that went on. To continue, I have another friend in the pits at the
Chicago Mercantile Exchange (CME). He trades a very complicated
stock index spread. He has made over $1 million in some years. He is
a true student of himself and the markets. He would never consider
looking for a client or trading for clients.

To show you how wide these two thinking patterns are, let me

illustrate: Guy #2 thinks Guy #1 is sort of a commodity clown — a
source of entertainment. He will roar with laughter when Guy #1 tells
him about his latest blowout and some of the things his clients will say.
I remember Guy #2 asking Guy #1 what he thought of the current
price of S & P 500 Futures. Guy #1 actually replied, “ That ’ s the stock
index one, right? ” Guy #2 calls Guy #1, “ The common man ’ s million-
aire ‘ cause it ’ s all his money! ”

Remember that bridging this gap is an entire business in itself.

That ’ s why the world of Commodity Trading Advisors (CTA)
exists.

That ’ s where the whole support industry of books, tapes, semi-

nars, trading systems, and the like comes into play. These people under-
stand that to attempt doing both is VERY DIFFICULT at best and the
failure rate is high. Even if you had unlimited capital and unlimited
access to knowledge as a trading advisor, a self - directed trader working
for the public, or the public itself; based on the statistics you probably
will still be a net loser. Having learned what I have, what still amazes
me is that every year the business of commodity trading gets bigger and
bigger. There is always someone who fancies himself a trader, a broker,
or both, and is willing to dance into a lion ’ s den to prove it. There is

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The Day I Bought the Low

always someone willing to invest their money with these people. The
common thread behind all of this is that everyone thinks they can
make money, it is easy to do, and they already know what they need to
know; however they decided that. Very few people realize doing one or
the other is hard enough.

This is what happened to me. I was told what I was told, and

through my own ignorance accepted it. I fi gured I knew what I needed
to know even if the company didn ’ t. I thought doing it all was easy
enough. Where my problem developed is now very simple. It never
occurred to me that I might be in a game whose real rules I didn ’ t
know. Throughout my life everything I ever attempted was met with
enough success to somehow convince me that success only worked a
certain way. So naturally, this business must not be any different. I was
not equipped to see when it didn ’ t work that way. In fact, I was so
entrenched in this thinking that I never knew to even consider look-
ing at it any differently. I was a “ commodities broker. ” The markets
“ should work like this. ” And the people in the business “ should be
like this. ” As time went on and the real rules were in play, my natural
assumption was that something was wrong. Since I could always
control my environment before, I was sure that I could fi nd a way
to control this one too. As the markets more and more tried to com-
municate to me that this game was somehow different than others,
I continued to interpret that information as only a set of circumstances
that didn ’ t fi t with my established picture of reality. I was convinced
that the problem was an external thing and therefore subject to forces
I could exert upon it. In every other fi nancial arena, I would work
long hours if I needed to, study what I needed to, do what I needed
to, and I would make money in droves. My clients would benefi t from
our effort together. It was only a matter of time. When I would do
these things as a broker/trader and get my clock cleaned the problem
couldn ’ t be me because I knew what worked. I have to repeat this: It
never crossed my mind that I didn ’ t really know this game.

By now you may begin to see how confused anyone can become.

If there is nothing wrong with me, it must be bad luck, or a pro-
grammed attempt to make me suffer, or any number of things. I just
wasn ’ t capable of seeing it any other way. Stop and add the fi nancial
pressure, or the government breathing down your back, or people you

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t h e a r t o f t h e t r a d e

trusted screwing you, and you can begin to see how your mind would
convince you of the worst. Then drive the last nail in the coffi n with
the use of alcohol and drugs. Reality takes on a completely different
and horrifying perspective.

Back to 1993. On the verge of losing my sanity, I came to my

senses. Up to this point my concept of reality was based on a set of
personal experiences. Since everyone ’ s experiences are different, then
it follows that everyone ’ s concept of reality also must differ. This hit me
like a ton of bricks. Until that point I really believed that “ reality ” was
basically the same for everyone. What would lead anyone to accept this?
For starters, have you ever stopped to think that you surround yourself
with people who basically agree with you and your train of thinking?
If you are a sports fan, how much time do you spend hanging out at
the local chess club? If you are a Democrat, how many Republicans do
you play chess with?

At the most basic part of our thinking, we tend to defi ne reality as

we personally choose to defi ne it. If someone else ’ s reality is in confl ict
with our own, we tend to think someone is “ wrong ” and the other is
“ right. ” I had spent my whole life up to this point dealing with people
who thought like I thought. They saw business and success in a simi-
lar fashion. We all had similar results. The fact is the markets are made
up of people who all think differently for their own reasons. The only
thing we have in common is that we all participate together. In this
respect, it ’ s like riding the subway or standing on a street corner. The
guy next to you could just as easily be an axe murderer or the president
of General Motors. Each has a different perspective of reality and what
is happening around him. In trading the only thing we have in com-
mon is that we are buying and selling in the same place — each of us
choosing to look at the markets in our own unique way.

This was new to me. This was not the world I was used to being in.

At that point my thinking practically went faster than I could handle.
I had been defi ning myself as a successful person who was now a com-
modity broker; when in fact, I was a commodity broker who wasn ’ t a
success. My profession began to expose me to a new reality, which in
turn began to open up a completely different set of variables. It might
be possible that all my life experience up to this point meant noth-
ing in this new world, this new paradigm. Until that moment, I saw

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The Day I Bought the Low

the markets and the business of trading as nothing separate or unique
from everything else I had ever done, only different. As I accepted the
possibility that the markets and trading might have a completely distinc-
tive reality all its own, a fl ood of questions ran through my mind. What
would this reality consist of? How is it created? Who creates it? How
does it differ from what I already know? How can I understand it if I
have no basis to compare it to?

I could go on but here ’ s the point: What became astonishingly clear

was how absolutely narrow my personal method of defi ning reality
really was. There was no room in my head at that time for anything that
didn ’ t immediately and neatly fi t with the established set of perspec-
tives I currently held to (the implications of this are truly staggering if
you let yourself run through the whole gamut of possible life experi-
ences). If the markets have a reality all their own, then the reason so
many people fail is because they refuse to fi nd out what that substance
truly is and adapt to it. Market reality must be something so completely
unpalatable or unacceptable to most people that they would rather fail
at trading than embrace it. Of course, that is exactly the case.

The true reality of trading and the markets as a whole is something

that most people would rather die than accept. Market reality only
functions one way, but we bring a personal defi nition to the table when
we trade. We are trying to make sense of what we perceive, and the
only basis we have to do that with is our previous world and life view,
perspectives, and belief structures. The end result is that we as traders
“ see ” the market differently than everyone else, but the market itself is
only functioning one way and will never be any other way. So the true
state of trading reality is in confl ict with what we personally think it
is. We can choose to defi ne it any way we want. It ’ s the defi nition that
creates our gains or losses.

If you ask me what that reality is, my answer is “ absolutely noth-

ing. ” The market you trade is nothing more than a mirror. What do you
see in any mirror? That which is put in front of it. Only what you want
to see by what you put in front of it. The mirror itself is nothing. The
market is only what you bring to it. It really is “ no thing. ”

Before you throw this book down as being overly simplistic, eso-

teric, or philosophical with no trading value, I want to remind you that
this is my personal story of my journey through the markets and what

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I came to learn. It is not a how - to book on trading. Before you throw
this out, I would encourage you to consider this basic and very deep
concept and let it roll around in your head: What is everyone else looking
at in the mirror?

When I came to understand that the market

’ s reality is only a

refl ection of my own, I began to consider myself a true trader. At its
most basic level the desire for profi t in any fi nancial endeavor is based
on the ability to observe some kind of inequality somewhere and feed
that inequality with some kind of effort designed to push that inequal-
ity in your favor. We call this a profi t. But what really is the market?
A constant inequality that we, all of us who participate, wish to see
push in our favor. What is our effort? Executing a trade. What is our
profi t? Buying low and selling high. What is the true nature of the market ’ s
inequality?

Discovering that, my friend, is the dance, the art of trading.

The price I paid for that knowledge is my unique experience and the
nature of my reality. There was no other way for me to discover that
except the way I did. No other way was possible given the state of
mind that I had brought to the table. How could it be? Until I was able
to understand it was impossible to understand. Until all the mitigating
factors in my life positioned me to ask myself the right questions, it
was completely impossible for me to observe my thinking and perspec-
tives for what they were: Closed to the true nature of the reality I was
immersed in. Please think this through: Can you see that your personal
concept of reality may not be the actual reality the markets really func-
tion under?

Looking back, all the pain I endured was completely self - created,

as was my ability to get through it. Your trading and your results are created
only by you and you alone. There is nothing else involved in any trad-
ing of any kind. My understanding came once I was willing to accept
that the entire market and all price action are a perfect refl ection of
my own thoughts. The true study of the markets is the study of your
own thoughts. That ’ s not to say technical or fundamental analysis of the
markets doesn ’ t have its place. It ’ s just that people who trade greatly
overestimate their true usefulness.

So, in the fall of 1993, after “ ruining ” my life by accepted standards,

I affi rmed the possibility that my view of reality was nowhere close to

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The Day I Bought the Low

the truth that I needed to discover in order to profi t from all that the
markets were capable and more than willing to pay someone. By some-
one, I mean anyone. No one is better equipped than anyone else is.

I chose to accept that my personal choices were responsible for

every one of the agonizing disappointments, all the pain, all the losses,
all the bad business partners, the bankruptcy, and all the mistakes. It
was all the result of my personal choices — made through the lens of
my personal perspective of reality — and nothing else. I put myself here
through ignorance. Thank God I wasn ’ t dead, on drugs, or worse. There
are worse things. That ’ s why people kill themselves, because from their
point of view, death is better than the reality they have created for
themselves.

I decided to discover the truth about the markets at any cost. What

happened was an ongoing process of self - disclosure that remains to this
day the most diffi cult thing I ’ ve ever done, but has yielded the high-
est rewards I could ever ask for. Without any doubt I can stake all I am
or could ever hope to be on this one fact: The only way to consist-
ent trading profi ts is through self - study. By that I mean real self - study.
The kind that brings you face - to - face with what you don ’ t want to
see. The kind that confronts the deepest part of who you are or think
you are. The kind that causes you to change your behavior, how you
spend your time, the ones you associate with; even those you love and
why. That kind of self - study I wasn ’ t prepared for any more than any-
one else would be. That takes guts. Courage. Blood, sweat, and tears (if
you have any pride in yourself). I chose to go to the wall with this. This
process continues every day, through every minute of every trade. Even
when I am not currently in a position, this process continues. Every part
of my life contributes to this process. Every thought, action, motive, or
activity contributes and, at the same time, has the potential to detract
from my results. This takes a level of commitment, not lip service. This
is the hard edge. Dividing between the individual parts of yourself and
constantly re

- integrating what you fi nd. It ’ s saying goodbye to some

things and owning other things in a way that cannot be compromised.
It ’ s lifting outside of yourself and considering what you really see. It
means a constant change knowing that the change is the only perma-
nent part of you. It is the journey and not the destination. The destina-
tion is always someplace new, yet always the same: To take out money.

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t h e a r t o f t h e t r a d e

When I chose to uncover what the real market realities were and

the true nature of my own personal reality, I realized it was impossible
for me to act in the capacity of a “ broker. ” I could no longer continue
to sell an investment to someone who knew nothing about the mar-
kets, and do it in such a way that he or she would be exposed to a
needless loss just so I could get paid. I couldn ’ t sell someone on heating
oil going higher if I really thought the market was more likely to move
lower. If a client opened an account hoping to make a gain, I needed
to be in a position to give him a fair shot. Only a true trader could do
this. I was absolutely convinced that you could profi t from price action.
I became a student of how, in the deepest sense, the markets actually
worked and what created them. Only by doing so could I ever hope
to give a client the best possible opportunity for a gain. Even though
I would continue to raise equity for the purpose of trading I could no
longer see the business of commodities as only that. As time went on,
the amount of time I spent raising funds became less and less and the
time invested in understanding the real nature of price action (and
myself) became more and more.

This new attitude created all kinds of confl ict with brokerage

houses. They want brokers on the phone selling, not trading. Trading
is simply the messy little necessary evil that generates commissions.
They view every minute you aren

’ t on the phone selling as

“ lost

time. ” They only tolerate the 30 seconds of each day allotted to exe-
cuting trades because that is the only way to get the commissions.
They want brokers to spend those 30 seconds writing a ticket for a
50 lot (meaning 50 commissions) instead of a fi ve lot. The conversation
goes something like, “ Oh, you ’ re in? Great, how many round - turns

That ’ s all? Well, get back on the phone. ”

This creates tremendous pressure if you are really trying to trade

well. There ’ s more to this next story, but let me describe how one rela-
tionship ended. Here was this owner ’ s reason for fi ring me: My com-
missions were so small compared to himself and others at the company.
I had the smallest book of equity as well. He also had this suspicion
that I was “ stealing ” leads that he provided, which wasn ’ t true. (What
was I going to do with them, line my bird cage?) I had taken a small
offi ce downtown to concentrate my efforts. He assumed all this was
leading up to me leaving to start my own company, and it was his
blood that was going to get me there. He fi gured he would beat me

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The Day I Bought the Low

to the punch. When I asked him to look at my trading equity, my sales,
and commission history from the time we began working together, he
refused. I implored him to use his common sense and realize I had no
intention of hurting him in any way. He absolutely refused to listen or
change his mind, but I was on to something.

Here ’ s what he missed: I had raised only about $25,000 in new cash

in 90 days (compared to what I had previously done this was peanuts).
Every client of mine on the books had nice gains, after fees and com-
missions during that time. Every other client on the books at the same
company was losing. The ratio of fees generated as a percent of total
equity was only average, but the average size of my positions never com-
mitted more than 30 percent of total equity on deposit. In other words,
I was trading smaller but more often and realizing consistent commis-
sions while making gains for the client. In addition, every trade was dis-
cussed with the client and the client gave permission to do each trade.
I followed every NFA rule. Many at the company didn ’ t. No client was
ever in a position to wake up one morning with all his equity gone.

If this stupid @#%$

would have thought this through, he

would have realized that within six months the commission income
would have been exponentially bigger than it was. Furthermore, trade
size would have also geometrically increased, and the clients would
all be profi table, or at least still in the game. All this would be accom-
plished while taking on less risk to do it. Not to mention that those
clients might all send referrals and continue to invest more free cash. If
this idiot really had thought it through, he could have had every client
under management at the company in the same position. Instead he
killed the golden goose.

In this business this happens every day. Shortsighted owners screw-

ing themselves and everyone who trusted them because they think
this business is only about commissions. This is one of the realities that
I had to accept. Brokerage houses just want commissions. They don ’ t
want you messing up the process of converting client equity into com-
missions as fast as possible with the ridiculous idea of trying to make
money for your clients. To continue being a broker would only con-
tinue the problem. That ’ s why I chose to go completely on my own.
I would become a trader. This was really the beginning of my career.
Everything had lead up to this point.

In the process I became bulletproof.

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c02.indd 28

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Chapter 3

Technical Analysis

Clairvoyance for Profi t

When a true genius appears in the world you may know him by this
sign: that all the dunces are in confederation against him.

— Jonathan Swift

he year was 1992. During my odyssey to discover my success as
a commodities trader, I had opened an account with a very
well - known discount brokerage fi rm in Chicago. If I told you

who it was, you would instantly recognize the name. At the time, they
had a small room on the ground fl oor of their offi ces that was available
for local customers. The room was full of quote screens, tables, and tele-
phones wired directly to the trading desks of this company. The idea was
that if you were a customer, you could come into the offi ce and trade
your own account right there, every day if you wanted to. It was similar

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t h e a r t o f t h e t r a d e

to the old - fashioned bucket shops that used to be so popular at the turn
of the 20th century, except this one was completely legitimate. The
whole idea was a really good one for business. After all, if you lived in
town and you didn ’ t want the expense of setting up your own trading
facility in your home, or you couldn ’ t afford to trade in the pits, this was
the next best thing. You had good access to the markets at a reasonable
discount rate. The rest was up to you.

Bear in mind, I was still the kind of person who relied heavily on

charts, graphs, statistics, and the like to determine

“ where the market

would go. ” I still hadn ’ t had my catharsis in thinking, so I was really just
following the herd to trading oblivion. The room was always full of people
who were trading. There were the usual fi ghts over who had the screen
fi rst, people who always felt they owned the phone that you wanted to
use, the name calling over who was “ nuts for going long (or short) ” on
whatever market was being discussed. There were constant practical jokes,
things like unplugging a screen when someone was trying to execute a
trade, someone urinating in the coffeepot; that kind of thing.

What I found interesting was that the conversations and the gen-

eral interactions between everyone were nearly identical to what goes
on all the time in a “ real ” brokerage offi ce. It was sort of like an adult
Romper Room.

I was constantly amazed at how ridiculously childish

people would be both in their thinking and their actions. It still blows
my mind that these people have money or are entrusted with it. What
I didn ’ t know was that every one of these psychos knew less than I
did. I actually thought that the guys who traded knew what they were
doing, both in the “ playpen ” (as I called it), or in a brokerage offi ce
wearing a shirt and tie.

Once I became accustomed to the whole scene and began trad-

ing there every day, I began to feel more comfortable about what I was
doing. I would let people see my charts with all the lines drawn on them.
I would explain what I thought and listen to what they said. After some
time I began to realize these people had no idea what they were really
doing. In fact, the real shock came when I began working at a broker-
age company shortly after losing my stake in the playpen. One of the
brokers in that offi ce was someone I had originally met in the playpen.

After blowing out all his own money, this nut - bag went into the business

as a broker. He was doing the exact same thing he had done before, but

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Technical

Analysis

this time with client money. He had absolutely no clue. Believe it or
not, this kind of thing happens regularly. Not only do most people have
no idea what they are doing, they don ’ t even believe they need to know.

The guys in the “ playpen ” and the guys in the broker ’ s offi ce are

virtually identical; their constant point of view is that they all believe
you can fi nd some reason for doing a trade by looking at a chart of
the market with little lines drawn on it or reading an incomprehensible
table of numbers some computer spits out. So does the public. Neither
group of traders would ever think to ask, “ Who programmed the com-
puter? ” or “ What is this attempt to analyze really based on? ” I have
yet to fi nd any broker or trader who could tell me that the Fibonacci
retracement study is named after a 13th-century Italian mathematician
who was looking for two things: 1) order in the universe and 2) the
philosopher ’ s stone.

Fibonacci actually believed you could turn lead

into gold. (I ’ ll show you the irony in a minute.) Would you want that
guy trading your money? Both groups of people look at the same stuff
and decide to buy or sell simply by interpreting what they think they
see on it. It reminded me of having your palm read.

Another amazing thing I noticed in both places was how many peo-

ple would stand around watching a screen of some market and constantly
talk. After the market would move to a certain point all the discussion
would go quiet and then someone would break the silence by announc-
ing to everyone that he intends to buy or sell if the market moves to
(such and such) price. A spirited discussion would follow, and then like
lemmings, everyone, or at least those with enough courage, would also
execute a similar trade at or around the same point. Another lively dis-
cussion would follow about “ what point to take our profi ts ” or “ where
to run our stops, ” all of this with no prior thought or planning until that
moment. Then the market would reverse and go the other way, resulting
in yet another lively discussion about “ how it will come back ” or “ if it
trades to (whatever price), I ’ m out, ” and any number of things. Some guys
would take a small loss; some guys bigger losses. Some guys just held on.
Some guys would wait to execute at that price. Some would add to the
losing position and hope for the best. Then the market would reverse
and trade back to where it started. Some guys would get out there to
“ cut their losses.

” Some guys would say:

“ I ’ m reversing.

” All sorts of

things. Eventually, the market would close.

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t h e a r t o f t h e t r a d e

Then both rooms of “ children ” would have the same results: some

winners, some losers, but always more losers than winners. The losers
would go back to the pictures with lines on them (or the numbers in
rows), to “ fi nd out what went wrong. ” The winners would all point to
the same pictures with lines on them (or the same numbers in rows), and
show them “ where they went wrong. ” This would set off yet another
spirited discussion, followed by pontifi cating by the winners, philoso-
phizing by the losers. Then it was time to hit the bar. This same pattern
happened day after day, over and over again. In the end, the group in
either place kept changing as one by one the losers eventually were
replaced by new potential losers. Subsequently, the winners turned into
losers and were replaced by new potential losers. Then all joined the
party of losers in transition and winners in training to become losers.
Looking back I wish somebody would have slapped me. I was that guy
for years. What a complete waste of time. I ’ ll never get those years back.

While I was in the phase of lunacy — called studying the markets — an

amazing thing happened that started me down the road to true under-
standing. I share it with you in as much detail as I can remember. I swear
to God this actually happened. To the best of my knowledge, the shabby
guy in this story still trades in the playpen. For all I know he was an
alien making a pit stop on earth and had a little extra time to kill.

It was a Monday morning around 10

:00 a.m . I remember it was

Monday because the discussions after the weekend in both the playpen
and the brokerage offi ce were always the same: Who got laid? Who got
trashed? Who got arrested? Who saw some great movie? and so on. In
the middle of enduring a conversation about someone who hadn ’ t gone
home the whole weekend, a man walked in whom I had never seen
before. The playpen got real quiet. I thought that maybe he was the
owner or something. A regular, whom I called the Fly because he was
always hovering around behind me and looking over my shoulder at
what I was doing, leaned over, whispered real low, and said, “ Stay away
from that guy, he ’ s nuts.” He said it in such a way that made you think
everyone else in the room must be an Einstein. “ Why? ” I whispered
back. “ Just watch, ” said the Fly. So I did.

Now remember; in order to be in that room you had to have a

trading account open at the fi rm. This guy was dressed in a baggy old
winter coat, worn tennis shoes, and hadn ’ t shaved for a few days. He almost

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Technical

Analysis

looked like a street person, but there he was. He calmly sat down in
front of a screen and everyone gave him a wide berth. He just sat there
for a moment with his eyes closed, collecting his thoughts. He let out a
long sigh and went to work on the keyboard. He would stop, think
a little, and tap away some more. He must have done this for a while
because eventually everyone else went back to what they were doing.
I kept watching. He picked up the phone and asked for the back offi ce.
He very calmly asked what the balance was in his trading account. He
pulled a pencil and notepad from his pocket and wrote that down, then
put the pencil and notepad back in his pocket. Then he did what at
the time didn ’ t seem all that strange. He pulled an empty, green glass
Coke bottle from his other pocket and put it on the desk next to him.
I thought he was just getting rid of his trash. I had no idea that act was
so signifi cant. Meanwhile, the Fly buzzed over and said, “ Now watch
this, ” and so I did.

The shabby guy sat for awhile, and then his eyes got real wide.

He grabbed the Coke bottle and put it to his ear exactly the way you
would put a telephone to your ear. He said, “ Hello. ” Then he jumped
out of his chair, and yelled around the room, “ You gotta buy! You gotta!
They ’ re saying it ’ s time to buy! Hurry before it ’ s too late! ” He then
dropped the Coke bottle, grabbed the real phone, and yelled, “ Buy a
hundred May at the market. Be quick about it. This is account number
XXXXX! ” He proceeded to wait a few moments and then started
writing furiously on his old notepad. “ Okay, 30 at even, 30 at a quarter,
40 at one - half. Right, got it; new order. Sell my 100 at (whatever the
price was) stop. Thanks. ” Then he hung up and sat back down looking
once again calm as can be.

I wasn

’ t sure what to think. This shabby guy walked in, traded a

hundred - lot of something, did it while yelling at everybody in the room,
and did it all, by my assessment, because someone called him on the Coke
bottle. “ See what I mean, ” said the Fly. I didn ’ t know what to think.

Twenty minutes or so later the shabby guy did the same thing.

His eyes darted to the Coke bottle. Then he grabbed the Coke bot-
tle and said, “ Hello. ” Again he jumped up and yelled “ It ’ s time to sell! ”
this time, called the desk to liquidate his position, canceled his stop,
and then sat back down. He then proceeded to calculate something
on the notepad for a moment. Then the shabby guy very calmly got

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t h e a r t o f t h e t r a d e

up, walked around the room, and said, “ It ’ s been nice trading with you
boys today, ” and walked out. Everyone basically ignored him and once
he left the conversation started about what a whacko this guy was.
While they are all talking, I walked over to the screen that he was using
to look at the market he was trading.

There on the screen is the fi ve - minute May pork belly chart. Ask

anyone what trading pork bellies is all about, on a fi ve - minute time
frame no less. I saw his entry point and his exit point. I then converted
to the daily chart and saw this guy had captured about 75 percent of the
day ’ s range. I then fi gured what that meant if you had a hundred - lot on.

The Fly told me this guy comes in every now and then with no set

pattern. He does the same thing every time; talks to the Coke bottle,
trades, and then leaves. When I told the Fly that trade was worth about
$32,000, you know what he said? “ Look, he ’ s just some nut. Maybe the
guys at the desk feel sorry for him. He probably doesn ’ t even have an
account. They probably held his orders. They never placed them. No one
trades like that. ” I asked the Fly, “ How did he get in here? ” “ Who knows? ”
was his answer. I asked the Fly if anyone looked at his other trades. “ Of
course not, he ’ s crazy, ” he said. And that was the end of the discussion.

The Fly was not the fi rst person I met in this business who would

ignore reality when it stared him in the face. What made such an
impression on me was this: If it was a real trade (and I believe it was),
this guy, crazy or not, had executed both sides of his trade at precisely
the right time, however he chose to do it, and he took the most amount
of money in the least amount of time that particular market had to offer
on that particular trading day. It was simply amazing to me. All of the
people in that room were attempting to do the very same thing every
day. All the people in that room had every tool the industry could provide
you to do it with except the magic Coke bottle. As time went on and my
losses eventually put me back on the phone at a brokerage offi ce,
my thoughts were constantly on how to improve my trading for my
clients and myself. But that whole experience kept coming to the front
of my mind. Was that guy just lucky? Did he have some secret? Then
the big question: How do I learn to do that?

If you stop to look at the real implications of what had happened

and start thinking it through, the conclusions are simply beyond the
acceptance of nearly everyone in the business.

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Technical

Analysis

This is important, follow me on this: There exists unlimited market

information that can be compiled in an infi nite number of ways, which,
in turn, can be interpreted in an infi nite number of ways. This takes its
form as the huge business of technical analysis. Add to it the additional
information such as books, tapes, seminars, and so on, that also is a huge
business designed to help you make sense of the voluminous amount of
market information. The business of commodity trading grows larger
every year, and the fact still remains that about 80 to 90 percent of the
people who execute both sides of at least one trade during their life-
time will remain net losers. Every one of these losers has access to the same
information as everybody else. It is true that many of these losers don ’ t
know they need to learn the business of trading. But the people who
do know, and buy this stuff, are still in this losing group. So if the mar-
ket information is all the same for everybody, then the problem must
be in how it is used — or it ’ s something else.

What is still striking is that the shabby guy in this story apparently

never uses any of the technical analysis information. Also consider that
many of the people who write the books, hold the seminars, sell the
courses, sell the trading programs, and the like, don ’ t even trade. One
so - called expert, the guy I mentioned in the introduction, fi lls his mar-
keting material with scores of testimonials. People just lauding over
how incredibly reliable his technique is, like he ’ s the only one with the
Holy Grail of trading. You can have this amazing secret for only $69!
(We ’ re having a sale this week.)

I personally have met one individual who writes a new book

every two years or so, is highly regarded by the public, has sold lots of
seminars, is highly sought after to lecture at industry functions, and it ’ s
rumored that he hasn ’ t traded for almost 15 years. He is the consum-
mate professional opinion gabber. I ’ ve met this guy more than once.
You would be amazed at the crowds that draw around him. He owns a
discount brokerage house. He even does television commercials. People
really believe this guy has some secret. When I was going through my
period of delusion, I bought his books too. When I started coming out
of the fog, the last time I met this guy, I asked him a question, “ Can
you show me your personal trading results by using this information? ”
It was an honest question. I assumed that he traded. I didn ’ t mean to
put him on the spot. I just assumed if he was selling it, there must be

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t h e a r t o f t h e t r a d e

some truth to it. Or at least something that would make the price fair,
even if it only helped me make one additional winning trade. You
know what he said? “ Well, I ’ m retired now. I want to help others learn
how to profi t. ” Read: “ I won ’ t take the risk you are willing to. I ’ d rather
sell you what you want to hear. ”

You can make a lot of money in commissions helping losers exe-

cute their trades. You can make a lot of money selling “ loser training
manuals. ” You can make a lot of money selling dreams. I fi nally under-
stood what was happening through all this when my girlfriend at the
time asked me: “ How much money have you spent over the years on
all these books and charts and stuff? ” I added it up one day and told
her. “ There are thousands of guys like you out there, right? ” was the
next question. “ Have you made more money? ” was the fi nal question.
When I answered, “ No ” (which was the truth at that point), you know
what she said? “ You should be in the racket around the racket. They
don ’ t know any more than you do. ” It was a revelation.

I fi nally decided to test this hypothesis by selling my own “ techni-

cal analysis. ” During the summer of 1994 or 1995 (I would have to
look), I started a 900 number line giving out price action opinions in
fi ve different markets. In the process, I discovered that the 900 number
line business is even sleazier than this one, but that is another story.
Since the provider is gone, the records are gone, and it was a long time
ago (by this industry ’ s standards), I ’ ll tell you the name of the business.
It was the Pro - Traders Hotline. I charged $1.99 a minute and the aver-
age message was three minutes long. I even offered a free newsletter if
you left your name and number. I hoped to make new clients out of
the ones who left their phone number. I updated the line ’ s recorded
message at about 6:00 a.m. every trading day and again around 4:00
p.m. I placed a small ad in a trading newspaper and took my chances.
I had no idea that anyone was calling until I got my results every week.
Within four weeks I was being paid a net profi t on this. Within 90 days
it was a few thousand dollars a month. It really was a neat little busi-
ness. Then the provider of the service disappeared and I never got any
money. All in all it was an interesting experience. Here ’ s the kicker:
I made the whole thing up.

All the daily recommendations I took from the previous day ’ s high

or low. I invented some hyperbole and hype about support or resistance
and said, “ Make sure to run your stops. ” A few times I just fl ipped a

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Technical

Analysis

coin and said, “ Go long (or short) on the open. ” Sometimes I would say,
“ Stay out until the market defi nes itself. ” What the hell was that sup-
posed to mean? The bottom line is people ate this stuff up. If I really
wanted to be in this just for the money, I could have fi gured out a way to
pump that phone line for all it was worth. I really believe that is what
most of the support industry to commodity trading is really doing.
I bet most of them are doing it ignorantly and really believe in the B.S.
they sell. I ’ m sure a few know exactly what they are doing is selling B.S.

This whole thing can be summed up in the following wire service

opening comments. This was actually on the CQG network, seen by
thousands of traders every day, all of them using it to help them trade:

N.Y. World Sugar Futures Called to Open Unchanged

08:36:41 CST 04/03/95 KEYWORDS: FOOD,

COMMENT

New York - April 3

- FWN — N.Y. World Sugar futures are

called to open unchanged, based on overseas trading. At the
London Commodity Exchange, May sugar is currently down
10 cents at $374.20 after trading between $375.00 and $373.40.
The physical market remains quiet with no news of any sales,
several sources said. As a result, traders expect May sugar to con-
tinue trading back and forth between 14.00 and 14.50 cents.
The only known tender at this time is on April 19, when Egypt
will be in the market for 50,000 tons of raw sugar for delivery
in July. “ Technically, the market looks fl at and is in a triangle
consolidation due to an ABC correction, ” one technical ana-
lyst said. “ At this point the 40 - day moving average has fl attened
out, ” this source said. “ And open interest over the last month
has done little. As a result, this source said, “ THE MARKET
COULD GO EITHER WAY. ”

The caps are mine. You need some analyst to tell you that?
Therein ends our object lesson on the validity of technical analysis.

It is important to remember a few things. The real business of techni-
cal analysis is an important part of trading. It does have its place to the
successful trader. It can be an indispensable part of lasting trade success.
The entire key is how it is used and understanding what it is really say-
ing. That ’ s what I want to talk about for a minute.

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t h e a r t o f t h e t r a d e

Let ’ s review what we have learned so far:

The entire world has access to the same information in the form
of price action. All the markets have all the traded prices in the same
format.
There is an entire industry that takes those trade tics and compiles
them into many different formats. They then interpret what those
little price changes mean based on some reason.
Some stop there and some add additional interpretation as to what
you should do in that market.
Some want you to “ do it on your own ” and provide all sorts of
personal opinions on how you should learn to read this stuff.
Some will even do all this for you and sell you a complete set of
trade rules to follow to make your fortune; including “ high-tech ”
software.

With all this information the fact is, in an ever - growing business,

almost everyone is a net loser. So how can technical analysis or market
education be of any value?

The value is in the fact that 100 percent of the losers are using it.

Suppose you could fi nd out where they are trading and take your posi-
tion against them? In a small way that is what the pit trader does every
day. That ’ s why the membership to the “ club ” is so expensive. If you,
as a student of the market, were to stop right now, put this book down
and every other book down, and ask yourself, “ Where is the loser? ” You
would begin the process of learning what technical analysis is all about
and why it has its place.

The real value of technical analysis is that everyone using some

form of it or buying some interpretation of that analysis really believes
he will profi t by using it. By knowing where that person is and trad-
ing against him, when he liquidates his loser, he must pay the winner.
That person should be you. But he thinks it will be him. Because his
belief is so strong in “ what the chart is saying, ” he is willing to execute
a trade, putting his capital at risk for the eventual winner to take. It can
never be any other way. If using the information results in a winning
trade, he will be so convinced that it is accurate that he will never trade
any other way. He won ’ t ever consider evaluating the market any other

•

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Technical

Analysis

way because “ this way works. ” Therefore, he will eventually make more
losers. The reason is because all interpretation of all price action is nothing
more than someone ’ s point of view. Every technical “ system ” has its
share of winning trades. Once it works one time for someone, his point
of view becomes all the time. At the very least he is willing to do a few
more trades to fi nd out. This is called “ testing. ”

Some true idiots do something called “ paper trading. ” The idea behind

this form of mental masturbation is this: “ If I pretend to trade long enough
I will learn how. ” By that reasoning, if you play enough video games, you
would become qualifi ed to fl y an F - 16 into combat against someone who
is trained to kill you, and do it equally as well as Chuck Yeager.

It ’ s mad-

ness. It really should be, “ If I pretend to be a loser, eventually I can become
one. ” Some very sophisticated paper traders will come up with some small
something that they believe is a pattern (from their point of view) and “ back
test it ” through 10 years or more of price action, thereby “ confi rming ” its
viability. They then begin using it with the same results as everyone else —
or selling it to you. Remember, none of those hypothetical trades were ever done
by anyone. How easy is it to say, “ Well, I would have done such and such
here because looking back the market would have done such and such any-
way ” ? That ’ s all these people are really doing. They are saying, “ Since the
market was eventually moving lower, I would have found a way to be short ”
or vice versa.

If you doubt my hypothesis, here is some homework. Peruse the “ for

sale ” section of any industry magazine or paper. Count the number of
“ trading systems ” available as the next “ for sure ” approach. Do this for a few
months. Watch how fast these systems come and go. Call up the authors
and listen to them justify what they are doing. Ask them how much money
they personally have taken from the markets. If you want a real eye - opener,
ask these fruitcakes to fax you the latest monthly statement from their bro-
kers showing gains. Listen to all the reasons why they can ’ t. Then go read
the classifi ed ads section for people selling these same systems after hav-
ing tried them. Call those people and ask them why they are selling them.
Without fail the answers will be along these lines: “ Well, it ’ s just not what
I had wanted. Oh sure, it works (which is a lie), but I ’ m looking for some-
thing more aggressive or that takes less risk (that is, I want to get my money
back). I ’ m not satisfi ed with my results (I ’ m looking for a new system to
recoup my losses). ”

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Let me make this really clear: If there were a system you could buy

that worked, that ’ s what people would use. There would only be one of
them. The rest of the people are trying to fi nd a system or create one
by doing their own research and charting, or God only knows what.
The only way to see if it really works is to trade with it. When they do,
they lose, and fi nd out it doesn ’ t work. Then they try something else
until they run out of money. This happens every day.

Can you see why I wrote this anonymously for the fi rst edition?

Someone could become furious. All the people in the business of sell-
ing all these different colored crystal balls could be out of a job if the
majority of people putting their confi dence in all this insanity were to
wake up and say,

“ Hey, this is a rip

- off. ” For some reason everyone

believes in this hocus - pocus. That will never change; at least for right
now. But none of these “ purveyors of profi ts ” like their “ profession ” or
“ science ” to be called on the carpet. There ’ s too much “ evidence ” that
this sort of thing works. They will be happy to show it to you. Do you
want the acid test of the evidence? Ask whoever is trying to sell
you whatever it is they are trying to sell you to let you pay for that sys-
tem, research, tools, opinion, or analysis out of the profi ts that it gener-
ates. It boils down to getting past illusions. The kind you tell yourself,
others tell you, or the kind you let yourself believe. I think I ’ ve learned
how to do that. I ’ ve been able to discover what the real secret to using
analysis is really all about and what analysis is really trying to do.

It ’ s like this: How many people take the “ science ” of alchemy seri-

ously today? The hypothesis that you can turn lead into gold doesn ’ t
fi t anymore with the facts of particle physics and chemistry. We have
come to know the true nature of gold and lead — they are separate ele-
ments. Did you know that, at the height of the belief in alchemy, there
was a school in Amsterdam that offered a degree in alchemy? That is
an historical fact. You could receive a degree from a center of learning
respected by the known world at the time without anyone ever in his-
tory before or since ever being able to transmute any elements into something
else. It ’ s never been done. It is physically impossible. For some reason people
thought you could do this. Somebody must have said, “ Wouldn ’ t it be
neat to turn lead into gold? We would all be rich. ” It doesn ’ t matter
why they thought that or how much the basis of that idea was rooted in
the known reality of the time, it couldn ’ t be done then and no one will

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Analysis

ever succeed at it because the actual unknown reality (the higher reality
if you will) won ’ t allow for it. That didn ’ t change the fact that people
believed it could be done. This belief existed for almost a thousand years.
You could study it until you were an “ expert ” in it. All of what there
was to know about turning lead into gold — great halls full of hundreds
of people all discussing exactly how to do it. If you could convince
someone you had done it, people would listen to you and value what
you said very highly. If you claimed you had done it only once, and
simply wanted to share with others your knowledge (for a small hono-
rarium) you could do so. Let me repeat: This is a historical fact.

Others would be so convinced that you knew what you were

doing that they would follow in your footsteps. They would buy your
books. They would attend your traveling seminars. People would hire
you personally to perform this miracle and teach them how to do it. If
it didn ’ t work, there was always some reason. With enough time, “ We
could fi x that. ” Others would take what you knew and add to it to
“ improve ” it. Others would try to refute your ideas with ideas of their
own. Still others would keep some parts of the whole concept but
ignore other parts not to their liking. Some would combine parts of
the entire theory with other parts into incomprehensible combinations
that only they understood but claimed worked. “ I ’ ve found it, but I ’ m
not going to tell you, not just yet. I ’ m going to test it some more. ” The
whole world of alchemy might shower all kinds of awards on them
and laud how far they have “ advanced ” the “ science. ” Sometimes they
would “ teach ” those secrets to only 23 people or so. These were all
fakes, frauds, charlatans, cheats, liars, and very deluded honest people
all seeking something that couldn ’ t possibly be done. Either they were
trying to exploit this belief to steal money or honestly believed they could make
money. Some people spent their whole lives in this pursuit and died
penniless still believing it could be done.

Does any of this sound familiar?
Remember when I said in Chapter 2 that everyone ’ s reality is dif-

ferent? All of the charting, systems, and analysis are simply someone ’ s
point of view on what is happening. They then use all this stuff to
somehow convince themselves that a winning trade is right in front
of them (which it is, but for different reasons). This gives them enough
courage (meaning hope ) to place their capital at risk. This whole process

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is formulated on the assumption that analyzing prices will somehow
provide the answer to where prices are going next. If that really were
the case then everyone would be a winner. There would be no losers
to pay them. Because the business of trading is a zero - sum game, the
entire environment cannot function that way. It is against the laws of
thermodynamics. Since we are playing in a world where only the loser
can pay the winner, it must follow that the winner needs to do some-
thing different than the loser. Since the loser is absolutely convinced he
can make a loser out of someone else by reading a chart, and every other
loser is thinking the same thing, it follows that the winner must be
thinking something entirely different in order to take their money with
any consistency.

The sum total of the loser ’ s trading is the inequality of the markets.

Nothing else. The winner exploits this with as much certainty as the
loser becomes the loser. There are 100 percent winning traders. I know
one or two of them. They don ’ t talk much. Why? They don ’ t have to.
They don ’ t need to convince you or anyone else they know what they know.
I personally only win about 70 percent of the time, but it doesn ’ t take
a rocket scientist to see that is more than enough, even when I get
“ spanked ” by the markets.

Let me give you the basics on doing real “ technical analysis. ” I ’ ll

start with a few premises that you must accept at face value. Don ’ t read
between the lines. Leave that for the next loser.

A price chart (in any time frame) is simply a pictorial representa-
tion of the sum total of all the market participant ’ s belief structures.
In order to execute for an entry (hoping to profi t), your belief
must have been strong enough to do something, otherwise you
wouldn ’ t be in. Since in order for a price to print, both a buyer and
a seller must execute, then both believe they will profi t. Therefore,
they must believe completely opposite of each other. Since both
traders have access to the same market information (the price), they
must have concluded two completely different things from that
information. (What that prices means.)

Because every potential trader in every market is seeing it dif-
ferently, every printed price will mean something different to
everyone. The price, which you must be concerned about, is the

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Analysis

price the guy who is already in the market (long or short) is in
at, and where he needs to execute to get out at. He must do this
sooner or later. He cannot “ lose ” forever and cannot “ win ” forever.
He must execute for either to happen. His prices are the ones you
are looking for. These two prices are the only two that matter. It
doesn ’ t matter what the end result to him is with those two prices;
it only matters to you.

When every potential trader has executed for an entry, in any
time frame, the market is vulnerable. When no one is doing
anything, and what ’ s been done is done, prices must stop. They will
start moving when the loser decides to get out. The winner can
afford to wait. The loser must execute on the same side that the
winner is already on. It cannot be any other way. If the winner
chooses to liquidate against the loser, both are now out. Therefore,
there are less people in the market with unrealized gains or losses.

Every “ technical indicator ” designed is based solely on combining
or dividing prices in some way. They are all “ moving averages ” in
varying degrees of complexity EXCEPT ONE. That is volume
and open interest (V/OI).

V/OI is the only

“ technical indica-

tor ” that chronicles the true state of what is happening inside the
minds of the market participants. Nothing else can tell you what
is happening behind prices. Only V/OI can tell you when people
are coming into or leaving the market. That ’ s why it was the orig-
inal one used by traders in the fi rst place and it is the only one
that really matters.

Let this soak in a bit. What I am really saying is that the true trader,

the consistent winner, is not concerned with any price or where prices
“ started ” from. He or she is concerned with what it takes for people to
believe strong enough, and with enough commitment, that they will
place their capital at risk. The true trader is looking for the place where
they must change their minds enough to give up their position and
leave the market. Since he knows that the loser is always basing this
decision on price, he is only looking at which price they are changing
their minds. He is only concerned with when they are in the market
and when they are leaving the market. The true trader doesn ’ t care at
what price that happens, how far apart those prices are, or how much

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time it takes for it to happen. He is just watching for it. The true trader
is thinking something like this:

What did people believe in order for prices to get here ?
What will make them change their minds?
What price action will cause the loser to quit?
What price action will cause people to more fi rmly believe?
How long has the loser been losing and when will he quit?
How long has the winner been winning and where will he think
enough is enough?

The bottom line is that a price chart cannot

“ tell ” you what is

likely to happen next until you begin to interpret it from the losers ’
point of view. Any chart, or any analysis, can only be useful when you
start asking it to help you fi nd the loser and uncover how he is think-
ing. You should look at any chart and ask questions of this sort:

Who is winning, who is losing, and why?
At what point are they likely to switch sides on each other?
Who is confused?
What will cause them to change their minds?
When will they quit?

If you choose to continue using indicators to assist you in deter-

mining these places, always remember they were based on prices fi rst
and solely. What will make this whole thing more diffi cult — it ’ s not
easy in the fi rst place — is that the traders in question are always com-
ing and going. Sometimes they use different time frames. Sometimes
they rely on different information from one week to the next, trad-
ing in different sizes than last time. When the market opens and closes,
they initiate on the buy side at one point, and then they might initiate
on the sell side, and so on. There are any number of things. The dance
is developing an understanding of what the sum total of everyone is
doing from a net perspective and positioning yourself accordingly. The
one thing that is always a constant is that the loser really thinks that
he will be the winner and really expects his analysis, however it was done,
to make all the difference. But the real reason a market has “ support ” or
“ resistance ” is because it was at that exact moment everybody who was
capable of doing something had done so. Who cares why they did it?

•
•
•
•
•
•

•
•
•
•
•

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Analysis

Now they are all waiting for the other side to quit fi rst. Of course,
that ’ s always the loser because the winner has a lead before he has to do
anything, unless he wants to. That ’ s where all the money goes. Except
for the small part that becomes commissions.

Before I forget, the same applies to the concept of fundamental

analysis. People take what they read and assimilate from the fundamen-
tal sources and act on it by executing. The fundamentals have to con-
vince someone to do something. In this respect its net result is the same
as the technical and, therefore, of no more value. The fundamentals see
their fi nal result as part of V/OI; and you can study that fundamental
crap until you head caves in and it won ’ t help one bit. You still have to
do something to profi t and you will still be in the same market with
the same losers — or become that loser. That ’ s all I have to say about
fundamentals.

When I sat down to write this book, I intended it to be my trad-

ing story. It wouldn ’ t be complete if I didn ’ t tell that part of the story
that drove this thinking home. There were many trading lessons to
be learned from my experience of trading crude oil during the fi rst
Persian Gulf War. Lots of life lessons, too. I talk about some of them
throughout the book, but this is the main one.

In the fall of 1990, Saddam Hussein ’ s tanks rolled into Kuwait (it

was in all the papers). To any student of Middle East politics, that had
all the ramifi cations of leading up to World War III. Crude oil was
trading about $16.50/BBL. Something was going to happen and in a
big way. Even in my ignorant trading state at the time, I had the pres-
ence of mind to buy crude. The market continued a steady climb with
only modest retracements until the bombing of Baghdad on January
15, 1991. It then sank like a rock back to roughly $16.50/BBL shortly
thereafter. In other words, by trading it wisely you could have been
long up to roughly $37 and short back down. In less than a year, you
could have gotten disgustingly rich. As my pit trader friend says, that
was “ screw you ” money.

I was buying all the way up and pyramiding with open trade prof-

its. The issue of money management was a lesson in itself. No one who
is a successful trader pyramids like that. I was net long almost 200 cars
( car is market slang for one futures contract) from about $27/BBL on
the average somewhere around Christmas. As before, I thought that was

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always how it was in futures. What I didn ’ t know was that open interest
had been dropping among the large speculators. In other words, the
pros were getting out before the bombing, which most believed was
certain, and in fact did occur. Open interest from the small speculator
(read: the public and those who work for them) had risen to a record
high. I had at least learned the lesson to run stops, so I knew I could
keep some of it. But I really believed that the market would go to $40/
BBL or more. With what I know now, it was ridiculous to assume that
any market would go to any price. It just goes where it goes. You can ’ t
“ predict ” prices — only watch them and use them to your advantage;
which was what the pros were doing.

Because I knew that the bombing would do something to the mar-

ket, and having assumed it would mean higher prices, I was going to
liquidate into the highs that I thought were coming. Sometimes that ’ s
how tops happen and sometimes that is the right thing to do. I would
have made about $2.5 million at $40/BBL. I even went shopping for
Ferraris after New Year ’ s Day. I picked out a black one. I fi gured I had
fi nally made it — in a big way.

So here

’ s how it played out. The U.N. coalition forces begin the

attack on Baghdad before dawn local Iraqi time. That was late at night
New York time and the markets were closed. The overnight electronic
system wasn ’ t trading yet so I had to wait for the New York Mercantile
Exchange to open in about 12 hours. What could possibly happen in
those hours? Well, everything. The market ran to about $41/BBL in the
Far East, which was open at the time, then started to slide off. In London
it actually opened lower from the previous day. By the time New York
opened it was $10 lower. The panic that hit the open caused the mar-
ket to slide another $3 in less than a minute or two. Of course with
the huge volume and knowing the rules of the game, all my stops were
elected near the low, far below my intended prices. It was enough of a
low below my average to make me debit about $200,000. I was shell -
shocked. It couldn ’ t have been worse if I was in Baghdad! If I had bought
puts against my futures ANY TIME after Christmas I would have been
nicely ahead, even with the huge premiums that I would have had to pay.

To make matters worse, the trade played out exactly as I had

planned, but because the brokerage house had no clearing relation-
ship with the Singapore Mercantile Exchange (SIMEX) or the overseas

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Technical

Analysis

markets, I lost. The owners of this company knew my position and
everyone else ’ s there, but like I ’ ve said before, very few brokerage own-
ers have even the slightest idea of how to really do this business. They
care even less for the guys who work for them. They don ’ t care at all
about clients, except as potential commissions.

With the magnitude of the world event, the leverage we had, the

size of our total position, along with the potential for violent price
action, you would think someone would have thought to protect our
exposure. I had done what I knew how to do, but there was more
that could have been done. At the time, I didn ’ t even know exchanges
could have reciprocal arrangements with each other. At the very least
we could have had the offi ce open all night at that critical time and
had some kind of hedge account somewhere overseas. Knowing what
I know today, the whole thing was completely avoidable. I lost every-
thing I had and spent years paying off the debt. That almost killed me.
If ever I had a reason to quit, there it was.

But here ’ s the lesson: Who was long? Who had to become a seller

to get out? Me ; the guy reading the charts and forming opinions about
prices. Since everybody had already gotten in on the long side, the only way
out was to sell. But there was no one else left to buy against that sell
order! No wonder the pros were out. They all knew that after study-
ing what was going on behind the prices, the message was obvious for
anyone who could see it: Time to liquidate. The best thing to do was
go short against that last group of buyers. I ’ m sure a few did. I would
have. Knowing what I know today I would have done that in a New
York minute and never lost a second of sleep. There is no doubt in my
mind there is some crude oil trader, sitting on his yacht, somewhere in
the Caribbean, that I and all my clients paid for. If I ever fi nd that guy,
he owes me a “ thank you. ” Come to think of it, he doesn ’ t. Nobody
twisted my arm to do that trade.

Now, here ’ s the thing I want to make absolutely clear. I was dev-

astated at the time; but the entire experience was crucial to my devel-
opment as a trader and as a person. If it had not happened exactly as
it had, I may have never learned the importance of being concerned
about who the loser is and to avoid being that guy no matter what.
A very sharp card player once told me, “ If you are in a card game and
can ’ t tell who the patsy is, you are the patsy. ” If I had made that money,

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I would have eventually lost it all anyway. The experience of the win
would have fi rmly convinced me that I knew what I was doing. The
charts told me how to do it, they were “ right. ” I could trust them and
not have to think for myself. That is what the whole business of technical
analysis is all about. It would have only been a matter of time before this
sort of illusionary thinking would lead to loser after loser in any mar-
ket I was trading. If I had made that money I might have never learned
that. It forced me to reevaluate how I saw the structure of the markets.
It taught me that trading isn ’ t about prices or buying and selling some-
thing; it ’ s about outthinking someone who does very little thinking in
the fi rst place.

The Art of the Trade is about knowing how people think and how

they act from their thinking. First, you need to know them as indi-
viduals, then what their thinking must be like when it ’ s formed into
a crowd, and how crowds behave. Then you need to know what will
infl uence that thinking or behavior and realizing when that thinking
or behavior isn ’ t justifi ed, when it ’ s likely to change, and at what point
that will probably happen. Also, at what point will every individual
within the group have no choice in the matter, their fate being deter-
mined in advance, without them even knowing it, at the exact moment
they put themselves into play, however long ago that was. In addition
to all the concerns about individuals and groups, it is essential that you
know enough about your own method of thinking and know yourself
well enough to ascertain when you are thinking no different than the
crowd in question, or in some other unique manner.

This type of knowledge will never be a number on a screen, some

line between two numbers on a screen, or some combination of those
numbers. It can only be a factor of how well you understand the exact
nature of the reality those numbers really represent and how well you
know your own ability to determine that.

Where can you buy that for $195? How out of touch with reality

would someone have to be to think they could fi nd it for you? Not to
mention sell the exact same thing to someone else just as easily. How
self - deluded does someone have to become to think he can reduce that
process of critical thinking, intuition, and deduction down to curly -
cues, dots, ratios, lines, and numbers on a piece of paper for himself?
How far beyond reason would someone have to be to now expose his

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Technical

Analysis

money or his client ’ s money to a winner - take - all battlefi eld thinking
that this was all there was to it?

This happens every day. In fact, you do it now, don ’ t you?
So, to close out this chapter, let me return to the “ playpen. ” I really

believe that shabby guy knew exactly what he was doing. Maybe the
magic Coke bottle was some kind of personal amusement. Maybe he really
understood the nature of the markets and those who participate very
well. I bet the clothes, the beard, everything was just his way of saying
“ F ’ you ” to all those losers. Maybe he just didn ’ t want the Fly wasting his
time. I bet he already knew what I came to discover on my own: Find
the loser and take his money. Take all his money. Don ’ t even leave him
cab fare. Take his house, his car, his boat, his airplane, whatever. Don ’ t
take his self - respect or his belief he can win because then he will stop
trading before you can take all his money. Don ’ t let him know he is the
loser. Keep telling him he can win. Once he realizes he is the loser,
the game is over for you. That is all you can get from him. Now you
will have to share all the money with him because he found out how
to be the winner like you are.

But don ’ t worry, all his friends think they are smarter than he is

and smarter than you are. Just be patient and reel them in, one by one,
until you own the whole block. There is a batch after them, too. How
much money do you want?

I wanted to become the type of man the shabby guy was, and

indeed I did become that man.

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Chapter 4

Adversity

The Trial of Principal

A smooth sea never made a skilled mariner.

— English proverb

ebster ’ s dictionary defi nes adversity as a “ state of hardship
or affl iction; misfortune. ” It implies that what is happening
is unexpected or from outside your own doing. As most

people know, part of what we endure through life is self - created. This
falls under the concept of the unexpected because what right thinking
individual would do something to hurt himself if he really knew better?
Most adversity we suddenly fi nd ourselves in; whether we have created
it for ourselves or not.

When I chose to become a commodities broker, and later a true

commodities trader, I wasn ’ t prepared for adversity. Certainly not the

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t h e a r t o f t h e t r a d e

kind I had to go through. In fact, I considered adversity as a minor
and temporary thing that you could get through by exerting enough
effort and then would not have to deal with it again. I really thought
that adversity was a state that “ losers ” frequently found themselves in,
but not me for very long. What I came to discover is that adversity is
a constant state of existence for anyone who is connected to the mar-
kets. The very nature of executing a trade puts you in a state of confl ict.
The people in the business itself are the type who naturally gravitates
toward confl ict. They create adversity for themselves and those around
them as a normal course of action in both their thinking and interac-
tion with one another. Adversity is constant in the business of trading
because the most common mode of thinking is “ every man for him-
self. ” Even though it doesn ’ t have to be this way, those involved seem
to prefer it. The bottom line is that people really are functioning like
“ I ’ m gonna screw you before you can screw me. I ’ m going to do that
even if I don ’ t have to. Everyone could be a threat to me or stop me
from getting what I want. ” The worst kind of adversity, of course, is the
self - created kind; sometimes that means our own trading. All the rest is
just kind of a “ bonus. ”

I honestly wasn

’ t prepared for this type of harsh reality. Until I

got into the markets, I had defi ned adversity a whole other way. This
business of something constantly working against you was totally new
to me. I suppose I was naive. Regardless, as the whole experience
unfolded I wasn ’ t prepared for some of the blows that would come my
way, or the daily tension that would exist in addition to what the mar-
kets are capable of infl icting on you. But, as you will see, I found a
way to transform it to become a source of power. Ultimately, it helped
contribute to my trading success. While you are reading all this, I want
you to try and remember that through all of this the public was, and
still is, entrusting brokers with their hard - earned cash. They really believe
they are working with the brightest and most professional people in the world
of fi nance. We can make it look that way. After all, we know how to
double or triple money every month, right? I really wanted to be that
kind of professional and work with people who thought the same, but
that didn ’ t happen. No matter what I wanted to believe about myself,
I was still in the environment that was far from my perceived ideal. What
did happen was a period of years full of constant adversity. Here are a

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Adversity

few examples of things that went on around me on almost a daily basis.
This is the short list, by the way.

Things would disappear off my desk. By “ things ” I mean: a brand

new lap - top computer (with all my records in it); my Mont Blanc pens;
countless numbers of staplers, notepads, rolls of tape, or any kind of
basic offi ce supplies; plane tickets; calculators; books, newspapers, and
magazines — all with information I wanted to keep or use; equity runs

;

sales leads, sales material; charts, research, business cards of market con-
tacts; sometimes my lunch (or parts of it); even brand new clients whose
paperwork and check were waiting to be processed. It got so bad I eventually
began carrying around every possible item I needed to run my busi-
ness in a bulging briefcase I never let out of my sight. I did this because
I never knew when something that I needed wouldn ’ t be there. I ’ m
sure a lot of it was done for no other reason than to watch me blow
my stack, which would elicit shrieks of laughter from the children that
worked there.

This buffoonery wasn ’ t limited to just the offi ce. One brokerage

house I was at decided to throw a huge party to celebrate a big month.
They rented a charter boat to cruise around Lake Michigan for a few
hours in a Bacchanalian fi t of revelry. One of the guys in the offi ce was
a little different. The other children enjoyed picking on him like kids
do in a schoolyard, you know the type. When his back was turned the
“ brokerage - yard bully ” threw his suit jacket overboard. He lost his keys,
wallet, and lots of cash. He was pissed.

“ The boss ” said, “ Gee, that ’ s too bad, you should be more careful, ”

and roared with laughter along with the other six - year - olds. The poor
guy spent a week or two sorting out the mess of getting keys, credit
cards, driver ’ s license, and so on. This type of moronic behavior is a
given in this business. Apparently, everything you own or use to run
your business is raw material for private or public amusement.

I frequently saw people doing cocaine at 7:00 a.m. at the company

trading desk while processing orders — this after being out all night long
drinking and more. Imagine trying to place orders, check on orders,
or move orders when the guy you are talking to can barely see straight or
won ’ t stop talking. Worse yet, he does a line while you are talking to
him. This wasn ’ t one or two isolated incidents, this happened every-
where. Sometimes they would even get the coke from the owners.

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Paychecks would bounce. I ’ m not talking a few hundred bucks —

I mean checks for $10,000 or $15,000. Imagine the headache that could
cause. On payday some guys would leave the offi ce as soon as they got
their check, go down to the bank it was drawn on and cash it, even
drive out to the suburbs in some cases. They knew that if they waited
too long it would be no good. On any given day, between the 10th and
15th of the month, there are scores of brokers walking around down-
town Chicago with literally tens of thousands of dollars in cash in their
pockets. I shudder to think of the crime wave that could cause if an
enterprising mugger read this. I guess the owners fi gured that if you
didn ’ t take your money the moment they gave it to you, you must not
really want it, or something equally stupid.

I would go to lunch, come back, and fi nd the offi ce door locked,

the lights shut off, and everybody gone. I would fi nd out later that the
owner wanted to take everyone out to the ballgame or something.
“ Sorry, we couldn ’ t fi nd you, so we just left. ” Imagine the needless anx-
iety if I had positions on and I had to spend the rest of the day hanging
out by a pay phone. Thank God I had quarters. Imagine the problems
clients have when they expect to reach you when the markets are open
and they can ’ t. I remember one time this happened and I went down
to the pay phone in the building lobby. There was only one phone.
Standing next to it was a rather well - dressed man. When I went to pick
up the receiver, this guy actually said, “ You can ’ t do that, I ’ m expect-
ing a call from my broker. ” If I wouldn ’ t have seen the humor in that
I would have cried. You have to remember that in the late 1980s cel-
lular telephones were not cheap or common. Because I was tied to the
offi ce 12 hours a day at this point in my career, I never needed a cell
phone even if I could afford it. If the offi ce was locked — I was out of
business.

Guys would start a brokerage house knowing full well that it

would be gone in a few months. They would hire a bunch of hun-
gry brokers and turn them loose on the phones. The money would
roll in. Absolutely none of the bills would be paid. Once the quotes
went down, or the phones were turned off, or the landlord started
the eviction process, the owners would pack up and go somewhere
else. Maybe one or two of the brokers were in on it. Everyone who
worked so hard to build a business for themselves would literally have

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the rug pulled out from under them. Who knows what happened
to the clients? I ’ ll tell you how fast this can happen. At one place it
was just another normal day, a few of us worked until about 8:00 p.m.
As we were all leaving, the owner, who was working late, stopped us
to mention what a great job we were all doing and how he would
see us all tomorrow. I came in at 7:00 a.m. the next day, only 11 hours
later, and the entire offi ce was empty. No desks, no phones, no com-
puters, nothing; it was all gone — moved out. It was probably all sold
to a liquidator days before. The owner was simply waiting for us to
leave before calling the movers in and didn ’ t want us knowing the jig
was up. I never saw him again. Within a few minutes one or two of
the other guys started showing up. One broker, who didn ’ t want to
believe what had happened had actually happened, volunteered this
comment for the rest of us: “ Maybe we just moved and they ’ ll be here
any minute to take us over to the new offi ce. . . .

” For all I know he

showed up every day for a week waiting for that to happen. “ Thank
you, and good night. You ’ ve been a great crowd. ”

The constant practical jokes in the offi ce were simply beyond

belief. Guys would fi nd dead animals in their desk drawers, phone
handsets crazy - glued to the cradle, Tabasco sauce or worse in the cof-
feepot, fake client inquiries for million dollar accounts made to a
rookie from a phone in another part of the offi ce. People were told that
their parents were just in a car crash and they needed to call the hos-
pital. The owner would pay commissions to someone who he thought
wasn ’ t working hard enough in rolls of pennies. Someone would come
back from lunch and fi nd his entire desk and his telephone locked
in the storage closet; listening to the phone ring until he could fi nd
the building engineer with the key. Sometimes whoever did it gave the
engineer $20 to say, “ I don ’ t have the key, try tomorrow. ” Until caller
ID came out, one of the favorite things to do if a client pissed someone
off was to call the local pizza place in the client ’ s hometown. The bro-
ker would order a dozen pizzas for delivery to the client. Everyone in
the offi ce would whoop it up in the background while someone else
yelled into the phone, “ Hurry up, can ’ t you tell we ’ re having a party?! ”

A lot of this nonsense was really cruel. I remember one incident

in particular. In one offi ce, there was a black guy who was a rookie.
It was his fi rst time ever in the business. He was from the South Side

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t h e a r t o f t h e t r a d e

and came from a poor family. He really had ambition. He wanted out
of the ghetto. I really admired him. He was constantly being teased
with the “ I have a dream ” thing. People asked him if he wanted to
trade “ fried chicken or watermelon futures today. ” One time somebody
came in the offi ce wearing a KKK hood and bouncing a basketball.
It was criminal what those men put him through. He fi nally quit and
fi led a discrimination suit. Of course, the company was gone by then.

Let ’ s not forget the general back - offi ce mayhem. You ’ d ask a sec-

retary to mail an investment package to a prospective client and she ’ d
forget or refuse to do it. If you brought it to the attention of the owner,
he ’ d brush it off. It would turn out he was sleeping with her and that
was the only reason she had a “ job. ” Phone calls were routinely ignored
or not put through. Your Series III registration would never make it to
the NFA, or the check for the fee would bounce. My mail was never
delivered. We would run out of account forms or sales material and it
would take days or weeks for someone to get more. That week ’ s “ man-
ager ” of the place would lose the keys to the front door or not show up
at all. The fax or copier would run out of paper or toner and it would
take days or weeks to fi x. We ’ d run out of numbered order tickets and
have to resort to blank paper to track trading (a serious NFA violation).
Someone would institute a “ new policy ” but forget to tell anyone. Then
when you wanted something done it was always, “ Didn ’ t you know
about the new policy? ” Then, you ’ d have to do it all over again a differ-
ent way. Equity runs missing or incorrect — the list is endless.

Then there were the fi st fi ghts, guys having sex in the offi ce dur-

ing trading hours, or it would be somebody ’ s birthday and the owner
would have two or three strippers show up.

Alcohol abuse was a constant. One time I ’ ll never forget. Someone

who was losing badly in a trade simply couldn ’ t take it anymore and
threw his quote screen right through the window of the offi ce onto
the sidewalk of LaSalle Street several fl oors below. He started trash-
ing the entire offi ce until the biggest guy in the place hit him in the
face with a telephone and knocked him cold. It ’ s a wonder no one was
killed. Can you imagine being on the phone trying to solicit clients or
trade intelligently when stuff like this is happening?

We would have to cut down all the redwoods to make enough

paper to talk about what happens when these children disguised as

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Adversity

brokers would trade. There were the constant debits, trades being down
without margin of any kind, trades with the wrong account number
on the ticket, no one fi xing the problem, or even knowing about it for
days or until the client with that account calls up saying “ I didn ’ t do
this trade. ” Then, of course, the broker was not in the offi ce, on vaca-
tion, or not even employed there anymore. Or they can ’ t fi nd the order
tickets. Or there are no order tickets to fi nd. The constant “ I said buy,
not sell ” errors, “ size of the trade ” errors, someone completely forgets
he has positions on and blows up without even knowing about it until
the clearing fi rm calls; if the call was ever put through. Brokers needing
a commission so bad they would trade new client accounts before the
check from the client even cleared the bank; of course it ’ s a loser. When
the broker tells the client it was a loser, the more enterprising clients
would stop payment on the check; you should see the fur - fl y when
that happens. Inept brokers doing spreads but putting both sides on in
the same direction; or getting out of spreads the same way.

Brokers

forgetting they had “ good till canceled ” stops active in the market until
they get fi lled, then deciding to keep the trade in order to “ See what
happens, maybe it will be a winner

.” Brokers doing trades without

customer approval, getting approval for one trade but doing another;
getting approval to go long but changing their mind and going short
without telling the client. It just goes on and on and on. Reliving all
this is making my head spin.

The point I ’ m making with all of this is that it would never end.

This happened constantly everywhere I worked. It still happens every
day all over Chicago in all those little brokerage houses that solicit
cash from the public. I would put up with this insanity in one form or
another until I couldn ’ t stand it anymore and go someplace else. But
it was always that way. I simply couldn ’ t accept that this kind of daily
adversity would be something I would have to endure if I expected to
be a “ professional commodities broker. ” The industry is just that way.
It really doesn ’ t matter if the adversity is self - created, imposed on you
by others, or simply how you chose to interpret market price action
against you. If you are in this business, without a doubt, you will suffer.
I ’ m sure one reason so many people wash out of the trading environ-
ment is because they can ’ t handle or can ’ t accept the constant adversity.
It doesn ’ t matter if it is the kind I went through or the kind others go

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t h e a r t o f t h e t r a d e

through. It ’ s almost like a trial by fi re. You can ’ t get “ it ” (whatever “ it ”
you are looking for) until you pay some kind of price to the markets.
If you fi nd a way to get through it you will prosper. If not, well —
they ’ ll just stack your body up with all the others.

As you can see, when I was in the process of discovering this for

myself, I had some very frustrating experiences. There are other kinds
of adversity in other parts of the business.

All of what I endured taught me life lessons that, in the long run,

made me better equipped for anything that might come my way. My
eyes were opened for that. Today, I can tell instantly when a situation
is about to go south. That comes out in my trading; it helps me cut
losses faster. That ’ s why I feel that everything contributes to your trad-
ing from every part of your life — past, present, and future. Everything
you go through will teach you something about the nature of reality, as
it really is, instead of how you expect it to be.

Trading the markets cannot be done well unless you understand

the nature of the reality they function under. If your eyes are open to
an infi nite number of possibilities then nothing can surprise you or
catch you unawares. By looking at trading the same way, you can “ see ”
the whole picture. What to do next becomes self - evident. But to get
to that point, you must fi rst have enough experiences of what life is
not. The more pain you go through, the more you should ask yourself,
“ What is life trying to teach me? ” Once you have learned that, and
trained your mind to accept every new lesson, trading becomes easier.
At some point, once you know why you do what you do the way you do
it, trading is effortless. I had to learn to do that instead of expect some
chart to tell me what to do. Pain is the only megaphone loud enough
to get past your preconceptions.

In my particular case, I had to accept that my idea of what a profes-

sional is and does is not in the same reality of the other market partici-
pants I was exposed to. I had to conclude that since that was the way
it was, pulling money out of the markets was still possible, even if what
the markets really are is nowhere close to what I fi rst thought they
were or the people who are involved in them.

I ’ d like to share the fi nal adverse situation I went through. This one

is slightly different because I had some control over the results. After
this experience I still had problems with brokerage houses and my

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Adversity

trading but the knowledge that I could win became absolutely unshak-
able. Up to this point, I felt that I was at the mercy of those who might
be further ahead than I was. By that I mean they had more money to
work with, they had better leads, they knew the business better, they
could trade better, or any number of reasons.

By going through this next situation, I came to understand that

inside of me was a winner. I was no longer at the mercy of circum-
stances. I didn ’ t have to see the business the same way. I didn ’ t have to
believe somebody else ’ s point of view or put up with anyone ’ s insanity.
I matured as a businessman and with it I learned how to create suc-
cess in a world that didn ’ t function as I thought it would. It set the
stage for ultimate trading success because inner reality that is fi rmly
rooted can adapt to any situation or circumstances. Success is a state of
mind. You then adapt that state of mind to the needs of the particular
situation that you chose to explore. A successful pilot is no different
than a successful rock climber. Both possess the same inner world that
is expressed in two unique ways. Each environment has particular parts
that need more of one thing and less of another. Either person could
learn to do the job of the other if he so wanted to and have similar
results. On the inside they possess the same raw material.

This last adversity taught me that by doing what I knew would

work, I could achieve what I wanted. I learned there was nothing
wrong with me deep inside, only in my choices up to that point and
the way I chose to look at things. I learned that the business could give
me what I wanted. In fact, it would have given me what I wanted sooner
if I had been able to grasp its true nature sooner.

After I had made the choice to focus exclusively on learning to be

a true trader, I had a problem. I was fl at broke. I had nothing. The latest
brokerage house debacle left me in the same position that I had been in
several times before. This time it was different because I had chosen not
to go back into the same cycle, if I could avoid it. But I didn ’ t know
exactly what that meant except that I didn ’ t want to be involved with
anymore psychos. I carefully thought this through. If I had no money
and lots of fi nancial pressures, nothing would solve that problem except
cash. To get cash I needed to work. I carefully considered if I should
take a break from the markets and fi nd something else to do for a short
time. Should I quit completely?

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t h e a r t o f t h e t r a d e

After much thought here was my decision: I would go to work

for a brokerage house and raise cash to develop my trading presence. I
would alter my selling approach to be fairer to the client, and I would
only sell a market I believed in. I concluded that I must fi nd the most
stable brokerage presence possible until I had enough cash to be on
my own. Sooner or later it was clear to me that I would stop working
for anyone else, for any reason. I decided to no longer subject myself
to those sorts of external adversities if I could avoid it. From then on
any employment was just temporary. I decided to do it my way. Since
I was seeing this situation from a new perspective I had new choices
and new possibilities. Before then being on my own didn ’ t occur to me
very seriously because I thought, why reinvent the wheel? I thought
that the glut of brokerage houses dominated the market and that busi-
ness only worked one way. I fi gured I could eventually fi nd a “good”
brokerage house. I thought the owners knew something special or were
connected. I thought it was very expensive to do. Why go through the
hassle? Why compete with them? What I didn ’ t know was that they,
the brokerage houses, were very easy to start. It cost next to nothing
to do. Most of the owners were just six - year - olds with a checkbook. I
was certainly smarter than they were. Since they come and go so fast,
that should have told me something. I thought it was just bad luck.
All kinds of things became very clear. Starting my own company that
I could run my own way became the goal. This sounds simple, but for
me, I hadn ’ t really considered it as being the solution to at least part of
the problem.

By now it was January 10 of that year. I had no idea how to start

a commodity company or what it would cost, but I knew it cost more
than I had because I was penniless. I made a few phone calls to clear-
ing fi rms and asked how to get started. Within two days I understood
how to start a company and the costs. I found a lot of options; every-
one had a slightly different program. All anyone needed, besides fi lling
out the right paperwork, was a phone and a few sales leads. No wonder
brokerage houses come and go so fast and are typically run by morons.
Any moron could do it. I fi gured if they could do it, I could too.
I actually ended up one step better because I found a company based
in Oregon that had a branch offi ce program. They did a lot of advertis-
ing on CNBC, had direct fl oor access, great lead fl ow; all the expenses

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Adversity

I had no idea how to pay for. I would only be a branch offi ce instead
of my own show, but for where I was it was close enough. Looking
back, I was setting myself up for another career reversal because all my
paychecks had to come through this company, but at the time I took
the risk. The owner promised me no funny business over the money
(a lie). We fi led the necessary paperwork and I was in business.

But there was a problem. I had no offi ce, no phone lines, no toll -

free inbound number, no marketing or sales material, no trading equip-
ment, no quote service, no order tickets, no fax, no money, no nothing.
My bills were way behind. My rent was behind. I couldn ’ t even afford
business cards. It was a dilemma. Here I was about to do something
totally new to me in this business with absolutely no resources at all.
I borrowed $200 from a friend (he wasn ’ t sure about more given my
condition), and convinced the owner to advance me another $1,000
against my expected commissions. He also sent me a stack of account
forms and faxed me 500 sales leads to the public fax around the cor-
ner. I went over to the CME and begged the publications department
to give me 25 copies of the “ Foreign Currency Futures & Options ”
brochure. They gave me 15 and made me pay for them. In just a few
days, I had sales material, a stack of leads, and a chance to make this
work like I thought it could be done. Better yet, I thought I could do
it reasonably free from interference. With the money I had borrowed,
I probably bought myself 12 days of time before all hell broke loose
with creditors, my landlord, the phone company, and so on. Talk about
being on the edge; I was scared. I had no idea how to sell without hype
of some kind. I didn ’ t know if there would be some rule I wasn ’ t fol-
lowing as a branch offi ce that would bring the “ trading police. ” I didn ’ t
know if people could understand trading in foreign currencies. What
if I couldn ’ t sell this? What if I couldn ’ t learn fast enough? I was doing
something completely different than I had done during my entire
career. At that moment I had no assurances any of this would work. I had
less than two weeks to recreate my entire concept of the markets and
generate commissions. Since I had gone through the heat of the fi re so
many times, at least I knew what not to do.

I can ’ t emphasize enough in this short description that I was really

scared; completely full of anxiety about the results. If it all blew up
I would end up on the street in the middle of winter. Have you ever

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t h e a r t o f t h e t r a d e

been through a Chicago winter? On top of that, I wasn ’ t sure whether
I could handle another failure or the humiliation. Try looking for
work in that state of mind in any business. I was afraid that if I failed
I wouldn ’ t be able to get any job anywhere. If I failed, it looked like
the end for a very long time unless I made it work. Don ’ t forget I was
still recovering from losses in crude oil during the fi rst Gulf War. I still had
a hundred grand or so left to pay on the debit. I was under pressure.

I carefully set up my offi ce right there on the only table in my

apartment. To put this in perspective, let me tell you about the apart-
ment I was in at the time. I was living in an SRO, a single - room occu-
pancy hotel. It was offi cially a hotel and they had daily, weekly, and
monthly rates. Some people call it a transient house. It had its share of
lowlifes, hookers, and lunatics. One day there were shots fi red down the
hall (while I was working). Somebody actually died in the lobby one
night. In that respect it was like being in a brokerage house—anyway, at
least I felt at home. It wasn ’ t hell but you could see it from there. Only
months before I had been living in a penthouse apartment, but now I
was so broke it was all I could afford. It was either the SRO or move
in with a girlfriend, but I had enough pressure on me. Looking back, it
was the fact that I had nothing to lose and everything to gain by trying
that really fi red me up. After everything was in as much order as I could
make it, I took inventory of where I was. Every minute that went by
was a minute closer to being on the street. I had to make it happen.

I hit the sack to get a good night ’ s sleep. I set the alarm for 7 :00 a.m.

The next morning I got up and the power in the building went out.
Luckily, my phone still worked. I had no idea if my phone would be
shut off, or if the power would come back on. All I knew was that I had
to work fast. I didn ’ t really know how much time I had. After a quick
shower in the dark, I called my buddy (Guy #1 from Chapter 2) and
asked him to fax me a chart of the daily Japanese Yen futures and the
currency preopening comments. I went over to the 24 - hour public fax
to pick up my “ research, ” got some candles at the Walgreen ’ s, grabbed
a Starbucks coffee with the last dollar to my name, and headed back to
the “ offi ce ” to get to work. On the way back I really thought I must be
crazy. Was this business really worth it?

By the time it was about 9:00 a.m ., I was ready to start selling — by

candlelight no less. I picked up the phone and called the fi rst lead. I
sold my heart out. I dialed like a madman.

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Adversity

Anybody walking by my room must have thought I had gone

completely over the edge to hear me working in there. At the end of the
fi rst day, I had three bona - fi de potential clients for currency trading. I did
this for 12 straight days, 12 hours a day. My buddy faithfully faxed me
my “ research ” daily. Because I didn ’ t have a quote system when I traded,
I felt like I was trading in the dark (actually really in the dark — the power
would go out all the time). My buddy gave me quotes every 10 minutes
no matter how busy he was. He wanted me to win. He knew the whole
story. By the end of those 12 days, I had opened three accounts for a total
of about $18,000 in equity. At the end of those 12 days, I had done about
$1,800 in commissions (my end). At the end of those 12 days, my three
clients had about a 7 percent gain on their accounts after fees. It was
February 1. Payday was the tenth. Everybody had to wait until the tenth.
My fi rst check was for $800 because I had to reimburse the owner for
the loan he gave me. That $800 check meant more to me than any other
check that I have ever gotten. I just prayed to God it didn ’ t bounce. I had
done it. Scared out of my wits and up against more adversity than maybe
I could handle, I had what it takes. I wasn ’ t out of the woods yet, but I
could see the edge of the forest. I just hoped a forest fi re wasn ’ t coming
next. As the days rolled by, I kept at it nonstop. Within 90 days I was way
ahead. I had come back from the edge.

The reason this is so signifi cant to me is very simple. Because I had

nothing to lose, I had everything to gain. During this time I fought
daily with the fear of failure. I fought with the anxiety of trading with-
out the tools I had come to rely on. Because believing I could win
was so fi rmly in place in my mind, I did win. When your back is up
against the wall you can only do one of two things — quit or fi ght like
hell. When you fi ght like hell, hell takes a walk. I had demonstrated to
myself I could win in tough circumstances. I had learned that to make
money trading doesn ’ t require a whole lot of stuff. In fact, it was easier.
I learned that the business doesn ’ t have to be like a special education
kindergarten class. A committed soul can achieve anything. The experi-
ence became the turning point in my confi dence level. I never ques-
tion or second guess my trade conclusions today. I trust myself to do
the right thing all the time. My mettle was tested. I know now that
as long as there are markets I can profi t from them. It ’ s through the
process of doing it right and winning that the inner reality can express
itself. The result is the same — profi ts.

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t h e a r t o f t h e t r a d e

Being a trader means taking money out of the markets all the time.

I needed fi repower to do it. Since I had none, I needed the public ’ s
money to get there. I am eternally grateful to those clients who sent
the cash during that critical time. They provided me a chance to see
what I could really do. Their confi dence is part of the story. I ’ m sure if
they really knew what I was up against on a personal level, they never
would have done it. Would you?

The story doesn ’ t end there. The owner of this company was no

different than any other. Because I had no real control over getting paid
or maintaining my registration, this whole thing went under too. But it
wasn ’ t because of my choices, my effort, or me — and not before I had
proven to myself that I could remain a consistent winner both in the
markets and in the business. I became bulletproof and would eventually
remain a net winner.

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Chapter 5

The Meaning of Life

Existence Without Limits

Ability has nothing to do with opportunity

— Napoleon Bonaparte

ow ’ s that for the title of this chapter? Notice how short this
chapter is. It is so simple to me, and I hope I can communicate
it to you. In a very basic sense that was what I found within

the markets and the people who are involved in trading and supporting
those markets. Have you read God in the Pits by Mark Ritchie? I didn ’ t
fi nd God. I already knew who He was. I think I found what God is trying
to tell everyone of us through this whole experience. I think those who
only view the markets as simply a fi nancial pursuit are missing what it is
really all about. Let me provide you some details.

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When I was young I knew something was different about me.

I came to know that

“ different ” means

“ unique in a personal way.

”

What I didn ’ t know is that each of us is that way. We are all unique
in some way. Therefore, we are all equal in some respects. We all have
strengths and weaknesses that express themselves (sometimes without
our knowledge). When I was younger I paid lip service to this idea.
Because of the hell I put myself through, I came to learn what that
really meant. When I said

“ different, ” what I discovered during my

formative years when comparing myself to others (which I don ’ t do as
much anymore except to fi nd a similarity) was “ You are all the same.
I am superior to you. ” I believed this for good reason. Don ’ t mistake
what I tell you next as an attempt to infl ate my own ego in any way. I
have come to see my strengths as really a weakness if I am not careful.
If you put together six months or more of 100 percent winning trades
you could easily get cocky and miss something that leads to a loss. My
self - image and self - concept doesn ’ t rely on my gifts anymore. I didn ’ t
create these advantages. I was only entrusted with them. How could
I take credit for them? If someone else doesn ’ t have these gifts, they
will have something that I wish I had. I don ’ t view that person as lesser
because he or she lacks something that I have, or better because he or
she has something I don ’ t. I see it as completely different now. Anyway,
let me show you my starting point:

I was a gifted child. Anything I touched would work out the way I

wanted it to. I was always in the “smart” class at school. I was given spe-
cial work to do to keep me from being a problem with the other “smart”
kids. I would understand things very fast. I was reading at the college
level in fourth grade. Sometimes the teacher would give me a task that
even he thought was very complicated, certainly way beyond me. I would
do whatever it was so fast they (the teachers) all thought I had cheated
or somehow already knew the answers. I was always taking I.Q. tests or
perception tests. Inkblots were my favorite. (Boy, I made

their heads

spin.) I was always frustrating people, which I secretly found very funny.
(“You’re just jealous.” )

Once my high school geometry instructor really tried to put one

over on me by giving me a problem to do. He said, “ Here ’ s a problem
for you. I want you to write a proof for the trisection of an angle. Use
any angle you want. Have it for me by Friday. ” I said, “ No problem. ” I went

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The Meaning of Life

to work and by Friday I turned in my proof. He didn ’ t tell me that
trisecting any angle was one of the “ impossible ” problems in classical
geometry. We weren ’ t that far along in class. In classical geometry you
were not allowed to use any other tools except a compass and a straight
edge, and you were not allowed to mark the straight edge in any way.
Every theorem or postulate used in your proof had to be a proven theo-
rem or postulate based solely on the intrinsic fact of some mathematical
reality (2 + 2 = 4 always ) or some geometric reality (an endpoint of a
line can never be anything else but an endpoint because that is what an
endpoint is). After my teacher read my proof — and had his friend, the
head of the mathematics department at a university review it — he told
me that was the closest anyone had come in the past 2,000 years. I had
done this in three days . It wasn ’ t completely provable for some reason
that I had missed, but the fact was my basic train of thought was there.

I even built a successful liquid - fueled rocket engine for a science

project completely from scratch. At 12 years old, by reading books, I
had done something on my own that the best engineers at Rockwell
International, Martin Marietta, or NASA had millions of dollars to do.
I did it basically as well as they could. No wonder the Air Force wanted
me. I was also a MENSA member for a period of time, although I quit
when I discovered the so - called smartest people indulged themselves in
the most deluded fantasies you could imagine. I could go on, but you
get the point.

I went to a Midwestern college and studied music. When I got fed

up with university life, I entered the business world. I was always the
only guy they ever hired who didn ’ t have an “ education. ” That didn ’ t
matter. I would produce some degree of success, get bored, and move
on. I interviewed really well. I got so good at it the person doing the
interview would always have me meet “ the boss, ” who just naturally
liked my “ enthusiasm ” or whatever, and I would usually get the job.
No matter where I went things would happen. What I didn ’ t discover
until later is that when anyone begins to do something well, but has
only been there a month or two, people gravitate to see “ what they are
doing. ” They want that success for themselves. The small - minded ones
see you as a threat (that ’ s a different issue). When “ the boss ” notices
what you are doing he puts you in line for a promotion or something.
Or even offers you a job with him. “ Always looking for good people,

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you know? ” You can fi nd yourself getting somewhere with very little
“ real ” performance behind you. Especially if you have a reputation or
your r é sum é says “ Air Force Academy Appointee. ”

This happens in the markets all the time. Just look at all the reg-

istered CTAs who do okay with $ 30,000 for six months, publish their
“ track record, ” have some brokerage house raise a million or two for
them, and proceed to blow up in the next six months. Looking back,
much of my initial success had very little real effort to it. At the time
I thought it did; but in reality I was constantly being noticed or work-
ing closely with others who thought exactly like I did. They were all
“ whiz kids ” in some form or another, and wanted other “ whiz kids ”
around them. We were all working in the same environment that valued
that particular train of expression. We were all working on everything
together and eventually, between all our skills and talents, we would
produce a profi t in some fashion for ourselves or someone else. We were
all entrepreneurs working with other entrepreneurs. As time went on
and I would move around from one idea to another, or some project
to another, my list of successes would grow. People who had

“ jobs ”

would constantly say things like: “ Wow, you did that? ” or “ You mean
you can actually make money selling soap?

” (I was in AmWay for

awhile.) The natural thing for me was “ success. ” It had never been any
other way for me, in anything I have ever tried to do. I just thought I
would always be in that frame of reference. Can you see how it would
be easy to expect that to be the case?

As I said in the beginning chapters, the trading environment is

nothing like that world. The people in the markets are nothing like that.
The fact I had to learn was that my giftedness made no difference here . It
was actually a hindrance. I won ’ t spend time rehashing how I came to
discover this.

Here is the end result: I came to understand that the ability to

unlearn everything you know, or have learned, or you think is impor-
tant, is the only skill you need to start the process of trading success.
The horror of giving up everything you know is what most people
don ’ t really want to face. I didn ’ t want to believe it either. I ran from
that. I had to fi nally accept, after I couldn ’ t run from it anymore, that
what I thought was so important about my very nature, that which was
the only skill I knew led to other skills was the real reason behind my

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The Meaning of Life

past failure in the markets. How could this be true? What does it mean
to “ unlearn ” ? I had to fi nd a pathway to that knowledge.

I started the process of fi nding it with a simple question. It went

something like this: How does a point of view come to exist in confl ict
with another and both are equally valid ?

What is it about each point of view that makes each valid in its

own right? What is the nature of either that puts it in confl ict with
the other? This was the key question for me: How is this confl ict
resolved?

Now I want you to bear in mind that these questions for me are

not philosophical. I was being entirely practical. I started to look at
every confl ict I ever saw as an opportunity to ask these questions. What
blew my mind was that this is really the state of everyone ’ s existence
at every moment of every day and most of them never realize this. Some
people will think I ’ m completely off my rocker when I say this, but it
really is the truth. It can be this simple: If you are driving somewhere
and someone is driving slower than you are, and it ’ s a one - lane road, this
confl icting relationship exists. You want to get where you are going faster
than someone else wants to get where they are going. He wants the
same thing but differently than you do. How is this confl ict resolved?
Either he speeds up to validate your point of view, or you slow down to
validate his point of view. Or something else completely .

To draw in a little of “ the markets ” at this point, both of you want

the same thing — a profi t — but are approaching that from two points of
view. One of you is “ long ” and the other is “ short. ” Neither one of you
will get where you are going without this confl ict fi nding a resolution.
Maybe this “ idiot ” will get off the road. Maybe this “ moron ” will stop
tailgating me. Do you see what I mean? Both points of view are equally
valid for either person. Both points of view are seeking a resolution as
long as both points of view are held by either person. It doesn ’ t mat-
ter who resolves the confl ict fi rst. If the guy in front speeds up, he must
share the other ’ s point of view. If the guy in back slows down, his point
of view must become like the guy in front. Both have a right to use the
road for his own purpose, but at that exact moment one or the other
must change his point of view or the end result will be an accident that
neither wants.

Who ’ s fi rst?

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The point I want you to see is that from that moment on my entire

life and everything in it became a study in how confl ict develops and
how it is resolved. Suppose I go to a restaurant and the waiter is “too
slow” — from whose point of view? Suppose the waiter is “too fast” —
again, from whose point of view? If I look at it from the waiter ’ s point
of view, what is that? Some lazy actor wannabe or someone who is
overworked? Someone who is late for a date or someone who desires
to give good service? How would I know unless I asked? The amazing
thing, and if you aren ’ t careful you will miss the key to success with
all this, is there would be no confl ict at all if I hadn ’ t formed an expec-
tation of how fast a waiter should be in the fi rst place.

The overriding element here is that when any confl ict would hap-

pen anywhere, I would ask about the other person ’ s point of view. In
so doing I would discover more about the nature of people and how
they come to see reality. It didn ’ t matter if I thought their view on
reality was completely insane; it was actually the point of view I had to
contend with. My gifted ability was never the question. It never helped
a bit. It made no difference to the nature of the confl ict either way.

I ’ ll tell you one story that had its end result the same way no mat-

ter what I would have believed, or could have hoped for, and it never
could have been any other way under any circumstances. I was on a
business trip in New York. I had just fi nished a great dinner at Smith
& Wollensky ’ s in Manhattan with some associates. It was a good walk
back to the hotel. Everyone else took a cab back, but I had never been
in New York before and wanted to see a little of it. I convinced my
partner to walk with me. No sooner had the cab driven away, and we
had walked half a block or so, when that most clich é d New York tour-
ist tragicomedy happened: We were mugged.

This particular mugger was very good at “ making ” us as out - of -

towners. He stepped out of the shadows and said something like, “ Put
‘ em up, tourists. ” There we were at gunpoint, a. 38 caliber. Ironically, it
was a Saturday night. I said to my partner (who had a camera with him),
“ Wow, it ’ s one of those famous New York muggers. Get a picture of me
with this guy, will you? ” I swear that ’ s what I said. It just came out; I was
in a good mood. “ I ’ m not kidding, funny man, ” the mugger said. He
pointed the gun right at me and he was shaking it so bad I thought it
would go off right there. “ First time for both of us? ” I asked the mugger

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The Meaning of Life

while I reached for my wallet. My partner gave him his wallet. He didn ’ t
have to ask at that point. “ You ’ re a regular riot, ” he says. “ Can ’ t wait till
you ’ re on Broadway. ” And that was it. Back at the hotel it was the topic
of conversation for days. The bellboy actually said, “ Welcome to New
York. ” The point is that no matter what I thought the guy was getting
my money. End of story. The confl ict created was going to be resolved
his way. The rest was just how I chose to look at it.

I ’ m not trying to oversimplify or draw any esoteric conclusions

about the markets from all of this. What I ’ m trying to say is that at
every moment of every day we are constantly bombarded with con-
fl ict in many forms and levels of complexity. It ’ s all around us. We can
choose to consider its nature and effect on us or ignore it completely.
We can choose to attach any meaning we want to anything that is
going on around us — or in us. From that meaning we form conclu-
sions about the nature of reality as we see it. In the case of the mugger,
everyone who comes to New York to visit is a source of income. To
someone else he is a nuisance or dangerous. To the police department
he is what creates their jobs. To other muggers he is competition. To a
priest he is “ the reason Christ died. ” To the activist he is a confi rmation of
what activism is hoping to change. It goes on and on. But the reality
of any of this for me is simply an act of confl ict that taught me more
about the nature of reality and to adapt to it. By “ adapt ” I mean not
walking anywhere in New York if I don ’ t have to.

All of our actions have their basis in our perception of reality and

how we have chosen to adapt to it. If you don ’ t want your water turned
off, pay the bill. So why do people get their water turned off

? When

they have the $ 20, they spend it some other way that for them has
become some kind of priority for some reason of their own. The con-
fl ict is resolved one way or the other. If you don ’ t want that confl ict, go
without water in the fi rst place. That will create a whole different set of
potential confl icts. That doesn ’ t matter to the reality the water depart-
ment feels compelled to operate under for reasons of its own.

When I considered that any number of realities could coexist, and

that all had value, I was in a position to see things that I never could
before. It broke down the barriers between my own reality and every-
one else ’ s. It opened up a whole different set of possibilities that were
not there before. In doing so I came to understand my fellow man and

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t h e a r t o f t h e t r a d e

what matters to him. He could show me something that I had never
considered. I could offer possibilities to him he couldn ’ t see for himself.
Can you see where this would create friendships that were not possible
before? How about opportunities for individual experiences that were
not possible before? The list is endless.

Here ’ s an example: I was on the beach here in Chicago one week-

end. There was a very attractive woman there with two male friends.
One woman, two men. Either they are all friends, or she is dating one
of them, or something else. I watched for a while; I couldn ’ t hear what
they were saying. Every now and then their fi eld of view would cross
mine. I just watched. Eventually, I had to know what was happening, if
anything was happening. Stop for a minute and ask yourself what you
are thinking so far and why. Speculate on what I was thinking. Speculate
on what they were thinking. Take a minute and do that before I tell you
what was actually happening. Done that? You ready?

They were part of a fi lm crew shooting a movie in town. They

were all married (no chance with the woman). They were on their day
off. They had a call for extras and needed someone about my height
and complexion. The only reason they mentioned this to me was
because I walked over and said hello. They weren ’ t going to “ bother ”
me. Would I like to be in the movies? She thought it was

“ sweet. ”

I thought she was attractive. They didn ’ t know where to go for dinner,
could I suggest a place? How about I take all four of us out? The next
day, I meet a famous actor. I meet a famous Hollywood director. I ask
about what kind of reality they are trying to create. They tell me. Try
this. It works. I contribute to a big movie. Just for fun. Never got paid a
dime. Didn ’ t want one.

This would never have happened if my thinking had been some-

thing like, “ That person is too involved with her boyfriend(s) to be
interested. ” “ I ’ ll just sit here

” and create no confl ict. Interested in

what? My infl ated ego? I ’ m trying to get laid? Would anyone care at
all what I think? How would I know unless I asked? I simply placed
no boundaries on any or every possibility and said, “ Hello, you are
a very attractive woman. Are you three together in some way? Am
I intruding? ” I didn ’ t know if she or any of them would say “ buzz
off ” or what they would do. I simply observed that something was

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The Meaning of Life

happening that I knew meant if I went over to meet them I would
cause confl ict with whatever it was. How that confl ict would be
resolved, and what that would show me about my perception of what
I desired , was what concerned me. That I hoped to meet an attractive
single woman was only my perception. What I discovered was a com-
pletely different set of realities that never entered my mind. How
many people would say something like this, “ Boy, you are so lucky. ”
“ I would love to do something like that. ” “ That kind of thing never
happens to me. ” Of course it does, but your perception of what could
happen doesn ’ t allow for it.

You probably sat next to that director on the bus one day, but

because he stepped on your toes trying to sit down next to you, he was
an “ idiot. ” Therefore, your reality was what it was of your own choosing
instead of some wonderful possibility of what it could be of your own
choosing .

The possibilities are endless. By changing my point of view to

include everyone and everything, I became simply a mirror to oth-
ers and their reality. Everything became possible because nothing
was impossible. The quality of life that can create is simply incredible.
Borrow someone ’ s Lear jet for the weekend, have Wolfgang Puck cook
you dinner in your home, drive Mario Andretti ’ s Lotus, and the like.
By seeing others as distinct and unique expressions of some heretofore
unknown reality, I was able to fi nd all those people, experiences, and
unobtainable knowledge that we are all looking for because it is within
them in the fi rst place. To see the true unalterable reality that surrounds
us, you have to see that reality in little bits and pieces through the eyes
of all of us who create it.

So what am I saying? I have found God? No. I wasn ’ t looking for

him. I did fi nd that His whole grand experiment is a playground that I
can participate on at any level I choose.

Because I can create reality anyway I choose, I decided to let eve-

ryone else show me what they think it is and then be a part of that as
a participant, without forming any reality on my own to compare it
with. Therefore all realities are mine, all possibilities are mine, and that
can be anything. I walk the whole of life and anything it can offer you
is already mine. I am the razor ’ s edge.

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I know what you are thinking. What does this have to do with trading?

It has everything to do with trading. Let me postulate for you:

1. Everybody Wants the Same Thing

from the Markets

They want profi ts. They bring their cash to the table and play. They
watch prices move. That movement means something to them. To one
person it means one thing, to someone else it means something else —
herein lies the potential for confl ict.

2. Potential for Confl ict

They look at the market in question and have to do something in
order for that market to pay them. They have one of two choices (actu-
ally three, but I won ’ t go into “ staying out ” as a profi t — you wouldn ’ t
understand that yet). They can buy or sell. They make that choice. It
makes no difference how they came to that conclusion or what they
told themselves to justify their action. They did something and that
something was done — this is creating confl ict.

3. Creating Confl ict

The markets move for or against the position chosen by the executed
trade. This is the same for either position. Only one of those positions
can be profi table in any case.

4. Your Reality of the Situation is in Confl ict

with Someone Else ’ s

This reality is either a profi t or loss to you personally. Only one thing
can happen at this point as prices continue to move. Either someone
else must accept that your reality is being validated, or you must vali-
date someone else ’ s reality. How long this takes is not an issue.

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The Meaning of Life

5. The Confl ict Must be Resolved

Either you give up your position to someone else or he gives up his
position to you. Because both of you chose to enter the confl ict based
on how you personally chose to view the reality of your entry price,
the fact is only one of you has the profi t.

6. The Confl ict is Resolved

Now start at the top again

— until you are rich or broke, or

somewhere in between and you take your ball and go home.

Whoever has the loss must pay the winner. It is too late to discover
why or how that happened. No amount of anything you could do can
help. Your fate was sealed when you made the trade. The profi t or loss
was created at that moment. It was only a matter of time until one
or the other would ever walk away from the confl ict with the profi t
and the other with the loss. You both accepted this when you got in,
whether you knew it or not. The bill is due to one of you and the bill
is paid by the other. Nothing can change that. The markets will never
be any other way.

That is all there is to the markets. Period. End of story. Whether

you choose to accept this or not. Whether you choose to believe it
or not. If you have been paying attention to what I am getting at,
this next bit will begin to make perfect sense. Because the reality of
the market fi nds its expression, moment to moment, as a price that
means something different to everyone, then it follows as soon as some-
one chooses to do something — at any price — the reality of the person
involved and the market having “ agreed ” in some fashion. Someone
else thought it “ agreed ” with their point of view as well, but for dif-
ferent and completely opposite reasons. Because it is intrinsically
impossible for both to be right from that moment on forever (please
ignore the market “ coming back ” for right now, please), it also follows
that one of you must not understand enough about what the market
can only do from that point. It doesn ’ t matter which one it is because
only one thing can happen: The market is going to disagree with one
of you.

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Only one of you can be right in either case. Since you apparently

think the winner will be you, what has led you to believe this?

That “ what leads me to believe it ” thing, whatever it is, that little

something is why you lose. Ask yourself exactly what that little some-
thing is. Critically examine your thoughts and be brutally honest about
what it is. Anything else will cause you to remain the loser, forever. Here
is the point you eventually need to get to. This is where I choose to
remain every day. I don ’ t care what has to happen to remain in this place.
The place you need to be is: “ Who is the loser? I want to be the win-
ner! ” That is the only place to execute . You execute knowing it will be you
because you know it can ’ t be him. Otherwise, why would you let him
have your money? The Art of the Trade is about understanding how the
loser thinks so thoroughly that when he says, “ Here is my money, would
you like it? ” Your answer is, “ Yes. ” Anything else results in him eating you.
Why give him the chance? It doesn ’ t matter why or how he concluded
he wants to give you his money. He decided he wanted to. Unless you
are a bigger idiot than he is, you should take it. The Art of the Trade is the
process of discovering this and doing it so well you are the traded high
for the day and the traded low for the day. When you execute, the mar-
ket ’ s next trade is your way, and it never trades there again until maybe
after you liquidated at some point. It means discovering what the totality
of a crowd ’ s thinking “ looks like ” if it were a picture (which it is if you
choose to look at a chart).

In my personal odyssey through this amazing activity, one thing

became abundantly clear to me. By understanding how the vast major-
ity of people really think when they create reality, or the tools they use
to do it with, I found that most people do basically the same thing
the same way most of the time. I ’ m not talking about interpreting price
action, I mean how they arrive at conclusions. Once you reach that
conclusion, you act on it. The thinking goes something like this: “I want
something. How do I get it? I should do such and such (it doesn ’ t mat-
ter what it is, the should part is the important thing). Where is my thing
I want now? — that is, expectation of results. Here it is or isn ’ t.” This
whole process goes on within the current belief structure of the person
in question. If they get what they want, they conclude it can only be
because of the “ should be doing ” part, not from anything else that is
possible. It is only when they don ’ t get what they want that they are

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The Meaning of Life

willing to accept the possibility that their belief structure must change.
Here ’ s the really important thing: For most people, when they change their
belief structure, they retain the same expectation of results. This comes
out as “ more of the same, ” but for different reasons.

What I learned from watching others ’ behavior, as it relates to what

they believe, while holding to the same point of view on their expecta-
tion of results, is really enlightening.

Some things totally defy reason. I could write a whole book on

the things I have seen. I ’ ll give you just one basic example: Why do
some women get married and then divorce, then get married again and
divorce again, sometimes fi ve or six times in a lifetime? I studied these
females. They believe that a successful marriage is a question of fi nding
the right person. They have an expectation of who that person is already.
It never enters their mind that it might be a question of being the right
person for someone else. Or that what makes a satisfying marriage is
something completely different than what they think it is. This expec-
tation comes out as: “ This is not the right person for me, ” when the
reality is something completely different. They can believe anything,
and often do change what they believe — their “ should be doing to get
what I want ” part. They call this “ growing. ” But they are still seeing all
of it through the lens of their expectations . Since they can ’ t see that their
expectation is causing the problem (How could they? They aren ’ t con-
sidering the possibility that the expectation is the problem!), they keep
marrying the “ wrong ” person (from their point of view), when the fact
is any person would create the same confl ict. Sooner or later everyone is
someone you didn ’ t expect, especially if the expectation keeps chang-
ing slightly (which is another thing they do). When the confl ict isn ’ t
resolved, from the point of view of their expectation, they conclude
they made a “ mistake. ” Rather than ask, “ What is the true nature of this
confl ict? ” They ask, “ What am I doing wrong? ”

Do you see what I ’ m getting at? This applies everywhere: the drunk

who can ’ t stay sober, the person who can ’ t get ahead in his bills, the guy who
can ’ t make money in the markets , the guy who is always in a fi ght, all kinds
of things.

It specifi cally comes out in the markets this way: Since I ’ m constantly

losing, I should do something to improve my approach. I don ’ t know
enough about _______ (fi ll in the blank). ”

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I ’ ll give you a few; moving averages, retracements, point and fi gures,

W. D. Gann, parabolics, pattern recognition, RSI, stochastics, Elliot Wave,
how the pit works, the news, the fundamentals, the bonds, the beans,
and so on. When the loser says, “ I don ’ t know enough about _______ , ”
what he is really saying is, “ I expect that to make a difference. ” It doesn ’ t
cross the loser ’ s mind that this expectation is still inside a structure of
beliefs that the market doesn ’ t function under in the fi rst place. Hence,
he will always lose. More of the same. If he makes a winning trade he
will conclude it was because of the “ should be doing ” part. Therefore,
he will be more convinced of its validity. In any case, the markets don ’ t
work that way. He has concluded they “ must. ”

You want to learn so much about that loser ’ s thinking that you

can spot him a mile away. The best place is in your own backyard.
Study your own thinking because right now it is identical to his. By
studying your own thinking, you will see how the other person thinks,
but from a new point of view. Once you know how that thinking (the
loser thinking) leads to losses, you can begin to see how to exploit that
for potential profi ts. The unexpected bonus I discovered is that when
you do that, the entire world opens up to you in ways you can ’ t pos-
sibly imagine until you do. It makes trading look like a case of the clap.
That is the meaning of life. Discovering the nature of reality, not
yours — the real one . Then “ getting in play ” when you do. That ’ s it. For
me it ’ s that simple. It can be anything. Which means it is everything. It
would be the same for you.

Man, what a wild ride.

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Chapter 6

The Trading Police

Killing Opportunity through Poor Execution

Beware lest you lose the substance by grasping at the shadow.

— Aesop

e live in a dangerous world. It is dangerous for us who live
here because that is the nature of reality as it was created.
It is also dangerous because we, meaning enough of us,

have chosen to make certain distinctions about this nature of reality.
We have chosen to protect ourselves as much as possible and have taken
certain actions to do so. Once those actions have been taken, we will fi nd
ourselves in confl ict with the nature of reality and because, by virtue of
its nature, it was the not the initiator of this confl ict, we will always be
subject to its will anytime we attempt to impose our will on it.

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t h e a r t o f t h e t r a d e

What does this mean? It means the more we legislate, the more we

suffer. It means the more we attempt to protect ourselves, the more
we will fi nd ourselves unable to protect ourselves. By creating confl ict,
that confl ict is seeking a resolution by the very nature of the two wills
in opposition. It will never be any other way until God himself chooses
to create something else as the nature of reality. Until that happens we
are continually going to be in a contest of wills of our own choos-
ing unless we as a group decide to do otherwise. Because this group is
made up of individual wills this is intrinsically impossible unless every
one of us chooses to stop the confl ict. As long as one person chooses to
keep the confl ict in play, it is not possible. This is why “ history repeats
itself, ” why there is “ good ” and “ evil, ” why there is “ right ” and “ wrong, ”
and why there will always be “ long ” and “ short. ”

Some enlightened people have come to understand this. The only

person who could understand this completely is the individual who
created the “ rules ” of play in the fi rst place. Since He made it, He must
have formed distinctions for Himself as to why it was made this way
and why there would be a reason to do so. He, whoever He was, gave us
this same ability. That is why we are called “ sons of God ” by enlightened
individuals, and why the currently unenlightened individuals in the ini-
tiating confl ict group feel there is something “ out there ” or “ there is
something I think is spiritual ” or “ something isn ’ t right ” or “ it shouldn ’ t
be this way ” or any number of little ways of saying the same thing. No
matter how you want to slice it, the very nature of this thinking betrays
why this is so and will never be any other way.

If you make any distinction such as “ right ” or “ wrong, ” there must

have been something behind, and above, that distinction which you
made a comparison to. That something is beyond the issue in question
because you cannot make any distinction without a standard of com-
parison that must, by defi nition, be neither. What is that something?
It doesn ’ t matter how you choose to defi ne what it is. You came to
the conclusion that some confl ict (that you had a part in) is seeking
to be resolved and the standard of comparison is known but unreal-
ized to you. Or you are confused about its true nature. Everyone has
this ability but always chooses to place its fi nal outcome within the
perspective of an intended result. This is why two individuals can be
so sure they are “ right ” about someone or something and the other

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is “ wrong. ” Nobody in that particular confl ict is asking if it just “ is. ”
Since all governments are made up of more than one person, the inher-
ent nature of all government is to perpetuate this confl ict, and it has no
choice in doing so until everyone in that government (or under its con-
trol) decides to change. That is why the history of mankind is largely a
history of perpetual confl ict from two opposing points of view — every
war, every economic collapse, every confl ict between church and state;
all of it. This is also why the absolute best form of government is the
“ enlightened monarch, ” one individual who understands this concept
and can “ legislate ” from this point of view only, never his own. All “ leg-
islation ” he would then enact would always be in the best position to
both enlighten his subjects and reduce or eliminate this confl ict within
his kingdom. This is also why all spiritual texts in any form all refer to
some distant point in time where there will be “ peace on earth under
God. ” That is because His “ messenger ” will be the “ instigator ” of this
and He will be “ king on earth. ” God has tried to do this more than once.
It is we who have the problem.

This is also why all “ good ” monarchs are overthrown. (Hey, he is

doing such and such I don ’ t like!) All spiritual leaders are assassinated.
(He ’ s “ wrong ” about God!) All “ good ” politicians are voted out. (He ’ s
taking away my “ rights. ” ) A “ new ” point of view takes over and the
whole cycle repeats itself until we kill each other.

What does this have to do with trading? I ’ ll get to that. This chapter

is about how regulators contribute to the process of making all of this
harder for us. Once this is clear to you, you might be able to see it
from the “ higher ” point of view. This will put you in a better position
to profi t from their actions, once you know what their intentions are,
and how it can ’ t possibly coexist with what “ real traders ” think because
you can ’ t trade consistently for profi ts unless you see it differently from
everybody else. Regulators are in the “ everybody else ” group.

Let me show you how the whole process starts. The regulators are

part of government. In our particular government, we have come to
interpret the rules to mean “ everybody is equal, ” and we all have “ equal
rights. ” In reality, all governments attempt to minimize “ inequality. ” It ’ s
just how they view this weeks “ fl avor ” of inequality that concerns us.
The framers of the U.S. Constitution were, for the most part, enlight-
ened people. They meant to make their intentions so clear it would

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be impossible to reinterpret them from any other point of view. They
knew that certain points of view would help the process of rediscov-
ering what the basic idea was on to. They hoped to make all points of
view congruent with the basic idea in some form that the two opposing
points of view would then see the others and an effective compromise
for all would be reached. They knew that the government itself would
be part of the problem, so they attempted to put the government in a
position where it could never infl uence this process of fi nding congru-
ency. The whole thing is not new. Just read Plato ’ s Republic for the start-
ing point, and the rest of history (if you have time), to see the endpoint
the way Jefferson, Franklin, Hamilton, and the others tried to fi nd it. The
result was the best attempt in history, but the inevitable is the inevitable.

What Jefferson and the rest meant when they said

“ all men are

equal ” was that all men have the same basic nature subject to their
creator. They assumed that everybody would basically know what that
meant. Today, we have come to see those words as “ I have the same
rights as you. You can ’ t tell me what to do. ” Today, we interpret “ Life,
Liberty, and the pursuit of Happiness ” to mean “ I can have anything
I want. If I don ’ t, it is somebody else ’ s fault. ” Our government now
fi nds itself in the business of protecting everybody ’ s “ rights ” and, there-
fore, it spends most of its time creating new and fascinating confl icts
between the most ridiculous points of view as to

“ rights ” that you

could think of. For example, employment “ rights ” have escalated to the
point where employers are impeded from dismissing a poor performer
if that performer can claim some type of “ discrimination. ” In trying to
protect the “ rights ” of certain aggrieved groups to a job, the govern-
ment has diminished the rights of employers to fairly and effectively
manage their workforce. Another example is the

“ right ” of a child

to an education. Sure, it ’ s great that we have a public school system
open to all. The problem is too many public schools are ineffective and
downright dangerous. If a well - meaning, loving, and intelligent parent
elects to home school their child, the parent vey well may run afoul
of local authorities. The rights of the child — as understood by govern-
ment — trump the rights of the parent. In regard to guns, we have come
to interpret, “ The right of the people to keep and bear arms shall not
be infringed ” to mean “ Only certain kinds of weapons can be owned
by the public. Guns are dangerous in the fi rst place. ” Did you know

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that many parts of the Brady Bill were actually taken from a 1936 Nazi
legislation that removed guns from the public? Hitler and the Nazis were
elected. If no one shoots back at you, how easy is it for any government
to take complete control of everything?

Let ’ s talk about taxes. In all of recorded history, there has never been

a country as wealthy as the United States. Every year the total amount
of taxes raised in this country, in all their many forms, is larger than the
gross domestic product of some nations. I read somewhere that the total
taxes paid on a pack of cigarettes every year is bigger than the net worth of
Costa Rica. The U.S. borrows more money than any country in recorded
history. With all this cash fl owing into the U.S. Treasury, every single fi scal
year this country still cannot operate at a surplus on behalf of its citizens.
Where is this confl ict developing? Well, for starters, in this country if you
are “ disadvantaged ” (whatever that means), you have the “ right ” to a home
at the taxpayers ’ expense, income at the taxpayers ’ expense, and medical/
health benefi ts at the taxpayers ’ expense. If you have children, the taxpayers
pay for them too.

Some enlightened people have seen this confl ict for centuries. The

code of Hammurabi, the Torah, the Koran, the Tao Te Ching, the words
of Buddha, Zoroaster, Confucius, Jesus, Moses, Solomon, Alexander the
Great, Plato, Aristotle, Cleopatra, and others all, in some form or another,
basically say, “ If you don ’ t work, you don ’ t eat. ” End of story. How come
we still have this confl ict? The citizens of this nation have so fully con-
vinced the government that certain “ rights ” exist that we are being bled
dry so that everyone can be “ equal ” when in reality we are not “ equal ;”
we are confused about reality in the fi rst place. I ’ m not saying it is “ bad ”
to spread the wealth around, I ’ m saying “ where do you draw the line? ”
As soon as someone says, “ NO, the line is drawn here , ” someone else says,
“ You don ’ t have the right to do that. ” People in this country don ’ t want
to take responsibility for themselves; they want someone else to “ recog-
nize ” their “ rights. ” The end result is that hundreds of billions of dollars
are simply wasted and the problems get worse. No place in the world is
richer and at the same time no place in the world is falling apart at the
social seams faster than the United States.

I could go on but I don ’ t want my right of free speech taken away.

The point I ’ m making is that the intention of any law is eventually
turned into a state of confl ict that must be subject to some other law.

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The interpretation between the two creates more confl ict subject to
a new interpretation, subject to new laws, subject to new interpreta-
tions, subject to new laws again, until all our heads are spinning, and
someone decides to start over. That ’ s called a revolution . That will hap-
pen here again sooner or later, in some form or another. I hope I never
live to see it.

Let me show you how this plays out in the markets by using a

gaming illustration. Never assume I equate trading with gaming.
Anyone who believes that is completely lost. Just take this book back
for a refund if you think that is the case. Anyway, suppose a man went
to a casino to play cards. Suppose he has read a book on card play.
He sits down and loses all his money over a period of time. He can ’ t
understand why because the book said “ such and such and eventu-
ally you can win. ” He must now form a conclusion. Either the book
was lying, or the book was right, and he didn ’ t have enough money
to fi nally win, or something else. His expectation was a perception
that he could beat the house. If the expectation was strong enough, he
might conclude that the house had cheated. It doesn ’ t cross his mind
that the very nature of card play means that, to beat the house, you
must play only at certain times with any systematic approach because
any systematized approach cannot play forever. The approach of sys-
tematic card play is based on probability theory, and that theory fi nds
its expression from an assumption of timelessness. If you could fl ip a
coin forever, you would get 50 percent heads and 50 percent tails. But
you can ’ t fl ip a coin forever so that inequality shows up as either about
52 percent heads or tails, or some ratio subject to random bell curve
distribution depending on how long you fl ip the coin. This might
have actually been explained in the book ( “ the markets are a zero -
sum game ” ), but because the book formed whatever it concluded in
the way it did, this person believed it would be that way when he
personally sat down and began to play at that particular moment . When
it wasn ’ t, he concluded from his point of view, based on his lens of
expected results, that something was “ wrong. ” That couldn ’ t be him
or the book, therefore, someone cheated. Since he wasn ’ t, that must be
the house. He will now demand his money back if he is certain of this
relationship enough to make that effort. In the markets it works out as
arbitration or a lawsuit.

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I won ’ t go into the whole idea about “ fair play. ” Suffi ce it to say

that if the casino was cheating, and if this was a certain fact, no one
would play in that particular casino. They would go to a fair casino.
Casinos know this, but they also know that since they are open 24 - hours,
and card play is actually going on forever, and they know that any one
individual can ’ t play forever, it is absolutely certain that they will take
more money from people than they pay. You would be surprised how
thin a casino ’ s margin is. That is why, when you are winning, they will
do everything to reinforce the belief that you can win anytime you like.
Why do you think they have limousines and Lear jets for the big
players? Why do you think they comp them rooms at the hotel or
give you free booze if you are at any table, even the smallest? If you
take a lot of money from them, they really consider it a loan. That is
why certain players get a limit on their play or can ’ t play at all. That
is why it is always in the casino ’ s best interest to keep the games fair.
If they cheat at all in any way, or you think they do , they are out of
business or you go to another casino. That is why they work so hard
at showing you they are fair. Things like the dealers always showing
their hands to you after they touch your chips. They won ’ t encourage
you to take a card or infl uence your play. If they spot someone tak-
ing your chips when you are distracted, that guy goes to jail. If they
didn ’ t do those things, they would be out of business. I ’ ve played in
casinos all over the world. For the most part they are the fairest busi-
ness people you can fi nd. They really don ’ t have to “ tip ” the odds
anymore than they already are in their favor. They just have to be there
longer than you are.

In the markets it works like this: Because every trade is done in a

pit, sooner or later, if someone in that pit is doing anything to tip his
odds or not take responsibility, he can ’ t be a member of the club. If a
pit trader has more than his fair share of out - trades, someone notices.
If he refuses to own up to the responsibility of his side of those trades,
no one trades with him. If he is “ front running, ” he is called on it. If he
holds an order, he is called on it. If you can ’ t play nice, you can ’ t play
at all. The markets police themselves. Even the huge FBI investigation,
done under cover a few years back without the exchange ’ s knowledge
(boy, did that make people mad), found only a handful of traders who
could be considered “ over the edge. ” The FBI even admitted that the

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integrity of most pit traders was beyond dispute. Most of the infractions
were minor in nature and could have been simply from the fact that
we all make mistakes or get overworked. Somebody somewhere cried
“ foul ” loud enough to the right people and the government decided,
since so many people had lost money (from their point of view), the
markets were a “ scam ” and, “ we ’ re gonna get to the bottom of this. ”
What they discovered is what all the rest of us already know. The mar-
kets are one of the fairest places on earth for executing an order. You
can ’ t cheat and be in this game. That ’ s why we have been here so long
and the whole issue of fi nancial futures is a reality. The problem comes
in when the public gets involved because they don ’ t know the rules
in the fi rst place, they only think they do. The public doesn ’ t know
what zero - sum really means: Nothing except trading creates losses . If you
trade, and you can ’ t trade for whatever reasons of your own, the losses
are yours. It doesn ’ t matter if some body or some thing helped you. Who
opened the account? Who wrote the check? Who agreed to place him-
self at risk? No, you can ’ t have your money back. But some of them
think they can have it back and it ’ s the government ’ s responsibility to
do something for them to protect them from their own state of mind.

As a group, they (the public) think that they have the “ right ” to

make money. If they don ’ t, it was somebody ’ s “ fault. ” They go running
to the government, who believes this anyway (but is supposed to pro-
tect me, too), and say something to the effect, “ If I would have known
it was this way, I wouldn ’ t have played. ” In other words, when they sat
down to play and didn ’ t win, somebody must have cheated somewhere.
The government then “ investigates ” why these people couldn ’ t have
what they wanted and makes someone, who does nothing but say “ we
are open, ” pay these people something.

To prove you haven ’ t done anything questionable requires the whole

trial process done by people who don ’ t know this business or arbitration
by people who do, and that costs money. But neither will result in a vic-
tory for the accused, even if he is so far in the white that you would think
he was standing in the doorway to heaven because that becomes part
of the public record. Now it ’ s harder to fi nd work at “good” brokerage
houses (you could be a problem) or to open new accounts from “good”
clients (just because you were found innocent doesn

’ t mean you are).

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This is why anyone accused of wrongdoing simply settles for some
amount. Why go through the hassle and the expense?

If the accused is in the public eye, he says something like “ without

admitting or denying guilt. ” Since nothing causes losses except trading,
and the trades were all done properly, they must fi nd something besides
trading to “ fi t the bill. ” As things go, the largest part of the business is
outside the pits (which are fair), so the regulators focus on “ how the
account was solicited, opened, or traded, ” but that could be anything.
Therefore, all the people who are in this part of the business spend
huge amounts of time trying to prevent lawsuits from happening. The
net result is that the total environment is less effective to do anything.
Or they make one mistake and they ’ re out. So, all those silly little things
that could happen by people drawn to this business become fair game.
Nevertheless, the government, by its actions, created the environment
that this happens in. I ’ ll show you how this is the case.

The actual result is that when the regulators put so many rules in

place to protect the public, they create an environment where those
rules can be ignored if you choose to ignore them. All you have to do
is settle, which is always less than you made. The worst part is that even
if you do business squeaky clean, from the point of view of the higher
reality (seeing this from the other person ’ s point of view), no matter
how well you follow all the rules, someone will cry “ foul ” and you
will fi nd the regulators saying, “ Okay, you are guilty. Prove you are not
because this poor person lost his money and he didn ’ t have to. ” A bro-
ker has no rights. Since the smart brokers give the client absolutely no
advice (he doesn ’ t want a lawsuit), the client never gets to see that this
is a zero - sum game. It is never explained to him. He never gets any help.
If you do help the client, sooner or later someone will conclude that
the “ help ” caused his losses, not the actual trading. “ Therefore you stole
my money ” or something to that effect. That ’ s the part that really both-
ers me. Where are those people who stand up and say, “ Hey, you lost.
That ’ s life. Keep playing until you fi gure it out if you can. Otherwise,
too bad, fi nd another sandbox. ”

If the regulators were to say to some of these people: “ Sorry, it ’ s a

zero - sum game. You played and you lost. Take responsibility for your-
self. There ’ s no evidence to support your claim you were cheated. Thank

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you for playing, we have some lovely parting gifts for you and the home
version of our game. Next. ” Things would get more equitable in a hurry.
I will admit a lot of lawsuits are headed off at the pass when some bro-
kers or owners say exactly that to a client and remind him that he signed
the disclosures, and the recordings of the trades will be available for dis-
cussion. However, that doesn ’ t solve the problem entirely because you
can ’ t teach some people common sense. Furthermore, the regulators
assume that your compliance doesn ’ t matter anyway because you must
not have told the client what that really meant when he signed and
agreed to trade with you, otherwise he never would have complained.
The broker is “ wrong ” in any event.

I ’ ll tell you how I found this to be the case. I ’ ve had a total of four

arbitrations. I was found “ not guilty ” on two of them and the other two
were settled. In all cases, every complaint imaginable was in every one
of them. (I didn ’ t disclose the risk, I lied, I churned, and so on.) The fi rst
one should have been the eye - opener. This guy, who I spent at least an
hour describing exactly how options work and their risk, not to men-
tion all the other time invested with all the other stuff, claimed I lied
to him. “ He didn ’ t tell me how it worked. ” This guy did one trade . We
had discussed this trade and I taped his approval to do the transaction. I
played the tape for the regulators. Their conclusion was that, although
I did have approval for the trade, the client didn ’ t know what that really
meant. Therefore, the process of arbitration proceeds

“ to get all the

facts. ” How could you misunderstand “ Your total potential loss could
be $ 3,000 if the market moves against you ” ? The client accused me of
churning. The very defi nition of churning means “ excessive trading for
the purpose of generating commissions. ”

How could that be the case if you only did one trade? And you agreed to it

anyway?

I fi nally just settled with this moron. You know what he said? Let

me quote him for you: “ I knew you guys were cheats. I already have
an account at another company. They ’ re making me money. I ’ m stick-
ing with them. ” In other words, “ As long as I ’ m winning, I won ’ t sue
anybody. ” If you are thinking, “ That ’ s not everybody, ” you are com-
pletely correct. But if you are a broker, you never know who that
somebody is until the paperwork comes in the mail. It could be any

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one of your clients at any time, for any reason that is not to the clients
liking. Why? He has the “ right ” to be “ protected. ” Who is that guy? So
what do you do? Make as much money as you can, anyway you can,
and settle.

I personally don ’ t think that way, but most of the people in the busi-

ness of serving clients do to some degree. The worst part is that since
the regulators have to assume the client might have been correct — and
everybody just settles — it never gets any better. Clients will always run
the risk they really are being lied to or being dealt with unfairly by any
broker whom they do business with. So they “ gotta fi nd out. ” Brokers
will always run the risk that no matter how clean they sell or handle the
client ’ s money somebody who didn ’ t understand what they were get-
ting into, no matter what you did to explain it, will sue you. “ Fine, here ’ s
some money; get the f — out. ” If you are clean, prove it; if you are dirty,
so what? It gets better. Some of the really bad clients know this rela-
tionship exists and will simply threaten some kind of legal action unless
you give them at least some money back. The conversation goes like
this, “ If you don ’ t pay me back, I ’ ll fi le an arbitration and you won ’ t
work in this business ever again. I know you are afraid of that and I
also know they (the NFA or CFTC)

think you are already guilty. All

I have to do is make them think you did it again. I don ’ t care if we
followed the rules or what I signed. You don ’ t want the headache. I
already know that, so pay up. ” It ’ s like a kind of stop - loss order for
those people.

I had a client threaten me with that before I learned how the game

was played. At the arbitration I beat him, but it cost me more than he
had paid in commissions. Up until that point he was the sweetest guy
you could ever meet. I discovered that was only so he could trade with
the hopes of winning. If not, my blood would allow him to trade another
day. Or at least that is what he expected.

I ’ ll tell you how far the regulators go to “ fi nd out if everybody ’ s

doing this clean. ” Regulators have to justify their jobs in some fash-
ion. The things they do to justify their jobs are behind some of the
problems that they think they are solving. I worked very closely with
a young man, maybe 22 or 23 at the time. He was one of the good
ones. He and I had a strong relationship in the offi ce. One day the

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NFA came in to do an “ audit. ” This is the process where they check
to see if you are following all the rules they have in place. The owners
know they will fi nd something out of place somewhere. That “ some-
thing ” is immediately disclosed as “ what we are trying to improve. ”
They know it ’ s what the NFA would get pissed - off about if they had
found it on their own. The next thing is to say, “ We want you to help
with this. ” So they work together to do so and the net effect is no
disciplinary action until the “ next time. ” But there is no next time
because by then, everybody ’ s gone somewhere else. And the compa-
ny ’ s gone.

In the mean time, just to make sure the wool wasn ’ t pulled over

their eyes, they start a client - contact process. This is where they take
a handful of accounts and call these clients to discover how “ satisfi ed ”
they are with their investment in the markets. Because the clients all
have losses, there will always be someone who isn ’ t happy about that.
To their credit the NFA does not make this an issue most times; some-
times they do. But if you were a client, and you got a call from the reg-
ulators “ checking up on your broker, ” wouldn ’ t you wonder why that
was? It ’ s like a game of Russian roulette. If the NFA calls 10 percent of
your clients, is one of those guys going to be the one that cries “ foul ”
only because the regulators were calling and he thought he “ smelled
a rat ” ? The NFA in this man ’ s case did that. My friend had been in
the white the whole time, but now he has this new problem, a client
suing him. The client said, “ The NFA wouldn ’ t have called unless you
were doing something wrong. ” This broker quit because he believed
that at some point, the regulators must be on his side too. In reality,
they created his problem and had to assume he was the guilty party
until proven otherwise, which costs time and money. This broker said,
“ I can ’ t believe this, ” and went into another fi eld of employment. The
NFA, by its actions, drove a qualifi ed honest broker out of the business.

I will tell you another story you absolutely will refuse to believe,

but it is fact. One individual I worked with had a client tell the NFA,
more than once,

“ I ’ m completely happy.

” The NFA representative

told him specifi cally, “ If you have losses, those losses may have been
caused by your broker. Do you know the forum of arbitration is avail-
able to you to resolve a dispute? ” This client asked, “ Are you suggesting

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I sue my broker? ” The NFA representative replied, “ Well, um, no. It is
our intention to keep trading fair and equitable. But losses may have
occurred through negligence on the part of your broker. ” The client
said, “ I ’ m happy with him, ” and fi nally hung up. This client called his
broker and asked him if he knew the NFA would encourage the point
of view that all brokers are crooks. This broker was furious. He went
over to the NFA (their offi ces are in Chicago) and demanded an expla-
nation. They called security and threw him out.

Here ’ s the whole point: There was no audit being done at that

fi rm. Apparently, someone from the NFA went over to this bro-
ker ’ s clearing fi rm and just asked for a few copies of public account
forms. They never told anybody what they were going to do with
them or why they demanded personal and confi dential information
about people. This client was simply working in the garage when,
out of nowhere, on a Saturday, someone is suggesting he is a victim.
Do you see how certain clients might conclude: “ Wow, I can get my
money back ” ?

This kind of regulation has actually made problems possible, with-

out providing benefi ts to the client. Meanwhile, the whole intention
was to help the client “ get in ” fair. Once he ’ s here he ’ s fi ne; if he knows
what he ’ s doing or can fi nd someone who does. If he doesn ’ t know
what he ’ s doing or can ’ t fi nd someone who does, it doesn ’ t matter in
either case.

The bottom line is that anyone who wants to get into this busi-

ness wouldn ’ t know that until he came to discover it for himself. Good
people, with all kinds of good intentions, skills, and desire to do this
ethically will fi nd it doesn ’ t matter if they do. They will suffer; perhaps
more if their sense of justice is more acute. Bad people, who are look-
ing for a way to “ work a deal ” somehow, or fi gure they have found easy
money, fi nd this business can be an open door for them. Both of these
people come and go, but for the most part the good ones throw in
the towel sooner. The net effect is by attempting to do the right thing,
which is full disclosure of risk and how the game is played, they set the
stage for that to be ignored in the long run. All the “ little things, ” such
as missed time stamps, missing paperwork, and so on, are violations in
some form, subject to fi ne or expulsion from the industry. Some guys

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get so fed up with chasing paper tigers and unnecessary B.S. that they
throw in the towel too. These guys say things like:

“ I ’ m just gonna make enough money to pay all the fi nes if I miss

something. ”

“ Screw the NFA, it will take years to yank my license, by then I ’ ll

have enough money to do what I want anyway. ”

“ Who cares what the client thinks? He can ’ t afford to sue me. If he

does I ’ ll just settle. ”

It goes on and on. This happens every day.
I ’ m going to tell you the story of how I came to fully realize this

whole process. I was working at a medium - sized retail brokerage house
that was only in the business of options. They did this because some-
how, in the mind of the public, everyone is completely convinced that
futures trading will ultimately cause a “ margin call ” or cause you to
lose more money than you originally opened the account with. This
is a legitimate concern and does occasionally happen. It is avoidable
99.99 percent of the time if you use some common sense with regards
to position size, protective stops, staying out of markets at certain times,
and money management. But that doesn ’ t matter. If you try to explain
this to a fi rst-time customer, they get the impression this is all very risky
and complicated. Therefore, it ’ s not for them.

To avoid this problem, our main selling point was that because your

risk is only exposed to the premium that the option costs, you could
never have a margin call or lose more than you initially invested. Your
risk is defi ned so “ you can sleep at night. ” Which is true. The other side
of the coin is that any market you trade with an outright long option
position must move a long way to make it profi table. If you buy calls,
expecting higher prices, you need that market to make a big move,
especially if you buy out - of - the - money calls in the fi rst place. Corn
could make a dollar a bushel move your way and you could still lose
money if you held a certain option. Then you get this phone call: “ The
market went my way — how could I lose? You cheated me. ” Again, this
was all explained but that doesn ’ t matter.

Anyway, I was there because my initial project to go on my own

had blown up, but not before I had some success with it. Plus I knew
the owner of this offi ce and I knew he was a square shooter. If I wanted

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to do something differently than the company wanted, he was fi ne with
that as long as it was okay with the clients. It was an opportunity to get
enough cash to do what I wanted. He was fi ne with that too and hated
to see me go when I did. It was ironic that the last place I worked at
was the best experience of the bunch.

I got on the phone to raise capital. Since I had come to better

understand the markets, I used that knowledge every now and then. This
company, in order to demonstrate to the regulators that they fully con-
trolled the sales process, had hired an independent company to “ eaves-
drop ” on conversations between brokers and clients. The fact that they
could do this from Connecticut, when we were in Chicago, is a fright-
ening “ Big Brother ” concept in itself, but that ’ s another issue. They were
trying to do the “ right ” thing. They told you this was going to hap-
pen but they never told you when. The whole idea was to get the “ real
story ” on your selling, and review it with you to both improve your
approach and to remain in compliance. I thought it was a good idea.

At some point it was my turn and my personal tapes came in. We

discussed it and that was that. What the company didn ’ t tell us was that
they were also sending copies of the same tapes to the NFA for review.
This was a “ show of good faith ” so that the NFA would leave them
alone for the most part. However, they were the only people in the
business doing that voluntarily. Naturally, the NFA thought that was a
good move and decided they would review the tapes.

Remember, the NFA, although a self - regulatory body, must follow

the guidelines of the CFTC charter and mandates. Therefore, what-
ever it does is basically redundant. Also, a few cents out of every trade
commission is their only source of funding, which means my trading
pays them. They work for my benefi t too (allegedly), but as we have
seen that is not the case. To keep the rest of the government off their
backs, the NFA follows the entire Fair Reporting thing, the Equal
Opportunity thing, and so on. The bottom line is that the NFA is a
bureaucratic nightmare. Ask someone who has tried to get anything
done with them. Anyone working there is some automaton who is told
to do something and to do it one way — no questions and no excep-
tions. The net result is some guy making $ 25,000 a year, who has no
idea how trading or raising equity is really done, who was only hired
because the law said he has the “ right ” to a job, and who could have

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just as easily been fl ipping burgers last week, is able to bring the whole
process of earning an income and servicing clients in one of the most
diffi cult fi nancial environments in the world to a grinding halt because
he is “ just following the rules and doing his job. ”

Now remember, I had been in the business for eight years at this

point. I had serviced hundreds of accounts. I had won two arbitrations
and probably would have won the other two. I had proved to someone
who knew this business that I had never broken a rule. So here ’ s what
happened:

One day I was in my offi ce and one of these NFA androids walks

in. He asked the boss to take a package and point me out. So my boss
did. This worker drone says, “ You have two weeks to comply with
this investigation. Until then you cannot solicit or service any accounts.
Goodbye. ” Then he walked out. My boss looked at me and said, “ There
must have been some kind of mistake. Whatever you ’ re doing is fi ne.
Don ’ t do anything, I

’ ll handle it.

” Mistake or not, I wasn

’ t working

until I “ complied. ” So I asked my boss to let me get started on my
end while he tried to sort the whole mess out. We review the pack-
age and here ’ s what we found. I am in “ violation ” of NFA guidelines
(not laws, guidelines) with regards to the solicitation of client accounts.
They very courteously cited for me about 10 or more different ones,
all with a very stern warning that any one of them is grounds for hav-
ing my Series III license revoked. They then listed all the things that
I had said for each point. Without fail, all but two comments had been
taken completely out of context from the entire conversation. This had
all came from one tape of one conversation. (What about all the other tapes
that were in “ compliance ” ?) In other words, make one mistake (from
our point of view) and your career is over. It didn ’ t matter that to prove
any individual was a problem required systematically looking for a clear
pattern of abuse that must be very clear as abuse. That would take time,
attorneys, and a lot of evidence. But that is not how they are thinking
over there. Make one mistake, you ’ re out. That pile of papers made it
very clear that unless I could answer their questions and substantiate
what I said, and do it in the next day or two, I was out. They assumed
that if it happened once, it was happening every day, all the time, with
everyone I spoke with.

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The package also included the review process to get my license

back if I so chose. In other words, they assumed I was guilty of what-
ever it was I was guilty of and it was up to me to decide if I wanted to
continue my career.

I panicked. Wouldn ’ t you? If I hadn ’ t kept my own records on my

own accord (and they hadn ’ t disappeared off my desk), I never could
have provided them with the written documentation for the kinds of
information they requested. If I had trusted someone else to hold those
records and I couldn ’ t fi nd them, that wasn ’ t good enough. ( “ Maybe
someone was counting on that? ” ) For each “ violation ” I had to show
them exactly what day what position was done that showed a profi t
to my client, provide a copy each of the time - stamped order tickets, a
transcript of the tape documenting that I had approval to do the trade,
and independent documentation of when that conversation was held. If
I couldn ’ t do that, I was out. I had to show them exactly how I deter-
mined that Japanese Yen futures were moving higher, and why they
were moving higher. Furthermore, how the trade did, in fact, occur
exactly as I said it did, meaning analysis of some kind for that particular
day, which proved I knew “ what the market would do. ” If I couldn ’ t do
that, I was out. If I said, “ You could profi t by 30 percent on that trade. ”
They said that was a “ guarantee. ” They wanted me to produce a writ-
ten documentation of how I could “ guarantee ” any profi t to the client,
even when the markets went our way. They said that the phrase “ there
is a risk of loss in trading ” did not accurately describe to the client
how that could happen by using options and therefore was an attempt
to “ minimize the risk so the client would open an account. ” It didn ’ t
matter that the previous 30 minutes on the tape was that very discus-
sion. At that point I hadn ’ t said it again, which assumes the client was
too stupid to pay attention or think for himself.

I could go on and on and on. The long and short of it was I had

to drop everything, which means not service the clients on the books.
I couldn ’ t touch their positions to protect them or keep profi ts. Someone
else had to do that, which means time away from his business. Not to
mention that he had no idea why or how those trades were done and
didn ’ t even know those markets. Is that fair to my clients, or his? I spent
the next few days getting everything they wanted together. It was either

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that or I was out. Even if I got it together, I didn ’ t know if it would make
any difference because almost everything they accused me of needed to
be held in context of the entire presentation, which they weren ’ t doing
in the fi rst place.

The fact is I never told the potential client anything that wasn ’ t

true. I could substantiate everything I said to him. I put this all together
and gave it to the NFA. I was told I couldn ’ t solicit accounts or talk
to any clients until the “ results of the investigation were in. ” In other
words, the merest suspicion of wrongdoing in any form will put your
income at zero. Suppose I was supporting a family? The bills don ’ t stop
coming. After enough fi nagling from the company, my boss, and me,
I was able to “ temporarily ” work until this was done. I never heard
from them. Not a peep. Six months later I got a letter in the mail saying
in effect “ Okay, all clear but we will continue to keep your fi le active. ”
In other words, we are watching you. “ You got away this time, but you
won ’ t forever. ” For six months I never knew when they might walk in
and tell me my career was over. They never gave me an opportunity to
discuss the “ charges ” against me in any case. If I wanted to keep trading,
“ Well, that ’ s your problem. ” To the best of my ability as best I could,
I had followed every rule they have on the books. All of this from a
group of people, who otherwise would have no authority of any kind
anywhere, are really not necessary in the fi rst place, and they are paid
by my trading. It ’ s simply unreal.

Once I knew that no matter what I had done to show good faith,

their bureaucratic process will always leave me at risk, I had no choice
but to assume sooner or later that I would have to go through it all
again. If one dot was missing or one “ t ” not crossed, I could be out
of business. At the very least, I would have to jump through hoops to
stay servicing the clients I had at the time. This would happen if I was
working somewhere or owned my own company. If I had my own
brokerage house, I would have to go through an audit. Which is fi ne,
except I won ’ t play the “ we are working on it ” game. I would say, “ Hey,
I followed everything in this book you gave me to follow. There it is in
black and white. ” Without a doubt I ’ m certain they would come back
with, “ But you aren ’ t doing it exactly the way we want. We have to
clean up this industry. What are you hiding? ” — or something equally
stupid that says, “It ’ s not good enough.” No matter what you do, it ’ s

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going to cost lots of time and money in attorneys, arbitrations, reviews,
and the like with a bunch of people who are from the public, have
never traded, and are following the letter of the law but not its spirit.

In other words, I never knew if my fi duciary responsibility to

protect my clients or my skill at trading would be interpreted as “ an
attempt to minimize the risk ” from their point of view, which is what
fi duciary responsibility and skill are supposed to do

If I executed a

complicated combination of futures and options to reduce or elimi-
nate the risk completely (which is possible), that might be “ churning. ”
If something in the market changes and I reverse or liquidate to pro-
tect my client, and couldn ’ t reach him immediately (he is out of town
or something), that could be “ unauthorized trading. ” If I was executing
a hundred - lot trade for 30 different clients and missed a time stamp
somewhere, that might be

“ failure to comply with required record

keeping. ” Who knows?

What if they “ eavesdrop ” on my phone lines and hear me say “ this

is a lot of fun ” and determine that is a “ guarantee ” the client would
make money? All the NFA has to do is form any of those conclu-
sions and I am out. Or spend all kinds of time and money to “ edu-
cate ” the idiots who work over there. The fact is most clients will never
trade with someone like me in the fi rst place. What chance do they
have with a broker who could care less in the fi rst place? And it ’ s the
NFA that puts the broker in a position to think like that to “ protect ”
himself?

Who needs it?
I could go into all the other stuff the regulators impose on the

client–broker relationship. I could show you how this creates order
imbalances, how it affects the pits, and so on. I won ’ t do that right now.
My head hurts. I suppose that will have to wait for another book. If no
one has shot me fi rst.

The thing that really broke my heart about all this is that it doesn ’ t

have to be this way. There are ways to have controls on people ’ s behav-
ior that can ’ t control themselves. There are ways to do that without
creating an environment that fosters the uncontrolled. There are ways
to help the uncontrolled see that it is in their best interest to change
their behavior. There are ways to keep bad clients out. You don ’ t have to
use threats, punishments, or restrict freedoms to do it. It ’ s tragic that

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part of the problems we all face every day come from authorities who
probably mean well. Nobody wants to get ripped off. Sometimes the
“ little guy ” suffers an injustice that he or she didn ’ t have to. Well, that
happens to everybody. It happened to me too. That is life. It ’ s a danger-
ous world. Once you cross the line in your thinking that says “ every-
body ’ s guilty until they prove different, ” you create a whole other set of
problems. By the assumption of guilt, the innocent are now vulnerable.
The guilty just hope they aren ’ t caught. Statistically, certain things are
unrealistic to expect. “ Everybody should have a job. ” “ No one should
be hit by a car. ” “ No one should lose money. ” “ Everyone should be
happy all the time. ” The list is endless. Once you cross the line and start
expecting the unrealistic to be certain by legislation, you run the risk
that someone who is just doing their best in a diffi cult situation will
get run over in this zeal to make the world a painless place.

I have to say this. I hated writing this part of the story. I love the

business of trading. I will never do anything else, and I fully expect to
have positions open the day I fi nally check out. It ’ s too much fun and
there is too much money to get for all those other things that life can
give you. I couldn ’ t leave out this part of the story. Understanding how
regulators work in general and in the trading world in particular was
part of what I learned. For what it ’ s worth, the following paragraphs
are my insights into working with the regulators.

If you are a client wishing to trade for himself always remember

one thing: If your already overburdened broker thinks that you will be a
compliance problem, you will open yourself up to all kinds of headaches.
No one is going to want to work for you. You are too much “ risk. ” Leave
the guy alone. Don ’ t ask him for help, that exposes him to “ risk. ”

Do it yourself and don

’ t complain at him about fi lls, stops, and

price action. The guy has to do three, sometimes four steps to get you
in or out, and if he misses one of them, someone who will never help
him make a dime is going to be all over his ass. When he makes a mis-
take, for the most part they are honest ones. If your phone was ringing
off the hook constantly, and everybody you were talking to was in a
hurry, you might miss something too. If you get a fi ll back that is 10
tics off your expected price, it is not his fault. Don ’ t scream and yell
and expect him to drop everything to fi nd time and sales, or phone his
back offi ce about the rotten service. Now the regulators, or someone

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who is afraid of the regulators, will want to know why he is

“ short -

changing ” someone. If the guy is a pro, he knows already if you are
due something, or if something should be checked. That is the nature
of this business. Grow up and deal with it the way the rest of us who
aren ’ t happy once in awhile have to do. If you think the service is great,
tell him. Now he will work harder for you. All day long people are
complaining. When you place or move orders, get the ticket number
and used it. Don ’ t make the guy guess it ’ s you. Errors that are avoid-
able happen like that. Clients sound alike. Don ’ t say, “ It ’ s me, cancel my
stop. ” Use your account number so that he doesn ’ t have to look it up
all the time. Be as professional about this as you expect him to be. Help
him do this easier so that he can operate with the freedom of mind
that no one is going to “ hassle ” him.

If you are a client who has never traded before, remember that there are

no promises made. You are responsible for the losses if you have them.
Nothing causes losses except trading. If you

’ re not happy, go home.

Don ’ t threaten or complain or ask all kinds of stupid questions about
how it happened. It happened, that ’ s it. Nobody is stealing from you.
It ’ s next to impossible to do. Either you or your broker were wrong,
or both. You did know the risk, don ’ t say you didn ’ t. If you agree to
trades you are not being “ churned. ” End of story. Don ’ t be the guy
who makes it hard for a broker to tell it like it is. The more you think
it is him personally, the more he will attempt to justify the trade to
protect himself. Now you will get even less help from him, or he will
close you out because you are a risk. Either way, the fact is, you agreed
to trade. It doesn ’ t matter if he said something that didn ’ t pan out, that
was only his point of view anyway. If you were willing to accept his
point of view in the fi rst place, then be prepared to accept that it may
not be shared by the market. You weren ’ t going to share any of your
profi ts with him, were you? Why should you expect him to carry the
burden of your losses? If you think you will make money, go for it.
If you end up with losses, don ’ t be a crybaby and expect “ mommy and
daddy ” to bail you out. You are an adult like your broker is. He is in
a tough business; tougher than you ’ ll ever know. Give him credit for
where he ’ s at and what he ’ s trying to do with his life. He doesn ’ t get a
pension like you do. Don ’ t make it harder for him to service his other
clients who understand this.

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t h e a r t o f t h e t r a d e

If you are a broker, give your clients a little respect. The good ones trust

your judgment. They expect you to give them a fair shot. Don ’ t sugar-
coat the risk. Do your homework and accept it when a client says no.
Don ’ t coerce them into doing something if you can tell that they really
don ’ t want to get started or do this particular trade. There are other
potential clients. Commissions will be there sooner or later; the busi-
ness is huge. Don ’ t rush. If the client says yes, then do your absolute
best to fi nd the right point to do the trade. Don ’ t force the issue. If you
missed it, tell the client you missed it. If it might take another week, tell
your girlfriend she has to wait for the fur coat. Your job is to protect his
equity. In the long run the client will respect you. If the trade is a win-
ner, don ’ t take credit for it. It was never your money at risk. You did the
job the client paid you for and that is that. Don ’ t expect your clients to
blindly follow your lead the next time. You have to earn your client
on every trade. Follow the rules. Do it in the white. If the regulators
get all over you, try to understand their point of view. All the power
of the government boils down to is whether or not the government ’ s
representative wants to use it or thinks he needs to. Don ’ t give him a
reason to do so. Cooperate, and if it means a little extra work then it
means a little extra work. Do it all the way. If they don ’ t think you are
the man they are looking for then they will leave you alone. Just pray
you never have to go through what I did. Sometimes the regulators
are singling you out for reasons of their own. If they do, take it a step
at a time. If you are in the white, eventually you will win but they will
never go away. Don ’ t work for someone who expects you to bend the
rules in any way. Leave so fast you leave your coat behind if he says, “ I ’ ll
handle that for you. ” You will end up out of the business through no
fault of your own. That ’ s what almost happened to me.

Lastly, if you are one of the regulators, the spirit of the law determines the

letter of the law; not the other way around. If you are on the audit teams,
think about that. If you process paperwork or are involved in keep-
ing registration current, please remember that most of the people in
this business aren ’ t out to screw anyone. They just want to work. Do
what you can to keep them earning an income. Don ’ t put them in
a position where they spend four weeks or more waiting for some-
thing. Or they missed some little thing “ this time ” that is in their fi le
already. That causes pressure to trade too fast when they fi nally get on

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101

the phone. You call it “ churning. ” They call it “ eating. ” If you help to
write the rules, stop and ask if any more of this B.S. is really needed. If
you enforce those rules, try to see how many of them don ’ t help in the
fi rst place. Asking somebody to spend his time on something that you
and I both know is just going to sit in some fi le somewhere is point-
less and it makes it harder to service the client. Try to see that you only
have a job because the 12 cents from every trade goes to you. Don ’ t
make a broker pay you twice. Don ’ t make a broker ’ s life harder than it
has to be, because if you do he will get angry at your lack of concern
for his position. Then they snap. Who knows what will happen then? If
your job is to protect the client, how can you do that if the client ’ s only
contact to this industry is under all sorts of pressure from you?

That ’ s it. I hated this part. I hope someone remembers that.

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103

Chapter 7

The Last Word

You sure you want to do this?

Life is a gamble at terrible odds; if it was a bet you wouldn ’ t take it.

— Tom Stoppard

ome people think the concept of trading as I ’ ve described here is
really barbaric. Personally, I do feel that way. It is a very base idea
to “ kill and eat something today. ” Let ’ s face it; that is how a zero -

sum game is played. Whose idea was it to make it this way? It wasn ’ t
mine. That ’ s the way it is, baby — brutal. I learned to understand it, accept
it, and exploit it. One other thing happened that I learned from. It is
what I want to talk about for the last few pages.

No matter what you personally choose to believe about the trading

environment, you can ’ t make money at this unless someone else loses
theirs. To make a million can only mean someone else (or a group of

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them) had to lose exactly that same million. Who was that? What did
he experience from that loss? How did that affect his hopes, his dreams,
his family, his friends, and even his destiny? I ’ ve known people who ’ ve
committed suicide, become drug addicts, lost their homes, become
alcoholics, started beating their wives, gone insane — the list goes on
and on. You never hear about that part when CNBC has a tag line that
reads something to the effect: “ Soybeans unexpectedly went limit down
today in heavy trading. ” Sometimes it takes months for someone to go
ballistic; sometimes just one trading session. All the pain, problems, and
hell never stop. Every year this business gets bigger. The markets go
merrily along as “ portfolios get readjusted ” or “ yields fl atten out. ” It ’ s
all saying the same thing, “ You lost on your side — sorry. ” Every year
the stories that could be told get created. My story is not unique by
any means, just that I ’ m still here through all of it and prospering.

Throughout this book I ’ ve been really hard on the “ loser. ” I make

it sound like I have a biased point of view on that person, like he is a
concept more than an actual person. To some extent he is a concept
because most people will never see the actual individual whose money
they took. That didn ’ t happen to me. I knew of one guy, and it was a
very sobering experience. Let me share it with you.

One day I was walking through the Chicago Board of Trade and

saw this man holding his sobbing wife. I had never met the man, but
had seen him around the markets. What I never knew about him until
that time was that he had been trading for about 15 years only for
himself. He had blown out completely and his wife had come to his
offi ce to help him clean out his desk. As it turned out, through mutual
acquaintances, which I didn ’ t know we had, I learned the whole story.

We were having a few drinks when one of the guys asked, “ Did

you hear about (so and so)? ” “ No, ” I said. When he told me the whole
story I was totally shocked. This trader ’ s wife was dying of cancer. The
emotional stress of this turmoil had caused him to go belly up. He lost
everything. Since he had only been a trader, he had no way to support
his family or cover the costs of medical bills. He had no other skills. He
went into a tailspin. Later, he killed himself and left his family and his
dying wife alone. This was the same man I saw in the CBOT that day.
Up until then, it was just tragic. The next part made it real.

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105

Someone asked, “ What was he trading? ” The answer was wheat. By

coincidence I had been trading wheat for the time in question. “ From
what side? ” I asked. “ Long, ” was the answer. I was trading shorts. “ From
where (meaning prices)? ” The numbers were almost the same as mine.
I was the actual person on the other side of his trades, or at least one
of them. I had his money (or at least some of it). Instead of seeing the
markets as “ prices, ” it hit me that there were real people on the other
side actually experiencing the results of those losses in a very real and
permanent way. I had been the conduit to some of this man ’ s devasta-
tion. From that point on I had a huge emotional struggle develop that
was completely unexpected.

Every time I took money out of the markets, I would remember

this guy ’ s face. I began to think that I was involved daily in putting peo-
ple into their graves (at least fi nancially).

I began to feel tremendous guilt over my profi ts. This lasted long

enough for me to lose tens of thousands dollars. If I was to keep trading,
I had to fi nd a way to reconcile this confl ict or I would end up just like
him. Nothing could prepare you for this. I can ’ t give you a two - cent
answer for a million - dollar question, but I resolved that confl ict. I found
the meaning in this confl ict and what it can teach us.

Here ’ s what I think I learned: Life is a battle. There will be win-

ners and losers. Losing is really part of winning. By putting people in
a position of losses I am helping the better souls learn how to become
winners. Those winners will have losers to pay them and those losers
(the better ones) will become winners. The cycle goes on forever. If it
sounds pompous, I can ’ t help that. I ’ m not being pompous; I ’ m trying
to fi nd value in the fact that I kill and eat people every day. Some don ’ t
see it coming. Does anybody really want to infl ict that kind of pain on
someone else? And know they are doing it?

Did you know that in Africa there are tribes that actually apologize

to the animal they kill? They ask its spirit to remember that they have
a responsibility to care for their families and they need the meat to do
that. What is going on there? If I were a gazelle, as soon as I saw those
guys coming, I would head the other way. When you ’ re dead, who cares
if they apologize? In the markets you are the gazelle or the hunter. You
can ’ t be both. Most people will say that this point of view is not realistic.

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t h e a r t o f t h e t r a d e

They say this because people who trade are supposed to know the risk of
what they are doing. If we are all adults about this, then we can all accept
our results. I agree with that most times. Sometimes I can ’ t. It hurts me to
know that sooner or later I will be a part of someone ’ s untimely fi nancial
demise. Maybe that person didn ’ t know what he was doing and would
not have been eaten if he had known.

If you are going to kick a sleeping lion in the face, you had bet-

ter know what you are doing. Most people don ’ t know this risk when
they trade. I admire those that know this risk and embrace it. I take a
lot of pleasure in trying to outsmart him knowing he is trying to out-
smart me. Most times I win; sometimes I lose. Standing right next to
him is somebody who has no idea that he is going to maybe shipwreck
his life. That guy is the real loser. I ’ m talking to that guy right now.

Don ’ t be that loser if you can help it. If you are going to start a war,

know how to win it. The winners always write history. Stop and think
what is possible to you personally if you have losses. Think about the
emotional cost, all the fi nancial pressures, or the stress on your loved
ones. I believe this is deeper than,

“ only trade with money you can

afford to lose. ” Why? Well think about this possibility: If you are not
emotionally prepared to lose, your losses might depress you. Your behav-
ior changes slightly. People ask, “ What ’ s wrong? ” Some admit they have
losses, others won ’ t. You answer “ Nothing. ” Maybe you don ’ t want to
hear your friends say, “ I told you so. ” Your spouse senses something is
wrong. Maybe the feeling of losing ten grand and admitting it to your
spouse is simply too painful. Maybe she concludes you are unhappy in
the marriage. Your boss sees you lack something on the job. Maybe your
behavior causes you to be passed over for a promotion. These things are
real. Most people never see the potential for connection in there some-
where. This list is endless. It ’ s not a game at that point.

Think about the real risk of trading because it ’ s not about money. It

could mean some or all of your life. I ’ ve seen it happen. It happened to me.
It still happens every day around here. It very well could happen to you.

If you accept that risk and you lose, you are to be admired for try-

ing to better yourself. Welcome to the war. If you are ignorant of this
risk, wise up. It ’ s no challenge to kill a child. In fact, it is embarrassing
and wasteful. It hurts to admit you ’ ve done it. If you pretend this risk
isn ’ t there, you are a fool. You deserve to lose. I ’ m sorry I had to be the

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The

Last

Word

107

guy who devoured you. Next time don ’ t kick me in the face. If you
do, you better have a big gun pointed at my heart, in which case I will
say, “ My turn to die. ” Then I ’ ll ask you where you got that big gun and
can I have one too. In the fi nal analysis, it ’ s not about money; it ’ s about
evolving. Those who don ’ t are food for those who do. Sooner or later
everyone gets a chance to be both. Just do yourself a favor and never
stop evolving. I would like to meet you.

Otherwise, I will eat you.

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109

Chapter 8

In Conclusion

I think most of the people involved in any art always secretly wonder
whether they are there because they ’ re good or there because they ’ re lucky.

— Katharine Hepburn

t was a beautiful fall day. The air was crisp. The sun was shining — a
perfect day for a drive to look at the changing colors. Winter would
be here soon and it would be a while before I could enjoy the days

like I want. I decided to go for a drive. No place in particular. I headed
north on Lake Shore Drive from about Burnham Harbor. I thought
I would go north on Sheridan Road up to Winnetka or so and then
back. The last few sailboats were motoring over to the locks, going into
storage for the season. A few brave souls were out jogging along the
lakefront. You could see the waves breaking a little higher on Oak Street
Beach because the winter winds off the lake were starting. It was a

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t h e a r t o f t h e t r a d e

postcard - like setting for me. I really enjoyed all this. It was the middle of
the week, early afternoon. I had the Drive almost to myself, unconcerned
about anything except the hum of the engine. I felt great. I decided to
give the car a little push.

You guessed it. Flashing lights, the siren. If you have ever driven

Lake Shore Drive, north from downtown, you know how easily this can
happen. It ’ s fi ve lanes in some spots, posted 45 mph, but you can easily
do 80 - plus when no one ’ s around. Apparently, I wasn ’ t even in the same
time zone by the time I stopped according to Offi cer Friendly. Sheeze,
I was only in third gear for crying out loud. I had two left I could have
used, why don ’ t you just be thankful? Well, I knew I had a problem:
ticket for sure, maybe even a ride back to the clubhouse too. I had cre-
ated some confl ict, how was this one going to work out? I really had no
idea what I would do, but I knew where the starting point was. I wasn ’ t
thinking about “ talking my way out of it ” or anything.

All I knew is that he had the advantage, but I had the fi rst move.
As he approached the car, I watched him in the rearview mir-

ror. He moved quickly, so I knew he was angry. His hand was on his
service revolver, but in Chicago that is to be expected. I did nothing
and kept both my hands on the wheel where he could see them in
case he was the twitchy, Barney Fife type. When he got to the driver ’ s
door he banged on it with his fl ashlight. He knew that would piss - off
most people. He wanted an excuse to unload on me. My response to
that, if he didn ’ t like it, would certainly justify at least a ticket. Maybe
he had the capacity for violence, which for a Chicago cop is practi-
cally a given. I continued to just observe and wait for enough clues.

“ Yes, Sir, ” I said. “ I ’ ll roll down the window. ”
“ You think you ’ re hot s — in this ride, don ’ t you? ” was the fi rst

thing he said. I had my answer on how to win. The trade was executed
right then. As they say in tennis, advantage - in.

“ Oh, no, offi cer, I only just bought this car about a month or

so ago. I work so hard I never have time to enjoy it. Take a look
at the odometer; I think it ’ s still less than 1,000 miles. I must confess
the temptation just got the best of me. I can ’ t believe the fi rst time I
let it out a bit I got stopped. I ’ m really sorry I put you through the
trouble, Sir. ”

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Conclusion

111

“ You were going 83 miles per hour; the limit ’ s 45. I should take

you in. ” This man was not happy.

“ Yes, Sir, you could do that. I would hate to put you through all

that trouble but you are the boss. ”

He went on for a moment or two about how unsafe that speed was

and that ’ s when I had him cold. Dead to rights. If it had been a trade,
I had his money and there was no way he was getting it back. I almost
started laughing when I realized how easy he gave me the opportunity
to take the profi t. Up to that point I still had no idea how to fi nally
win, only clues that I had to consider in an attempt to win. If I didn ’ t
fi nd it, I was going to jail, probably. But he gave it to me without hav-
ing to look for it anymore. I then chose to add to the position that had
the potential and executed again.

“ Yes sir, you are right. But that is why I bought this car.” (Lie.)

“How much do you know about ____________ ? ” (I won ’ t tell you
the make and model, but there were only a handful in the whole coun-
try at the time.)

“ What ’ s that got to do with anything? ” he asked me.
“ Well, I ’ ll show you ” I said, “ While you are writing this up let me

give you the nickel tour. Is it okay if I get out? ”

“ Sure, ” he said. I knew I had his interest then. He knew something

was going to be different about this stop.

So I showed him the air dams and explained why they contrib-

ute to the car ’ s stability at higher speeds. I threw in some stuff of my
own about, “ When the air is colder it ’ s denser so they work better. ” I
showed him the suspension (we had to get down on our knees to look
under the car) and explained how that works in conjunction with the
air dams. Then I explained the reason the car is mid - engined is because
that helps it remain more balanced and contributes to its overall stability.
I went on about how that helps the brakes work better and the car resist
spins. I told him the car was engineered for panic braking and avoiding
potholes on the bad Italian roads, so naturally it works even better on
good asphalt like Lake Shore Drive. I told him the whole reason I got a
little ahead of myself is because I really believed I was safer here than on
the Dan Ryan Expressway with all those nuts. Basically, what I told him

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t h e a r t o f t h e t r a d e

was all technically true, but I put it in the frame of reference he gave me,
the issue of safety. Personally, I bought the car to run wild with it. I do
that every chance I get. I could outrun a helicopter if the road was long
enough and I was willing to deal with that confl ict.

He didn ’ t have that perspective. In fact, he basically told me that

he believed anyone who owned something like this was intending to
break the law when he accused me of being “ hot s — . ” Once he made
the distinction that “ ownership equals unsafe, ” I knew his point of view.
Now the trade was confi rmed as a winner and he had no chance. It
was over for him. It was a simple matter to put my actions into his
frame of reference, thereby resolving the confl ict in a way that validated
his point of view. I let him “ win. ” But in doing so he saw my point of
view as being the same as his. Therefore, he actually lost and gave up
his position to mine. Then I did what was only the right thing to do.
Class and style, baby.

“ Have you ever driven one of these, offi cer? ”
“ No. ”
“ Why don ’ t I ride with you? ”

So off we went. We drove up and down Lake Shore Drive fi nally

arriving back to his squad in about 15 minutes or so. The whole time
I kept asking him, “ Can you feel how stable the car feels? ” “ Can you
feel how those brakes make you feel safe? ” “ Can you see that eighty feels
like forty ?” The end result is, of course, no ticket. He has to drive some
Detroit derelict all day long. But today, he got to drive something
that was out of his reach, maybe forever. Do you think he woke up that
morning thinking he would be behind the wheel of a state - of - the - art
engineering marvel that he ’ d never even heard of before? Something
that costs more money than he gets paid in two or three years? (Maybe
he was just jealous.) Who knows where it could have gone? We never
discussed his family, how long he ’ d been a cop, what he likes to do for
fun or to relax, all those other places to connect. The possibilities were
completely endless. He even apologized for stopping me and thanked
me when we parted. Imagine what the conversation must have been
like back at the precinct. Do you think I will ever get a ticket from any
of those offi cers if I ’ m pulled over? I ’ ll probably have to let them all
drive sooner or later. Damn, I should at least ask for gas money.

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113

Would any of this have happened if I had done something different?

Like “ make a case ” for myself? Or focus on how frustrating it was to
get pulled over? Or if I would have been concerned with my own
point of view in any way? For me, it was his point of view that mat-
tered. Everything is like this — especially the markets. The Art of the Trade
is the process of getting to the point where you can begin to see the
true nature of reality, doing it in a way that is completely divorced from
your perception of what that reality should be, always attempting to
adapt yourself to that reality as it unfolds around you. Once you begin
to discover that, you can begin to exploit price action in any market in
any time frame. You will never arrive because that reality is constantly
being created differently by those who participate. Therefore, you must
be constantly creating differently as well. Otherwise, when you dance
to the wrong tune, you get eaten.

It ’ s like this: “ This is what the market says, this is what I do. ” But that

“ What is it really saying right now? ” question is the art.

What I choose to learn — and believe every trader needs to at least

consider — is that everything in your life and everything in your personal
thinking can contribute to that process. Every circumstance, every event,
every person, every situation I might fi nd myself in has the potential, if
I let it, to teach a lesson on the nature of how people think, how they
function as a group and what causes them to do certain things. Most
importantly, it is how I personally interpret this constantly unfolding
reality that is created by these people. The markets themselves taught
me this. I learned that there are only two points of view: the other per-
son ’ s and the best one. What I think is of no consequence. Mine must
become the best one. Nowhere is this truer than in a zero - sum game.
The end result is the ability to do or become anything you could ever
want to be. All that takes is money. And money in a never - ending sup-
ply is what the markets can give you. In any amount you need or want.
That ’ s why we trade in the fi rst place.

But, you won ’ t get a penny of it unless you are willing to hear its

voice. It only speaks one way. By God, I was willing to stop talking and
fi nally listen.

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115

Appendix A

For Traders Only

Looking in the Mirror

Speculation : From the Latin root verb “ speculari, ” meaning “ to observe. ”
It implies unbiased assessment of conditions and leaves the fi nal result
of any confl ict, action, or effort to be free of any committed outcome.

—Anonymous

t the beginning of this book, I told you this is not another
“ how-to ” book on trading. This is my personal story of how I
fi nally came to be a permanent success at trading. When the

manuscript was fi nished, and after I paid “Ghostwriter X” what he
thought was a huge check, I was at the point of deciding if I should
actually publish this. It was at this point that I gave the issue of trading
itself more thought. The people who are naturally drawn to this type of
book are going to be, for the most part, in the business of trading

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t h e a r t o f t h e t r a d e

somehow. I don ’ t think this will ever be read by anyone who is in crop
dusting. So I thought in fairness to you spending some of the money
that you will probably lose anyway, I offer you a better shot at getting
mine. I will be on the other side of some of those trades. Fair enough?

Here are some things relating to the actual part of execution, both

initiation of a position and liquidation of that position. Also, I want to
share some thoughts on maintaining a strong market presence.

These are only words. They have all been said before in some form

or another. This isn ’ t “ new ” in that respect. I want you to look at these
insights from a new perspective; hopefully the one I have come to
understand and presented throughout this book. Even if you came to
understand the point of view I hold, you will see it in a unique way.
Find a way to “ look ” at what is happening like I do. That is when this
information is really useful. Then let your own expression of that per-
spective control the execution of your trading. Let that be the art form
you create. Do it better than I can, so I can learn from the new reality
that you are creating, that I have never seen before. I ’ m looking for that
every day. Please be there. I ’ m getting bored with what I fi nd now.

One last qualifi er: I tried to “ teach ” trading for a period of time. I

have no intention of ever doing it again. If you think I am trying to
“ teach ” you anything, I will hunt you down and have your head for a
paperweight. Better stop now if you think that is what you will fi nd here.

Here you go. Try to take my money.

If you are losing a tug of war with a tiger, give him the rope before he
gets to your arm. You can always buy a new rope.

— Sufi Wisdom

Cut your losses, @#%$ for brains. Live to trade another day. You

are wrong today. Try tomorrow. The markets will never end. Go do
something else for a while. Write a book for Christ ’ s sake. Someone
will buy it.

The fault, dear Brutus, is not in our stars, but in ourselves, that we
are underlings.

— William Shakespeare, Julius Caesar (I, ii, 140 – 141)

Who twisted your arm to do this trade? Who called the fl oor and said,

“ Get me in? ” Who clicked the “ Enter Order ” button? Take 100 percent

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For Traders Only

117

responsibility for your results, no matter what they are. The more you
blame, the more you lose.

Write down everything you do and look at your ratios. Know

what you average gain/loss is. Know your percentage of winners to
losers. When you trade write down why you did the trade. On a regu-
lar basis review these notes and ask yourself what the quality of your
thoughts really was at the time. The more you kid yourself, the more
you lose. Attempt to improve your gains by 10 percent and reduce
your losses by 5 percent on some time frame of your choosing. If you
are half right you will improve your net gains by 7.5 percent or more
on a regular basis.

The market is always right. If you lost, you missed something. That

something is inside your head. What is it?

Never trade without a stop. Ask yourself why it is okay, just this

time, not to place a stop. What is that something?

Let profi ts run. If you think it is time to get out, ask yourself why

you think it is time. Let the market decide that, not that something that
says it is time to get out. Who knows how far it might go?

Never add to a loser. Ask yourself why you feel the “ need ” to do so.

The market does not know you have any position on. Your fi rst loss is your
best loss. Take a new look at it. Take a break. Do anything but add to it.

Always remember that 90 percent of people who trade lose. Only

10 percent win, but they have all the money. One hundred percent of
contracts traded fall between the two. Therefore, 90 percent of the size
is controlled by 10 percent of the people. Who are those people? What
are they thinking? If a hundred “ one - lot ” traders are working against
one “ hundred - lot ” trader, how did he get to be that big? Was it from his
losses? Always consider what the large traders are doing, but that they
can be wrong too. The small guy does have his day. Remember that.

If you want steak, but can only afford chicken, a cow will be your
undoing.

— Proverb

Don ’ t trade more than a reasonable size. Don ’ t “ load up. ” Only very

experienced traders know how to do this. They got that way from a
proven method that works for them. Until you get there, and know
you are there, you will meet your Waterloo when you do so. I will be

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t h e a r t o f t h e t r a d e

there, or someone just like me. I will also rent you a car so you don ’ t
have to walk back to Paris to get more money. Please come back. I
would like the continuing pleasure of removing that new money from
you as well.

Go with your “ gut. ” Your subconscious mind has the ability to form

associations and reach conclusions for you. It oftentimes will know
something your waking mind doesn ’ t. It is trying to tell you something.
Please listen. You must learn how to differentiate a gut intuition from a
testosterone - fueled ambition. Otherwise, you will have no testosterone
at all.

Never listen to what anyone else is talking about regarding their

trading. They “ talk ” their position because they want you to validate
their point of view. They don ’ t know why they did the trade in the
fi rst place. Or they want to “ help ” you in some manner with your
own trading. Never tell anyone what you are doing in any market.
Let them wonder. The more you listen to what others say, think, or
do, the less clear your own thinking will be. Since I am crystal clear
in my thinking and I want to take your money, the more I like it
when your thinking is fuzzy.

Find someone in the offi ce that is always losing. Carefully observe

what he does and how he justifi es his positions. Observe his train of
thought. This is different than listening to what he says as I describe
above. Find this critical difference and exploit it. Be polite when
doing this so that you always have this advantage. When he quits and
goes somewhere else, either maintain the relationship or start a new
one with his replacement if you can. This will become a never ending
source of information about the loser ’ s thinking. You only need to fi nd
one because they all think the same way. It is a “ shortcut ” to the top if
you can fi nd it.

How do I know this? I ’ ll tell you. One of the honest men I met in

this business showed me. It was Christmas and he stopped at my desk
before leaving the offi ce for the holidays. He dropped $ 5,000 in cash
on my desk and said, “ Thank you. ” I thought he was joking. He sat two
desks away from me. He would listen to how I worked my trades and
would occasionally ask for my “ help ” on his trades. He was taking the
other side of my trades almost like clockwork. I was losing so consist-
ently it was a sure bet. I made him a fortune. Talk about an eye - opener.

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119

My sense of pride was so shattered for a while that I wouldn ’ t talk to
him. He understood that and never teased or derided me for what I
was trying to do. He was a man of honor. When he passed away I didn ’ t
know about it. I heard through the grapevine. The fact I couldn ’ t honor
him on his last trade really hurt me. He taught me a hard lesson, but
I learned it.

Stay away from women when you are losing. If you are a woman

trader, stay away from men. At certain times the relationship between
men and women is similar to being long or short against the other mar-
ket participant. The critical component that isn ’ t working will some-
times have come from your opposite in some fashion. Until you are
back on, the “ whatever it is ” that isn ’ t working will be reinforced by the
opposite sex. “ I ’ m losing in the markets, honey. ” “ But what about our
vacation plans? ” Get the picture? God help you if you are married at
this time. Your money is MINE.

Don ’ t look for tops or bottoms, anticipate them. Tops have a dis-

tinctive “ look ” to them. There are two ways the top happens. The best
kind is an all - time or near all - time high.

Look for huge volume. This is turnover; lots of people getting in

and out. Look for a big range when this happens. If you have unlimited
courage, pick a price and hang on. If you have a lot, but not an unlim-
ited amount of courage, sell on the close and hang on. If you have a
good dose of courage, but with a streak of caution, wait for the next
day ’ s attempt to match or exceed the previous day ’ s high, and sell when
the price slides back through the day ’ s opening range, and hang on. If
you have, say, an average amount of courage, sell the second days close
and hang on. If you have no courage at all, why are you trading? In any
case, look for open interest to drop on the big day, or the big week, the
market is fi nished. Once you have your position, take a vacation for a
month. You will make huge money if your skill in timing this event has
been tested. The market will break and it might take some time for this
to occur. Maybe it will go south for years. Stay with it.

The second kind of high is a consolidation high. Prices stay within a

basic area for some time before going south. Afterwards, they rally huge
to re - test. Wait for the re - test, then sell. Do this on rising open interest.
This is the loser hoping to buy cheap one last time so that he doesn ’ t
miss the new highs he is certain will occur. When prices get back to the

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t h e a r t o f t h e t r a d e

highs, consider offering him the opportunity to unburden himself for the
responsibility of his bank account. Selling highs is dangerous in any case
because you won ’ t know it was the absolute high until prices fi nally drop.
That might take time. But the clues that this is inevitable are there. Sooner
or later any market must top. Is this a top or the top? What are those
clues?

It is exactly the same for bottoms. Just turn the chart upside down

and you will see what I mean. Markets that are at an important low
price take time to distribute. This means they crash and just sit there.
Or they trend to a bottom and just sit there. Anybody who could have
entered on the buy side has run out of money trying to pick the actual
bottom and is now so discouraged he will need time, maybe lots of it,
to get his courage up to try again. The potential seller is afraid of a rally.
The selling hedger will deliver his higher-priced goods anyway so that
he doesn ’ t have to buy to get out. Therefore, the market just sits while
the bulk of the market participants do nothing and watch. The whole
show starts when one large buyer or lots of little ones start buying.
There are only the late shorts to take on the approaching horsemen of
their impending apocalypse. Some of the early longs sell, cutting their
profi ts short. Don ’ t worry, they will be back. Hence a rally that falls
back, but never a new low because the buyers are so convinced that the
spike means the beginning of a move they don ’ t liquidate. They created
the potential for a self - fulfi lling prophecy. As long as they believe that
as a group, they won ’ t sell.

Start listening when all the “ fundamentalists ” begin raving that those

prices aren ’ t “ justifi ed ” just yet. Watch for the hedgers on the buy side
getting in at that point. Now it ’ s time to join the fun, maybe.

If you have read this critical distinction correctly, here

’ s another

clue: The commission houses start offering it to the public. Watch what
their advertising says. They prefer to market a trade to the public from
the long side. But one word of caution: If this market has been in a
steady climb before the commission houses are in, it will correct. They
are late. Maybe not forever, but there might be enough of a correction
to wash you out, or at least them. Some of the clients that are early
enough might even make money on this one. That ’ s okay, they ’ re just
holding it for me until I fi nd them. Maybe I should charge interest on
the loan.

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121

Range trading is sure money. Enter in the top or bottom 5 to

10 percent of the range. Place your stop outside the range and wait.
Liquidate and reverse at the same point the other way.

Do this forever until one protective stop or the other is hit. Then take

a break. Wait for more clues before doing anything. What does a range
look like? How do you know a range has been established? How do you
know the range is over and the market is moving to a new equilibrium?
How do you know when a market is due to break out of a range?

Never trade shortly before or shortly after some major life event,

expected or not. If you get a phone call your parents have just died in a
plane crash, or something that for you is equally major, liquidate every-
thing you are holding and deal with it. Don ’ t get back in until you are
over it. You will not be in any frame of reference to understand price
action when you can ’ t think straight. You will miss something and lose.
The only exception is a planned trade that is winning and your stops
to lock in a permanent profi t are outside the range of a limit move for
the day in question. If you are getting married, or your kids are starting
college, or you are buying a house, or some major planned event, you
have the same problem. In any case, I ’ m looking for you to believe that
you are capable of handling it all by continuing to place yourself at risk.
I need a bigger yacht anyway.

Everyone reads the news. Try observing how often a market fades

a major piece of news. This is a clue to its real nature, not the expected
nature. Try observing how the market behaves the day after the news.
Never anticipate any news. News, reports, or numbers are always fac-
tored in to the price before they are out in some way. Of that you can
be certain. How is the news factored in? If a piece of news comes out
that was unexpected and the market does nothing, what does that tell
you? What does it mean for a market to “ do nothing ” ? What does a
“ nothing day ” have to look like for it to qualify as a “ nothing day ” ? As
a side note, I know of one trader who made his fortune exploiting this
one skill. Whatever the Wall Street Journal commodity news section had
for the headline that day, he would wait all day and fade that news on
the close. He would run a $ 500 per contract protective stop and wait.
He had somewhere around 80 percent winners for an average gain of
somewhere around $ 500 each. I don ’ t think he ever traded bigger than a
20 - lot his entire career. Do the math.

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t h e a r t o f t h e t r a d e

If you just scored a huge win, you might want to reduce your position

size for a period of time. Large amounts of success can sometimes cloud
your thinking or cause you to get slightly complacent with your “ research ”
into the nature of price action. You are a bit more susceptible to losses per-
haps. Always reduce your trade size during a period of losses. That way you
can always afford another beer to cry into.

Train your body as well as your mind. You are in a winner-take-all

battlefi eld. You must have every advantage you can fi nd. Find the best
balance for you between enjoying life and slowly ending it. This will pro-
vide a more consistent starting point every day. When your mind is sharp
you function better. Your mind lives inside your body. If you aren ’ t eating
right or exercising regularly, your mind will suffer at some point. By the
way, I ’ m counting on your lack of discipline.

Put aside a portion of your winnings when you have them. There

is a freedom of mind that comes when you know that no matter what
kind of damage you do to yourself for a short time you can always pay
the mortgage and the bills. You will create all kinds of problems for
yourself if you spend it all, all the time. There is a tendency to expect
market profi ts to support your lifestyle when in reality it is your life-
style that leads to profi ts. Be sensitive to this. Find a happy medium
between saving and spending. At some point you won ’ t know how to
spend it all anyway and it will just sit there until your wife gets half.

Never lose your sense of balance. It doesn ’ t matter how you do that.

Once your sense of balance goes, so does your money. You will think it
had wings. How do you create balance in your life? What is balance?

When a market keeps moving only one way, day after day it seems,

and the ranges are modest, be ready to move. All those winners will
get nervous at some point. Where is that point? What does it look
like? If you are one of those winners, how do you think about those
profi ts? At what point are you nervous? A retracement is inevitable. If
you have done your homework, this is where you add to that win-
ner and take all. All markets retrace before the big move. Pay attention.
If you are wrong, always place your “ GFO ” (get the f — out) stop at
the break - even price on the entire position and watch it like a hawk.
If you have correctly interpreted what must happen next, you will do
very well. If the market doesn ’ t rebound, be very nimble and consider
totally reversing. Markets set up big moves like this. If it is not one way,

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it will be the other. Run with it. If you think you have earned the skill,
plunge for all you are worth. If you don ’ t have the skill, well, there is
always Vegas. Too bad you don ’ t have any money left to join me.

If you trade futures, always remember all markets are

“ bearish. ”

Their function is to provide the producer of that commodity with a
way to exploit higher prices, which he will sell into. If he is not doing
that, it is because he expects higher prices fi rst before he sells. This in
itself is an advantage that you should learn to exploit. But he is always a
seller eventually. Once he does this, he is the ONLY market participant
who is under no obligation to get out by becoming a buyer. He may
deliver against the position. Therefore, the speculator who buys and
sells is the net force on the market. At some point there will be an ine-
quality when the initiating buyer must become the seller to get out. If
the hedger sells, the initiating speculative seller sells, and the liquidating
speculative buyer becomes a seller to get out; that market is under three
times the selling pressure it would normally be under; especially if the
old shorts decide to press their advantage and add to their positions.
This is why markets will always break faster than they rally. You will not
have a lot of time to join the party. To exploit this, you must be vigi-
lant and ready to move. And I mean now. There are not many buyers
out there. Most of them are small shorts covering too soon. That means
one - lots. If you can ’ t see this eventual inequality developing and time it
fairly well, it ’ s better to let it go. You will end up selling it into the hole.
Market orders or resting stops will get fi lled way below what you see
on the screen. Wait for the next one. Otherwise, I ’ d like to thank you in
advance for my new airplane.

Options are hedging instruments. People trade them like speculative

vehicles, but they were originally developed as a low - cost way to protect
something. Ninety - eight percent of all held options expire worthless if
they have traded anytime for any strike price. The reason this is the case
is very simple. The market will only be at one price at expiration any
way and the people who sell them, or write them, have enough pres-
ence of mind to write most of them on the side of the market that
prices are moving away from as well as buy them back after the pre-
mium has dried up. If you are speculating with options, you have two
things working against you, time and price. The market might

“ get

there ” eventually, but you will fi nd it is there after the strike you are

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t h e a r t o f t h e t r a d e

holding has, more often than not, expired. You need big moves to fi ght
the time decay, even if you are holding an “ in the money ” option. It is
better use of your money to use options to protect open trade futures
profi ts. The reason is simple. If you are long, and the market is moving
your way, puts get cheaper. It is the same for calls against shorts. There
are times you can buy a put or call against your futures for next to noth-
ing if it has only a week or two before it expires.

Sometimes that is cheap insurance if you expect some big report;

you think the market might be vulnerable to large price swings and
you don ’ t want to risk getting stopped out; or just want to take some
time off while holding something that is working.

Writing options is a complicated thing. Why make this harder than it

has to be? There are at least 30 different ways to combine the writing of
options on either side of a market, or both at the same time. To profi t, the
market must still move in an intended manner. I ’ m the only guy I have
ever met, besides a full - time option pit trader, who can explain what an
“ inverse - ratio back spread ” is. Some of the pit traders don ’ t even know
what that is. Almost all of these complicated ways to profi t are used by
hedge funds or professional money managers. If you intend to exploit
option - writing strategies to achieve profi ts with your trading, you need
to become at least as expert on it as they are. In any case, without a sound
understanding of the market that you are doing this against, trying to
capture time decay might mean equity decay. Be very careful when adding
options to your mix — not everyone can be a bookie.

Jesse Livermore said it all. Find and absorb everything you can about

him. If you fi nd something new, please share it with the rest of us.

Prices are continually in motion, even when the markets are closed.

They are this way because all the losers are studying them from the
point of view of “ Okay that ’ s over. What does this mean? ” Then they
form their conclusions while the market is closed to

“ do such and

such at this point ” or “ I ’ ll wait for the open, see what happens, then
do such and such, ” and so on. The end result is when the market does
something, anything “ unexpected, ” they have to reinterpret what that
means in real time. They then place orders or execute against their
“ original plan. ” The end result is that the force of the buying and sell-
ing had its fi rst belief structure while the market was closed. When it
is closed and the loser says, “ I better just get out, ” he can ’ t do that, so

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his tension builds and he chooses to execute at the fi rst opportunity he
can, which is the open. This rush of orders placed in the last 10 to 15
minutes before the open is what causes gaps. Gaps are a good indica-
tion that the loser is getting out. Conversely, if he decides “ I have to
get in, ” it can also mean he is setting himself up for a loss in a day or
two. Gaps often show you “ key ” points for you to consider. It is for
this reason that you should consider any opening price as slightly more
indicative of the nature of the market than the close. But the close has
equal signifi cance from the point of view that when the loser is waiting
to get in, he will tend to view any closing price as “ strong ” or “ weak. ”
He will then make his trade decision at night waiting for the market to
open. So in effect the pressure on prices was preordained the previous
night. If you combine this relationship between the open, close, and
gaps, watch to see how news is factored in. You can then begin to see
how the thinking of the loser shows itself a day or two ahead of the
news and then be able to correctly anticipate how to place your posi-
tion the day of the news — waiting for the inevitable move to where
the loser ’ s stops must be. This ability is a real art. But then again, you
never studied art, right?

The average market participant operates in a time frame of 72

hours or less. That is because they all expected to make money “ right
now. ” Where is this rhythm showing up in the ebb and fl ow of price
action? Most losers exit their position in that time frame. First, if their
trade is “ not working, ” they get tired of waiting for the gain that didn ’ t
come. The pressure of being in a loser is building to the “ I better just
get out ” point for him. Also, the average loser will wait to exit a posi-
tion until the loss is somewhere between 60 percent to equal of the
initiating margin requirement amount against him. Why do you think
the exchange sets them to be those amounts anyway? Partly because
that amount always is enough price movement on a chart for almost
any chart reader to see he is wrong and decide to quit. If you want
a good idea where stops are building for the liquidation point, sim-
ply calculate what initial margin would mean in price action from
the point you believed the loser got in at. For example, if you think the
loser came in on the buy side of corn at $ 2.75, and initial margin is
$ 600, then his sell stops are about the $ 2.63 level, or fairly close. Ergo,
your best buy point.

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t h e a r t o f t h e t r a d e

Also plot ahead about 72 hours for that to happen. As the $ 2.63

area is reached (assuming you are seeing it right), observe how much
time this actually took. If it happened in less than two trading ses-
sions, be careful. If a loser gets spanked too fast, he has a tendency
to “ stay out until things settle down. ” That means he will take more
time to get his courage up for an attempt to get his money back.
If your price is reached in three or four sessions, he is simply frus-
trated. Now he wants to just get it back, so he immediately executes
according to his trade plan. For some reason the loser doesn ’ t seem
to mind if a loss takes the right amount of time to play itself out,
but if it happens too fast, then he is cautious. The same is true for
a winning position. If it happens too fast, the loser mentality tends
to “ just take it ” and wait “ for things to settle down a bit. ” It seems
that there is a time frame for either losses or occasional gains that
must be just right for them as a group to be able to function well
under. I don ’ t understand it, it just is. Can you fi nd that rhythm? If
not, I ’ ll fi nd you. You will be sorry you ever thought you knew what
you were doing. That ’ s okay, go borrow some money from your rich
uncle. I ’ ll just wait right here until you get back. No rush. Take your
time. Make sure to build a strong case for yourself; bring all those
charts for him to look at.

Until you really have a handle on fi nding the loser and feasting

on his ever - dwindling trading stake, try not to hold a position over a
weekend. Anything can happen in the minds of the losing group when
something truly unexpected happens, especially if it is on a Friday
night or Saturday morning. This group will stew about what it means
to them personally for 48 hours. This will create a huge order imbal-
ance on Monday morning. Unless you have a good lead on this mar-
ket, or are fortunate enough to have positioned yourself properly for
the inevitable panic, you will be in the losing group without knowing.
Three weeks of profi ts can go up in smoke in 10 minutes. If you are on
the right side and you have a windfall, don ’ t add to the position or take
your profi ts. Wait until Tuesday ’ s trade. If this event has truly converted
the perception of the market, a reversal is in the works because all the
winners will bail too. Hence, the market is seeking to attract everyone
back into the game. You are probably out anyway if you are using good
money management. But if it is a knee - jerk reaction kind of thing you

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will be able to add to the position with almost certain probability of
higher profi ts. In other words, nail the coffi n shut and bury him.

Also regarding weekends, Friday

’ s closing price trades at some

point on Monday approximately 92 percent of the time. Just reenter
the position when your liquidating price trades on Monday. Your net
equity position will remain the same and, if nothing has changed with
the structure of the market, then you can continue to let the profi t
run. If something truly unexpected did happen to the mind of the
market, you will be fl at during that time. Plus you will not have to
reevaluate the position in real time when it is temporarily working
against you, creating confusion on your already fragile ability to do
this anyway. You do keep a box of Kleenex in the offi ce, don ’ t you? I
hate it when they cry.

Page 60 and 61 (the fi rst two pages of Chapter 5 ), Reminiscences of a

Stock Operator, paperback edition, by Edwin Lefevre, referring to “ Larry
Livingston ” — read this very carefully. Remember this part was written
about an observation made before World War I.

“ All the world ’ s a stage, and all the men and women merely players. ”

What do you think Bill meant by that?

Speaking of paperweights, the apparent function of a paperweight

is clear. Its real function is to validate a critical distinction in the mind
of its owner. How is this so? People used paperweights to hold down
papers in case they blew off the surface they were on. Which surface?
Most likely a desk or table. Why is this? Those papers were crucial in
the mind of someone who wanted those papers available for some rea-
son while he was seated in front of them. Or he didn ’ t want to get up
and walk around the surface in question; otherwise there would be no
confl ict. Therefore, some task was being done at the time that needed
to be free of interruption. Perhaps work. What causes papers to blow
away? Some kind of atmospheric force. Since a surface where work is
done is usually indoors, then it stands to reason that either a window
was open or a fan was blowing.

Consider then that a paperweight would be a necessary compo-

nent of every desk so placed in proximity to a window if the window
needed to be open for long periods of time. Why would a window in
the workplace need to be open for an extended period of time? There
can be only a few distinctions in this case. The person seated at the

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t h e a r t o f t h e t r a d e

desk was either too hot at the time and wanted a breeze; the person
needed access through the window for a reason of his own; or some-
thing was in the air that this person wanted out such as smoke. In any
case, whether intentionally or unintentionally, this person was expect-
ing air to possibly upset his papers and chose to fi nd a solution to his
problem.

In the case of the fan, he would be expecting this problem, but that

can only mean he wanted to create a breeze. Since the purpose of a
breeze is to cool the individual then the most likely reason that anyone
would be sitting at a desk, doing work, who didn ’ t want papers to blow
away, who was creating or expecting a breeze, is because it was too
hot at the desk on which work was probably being done and the most
likely setting was an offi ce of some kind.

Today, because most offi ce buildings where work is being performed

are climate controlled and air conditioned for the most part, the win-
dows remain closed and a fan is not required, a paperweight would not
be a crucial component to completing a task free of interruption. So
why are paperweights still common on many desks when they are no
longer needed? Most paperweights are of design, construction, or assem-
bly that offers a unique something to consider it for besides its apparent
function. They have clocks, sayings, descriptions, metaphors, and so on,
all within their construction that must make an impression of some kind
before they are purchased because they serve no purpose by their appar-
ent function and in fact, are completely unneeded in most offi ce envi-
ronments. No one would buy them unless they contributed in some way
to the purchaser.

Therefore, that relationship must exist in the mind of the owner and

nowhere else. A paperweight therefore serves to validate some component
of its owner ’ s thinking that is important to him or her alone. Paperweights
serve no other purpose in most cases. Do you see how conclusions that
appear random, in fact, are based on observations and critical deductions?
How much more so is price action to be considered?

Here are a few thoughts on using technical analysis from my point

of view. Let ’ s say you are looking at stochastics. Most people who use
them work in certain time frames to compile them. What are those
time frames? Does this differ depending on the market being traded?
They will then form a conclusion about what those numbers mean at

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some critical point. Then they will do something, putting themselves in
play. Where is that point?

It works sort of like this: Everybody using stochastics is probably

thinking this market is overbought. Therefore, if they are long, they
must start to consider liquidating; otherwise they wouldn ’ t be trusting
stochastics in the fi rst place. The people who want to short this market
are thinking the same thing, but from the sell side to initiate. The late
buyer “ doesn ’ t want to miss it. ” If this is actually happening, then they
are executing against each other. Therefore, O.I. (open interest) won ’ t
move very much because the same contract is simply being transferred
to another body to hold if the old shorts aren ’ t getting out yet. (One
gets out, but one comes in.) That means the market must move higher
because some of the longs will wait, but the old shorts are nervous and
must cover. (What they expected didn

’ t happen.) Therefore making

the new shorts nervous, then they will cover, and the market is run-
ning out of potential shorts because they are already getting in. This
process will happen until everyone quits all together and the O.I. drops
at that point. So, when the shorts bail (those that thought the market
was overbought and got in) and the longs bail (to take their profi ts),
the market is ready to go the other way. Now it is time to short this
market.

If you can see that this “ overbought ” point is also at some “ resist-

ance ” number, you now have two good reasons why the market might
be vulnerable to moving south. This is a different process than “ trust-
ing the chart ” or “ doing what the stochastics say to do. ” Do you see
the critical distinction? Just because something says “ overbought ” does
not mean it is time to sell. It might mean it is time to sell but only if the
market is running out of people who want to play and only if they are
deciding that because enough of them believe what the indicator tells
them. This is why a market that is overbought can continue to climb,
sometimes for weeks, before breaking. Maybe no one is watching that
particular indicator except you. Sometimes the people who want to
short that market get spanked two or three times before they fi nally
quit. Who is that? How long have they been spanked? How many
times will the average person trading that market, who is trying to sell
it and using stochastics to tell him where, going to execute? What is his
emotional state at that time? Once it breaks, does he rush right back

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t h e a r t o f t h e t r a d e

because he “ knew that would happen ” and he wants his money back?
If he does, why would someone buy to let him in? How would you
know that is what he is doing? What are the clues this is happening?
Do you see what I ’ m getting at? No? Good. Thank you for the new
tires on my car. Wanna play again? I need new rims, too.

Bernard Baruch, one of the great business minds of this century, was

an excellent trader in his own right. He never spent more than 30 min-
utes or so each day “ analyzing ” the markets he would trade. Sometimes
he did it in bed while having breakfast. If you fi nd you are spending a
lot of time “ analyzing ” your market, be careful. It is completely possible
you are expecting that analysis to tell you something or do something
for you it can ’ t do. Carefully review your thoughts. Listen to what they
are. You are vulnerable at that point. I look forward to enjoying your
money with great relish. Please, take all the time you need.

For those who are not trading now, but wish to get started, I have

a fi nal summation for you. You and your trading are the same thing.
What I ’ ve hoped to communicate here is that who you are determines
your results. When you execute, you place your thoughts into an action
that you believe creates a profi t. It is the same for everything in your
life. In everything you do, you have an expectation of a benefi t — oth-
erwise why do it? When you critically examine who you are, you will
always uncover how you are thinking. By knowing as much as you can
about your thinking you will discover how you make actions. If you take
the step of examining everything in your life, past, present, and future, you
will see that your thinking has played out in your actions, thereby creat-
ing the results you have (the “ life ” you have created for yourself). If you
hope to trade for profi ts, there must be something behind that action that
is prompting you to pull the trigger at that precise spot. Find out what
it is. You must become a student of yourself. Forget the markets. Study
you. When you understand yourself and how you personally create your
actions, you will be able to control your executions. This means you will
trade only when you know you can profi t, not because of something. At
that point you will make 100 percent winning trades. Anyone could learn
to do it. You cannot succeed at trading by “ studying the markets ” because
no market moves based on what people know. Markets only move based
on what people do. They make those actions from the quality of their
thoughts. Since no one is thinking anywhere near their true potential, it

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follows that their actions will never be of any quality either. This is 80 to
90 percent of the people who participate — probably you right now.

You will never trade for consistent profi ts until you know why you

do what you do and why everyone else does what they do, because both
of you cannot be right in this game. Until you are thinking (and there-
fore acting) correctly against price action, you will never know why
price action is what it is. You cannot know that until you know yourself
better than the other market participant knows himself. To win at trad-
ing you must know why everyone else is losing. You must know why
you lose to understand how everyone else loses. When you know how
losing happens, then, and only then, can you execute against the loser
to win. Trading is not about markets; it ’ s about thinking. Since most of
the participants aren ’ t thinking, that is your edge. Never trade until you
are there. Otherwise, I will take your money. Believe me, I am out there
looking for you and I know how you think.

Lastly, I quote the good book:

There is no end to the expressing of ideas. Excessive devotion to books
and the studying of opinion is tiresome and wearying to the mind.

— King Solomon, the wisest man that

ever lived, Ecclesiastes 12:12

That ’ s it. See you at the dance.

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133

Appendix B

Insight into the Person

of Trader X

by Ghostwriter X

I ’ m a joker who has understood his epoch and extracted all he possi-
bly could from the stupidity, greed, and vanity of his contemporaries.

— Pablo Picasso

am a ghostwriter. I have been published under my own name, but
I earn part of my income by ghostwriting. At this writing I am 42,
married, no kids, and business takes me between Chicago and New

York regularly. I have already written eight books, some for major pub-
lishers, and others for smaller companies. My books are everywhere, at
every bookstore, on the Internet, in mail order catalogs, in the backs of

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134

t h e a r t o f t h e t r a d e

magazines, and, occasionally, on TV. I write for magazines you ’ ve seen
on every newsstand. With ghostwriting, I assist authors with the com-
pletion of their manuscripts for a fee, but the credit always goes to the
“ author. ” In some cases, very little is actually contributed by the author.
In the case of assisting Trader X

with his manuscript, the relationship

was unique. He made it very clear he expected me to ask questions to
help him clarify his thinking, but to never add to or embellish what we
discussed or write anything on my own.

Why is this unique? To put this in perspective, every author thinks

he has an idea for, or has written, the next sequel to Gone with the Wind.
Every day, wannabe authors call me or send me their manuscripts fully
convinced that the world will stop turning if people don ’ t drop every-
thing they are doing to absorb their essential wisdom. At the very least
it will be at the top of the New York Times bestseller list for weeks. It is
enough to make me laugh sometimes. That is why I only work with
authors I like and believe in. Authors that have guts, originality, and
something to say. Trader X is one of the good ones. He wanted help
in communicating every part of his experience. He felt that by asking
the right questions, the “ hard questions ” as he put it, he would remem-
ber more details. He also felt that someone could help him choose the
kinds of words and phrasing that would make this interesting reading
for everyone. He showed me two books in his library to illustrate what
he meant: A Brief History of Time by Stephen Hawking and How to Date
Young Women for Men Over 35 by R. Don Steele. Trader X felt that both
books took a diffi cult subject and communicated the essential elements
concisely and with style. I agreed completely.

Anytime I felt I could help Trader X clarify a thought, passage, or

concept, he would listen with great interest and then decide yes or no.
It surprised me that he was usually easy to work with. He was confi -
dent, but never arrogant. When I mentioned to him that he didn ’ t need
to have his ego validated, when I assumed he would be full of himself
(most traders are), he said, “ That ’ s for women to do. ”

Throughout the process of writing, he was concerned that the

manuscript would be “ too long. ” When I reminded him that one must
expect a certain length in communicating anything effectively, Trader
X mentioned that he didn ’ t want to be rebuked like Mozart was by
the Holy Roman Emperor: “ There are too many notes, Herr Mozart. ”

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Insight into the Person of Trader X

135

In the spirit of the verbal parry I shot back, “ Which notes are those? ”
Instantly he replied, “ In this case, it ’ s your job to fi nd out. ” It was the
fi rst of many times I would lose the round, but together I think we
have won the war.

The result is that through the process of writing and rewriting

this book it has very little of “ me ” in it. The one exception is this
appendix. He agreed to let me write it the way I wanted. Trader X
frequently asked me, “ Is this what you really think? Am I really like
that? ” When I reminded him that it was my point of view; not neces-
sarily what everyone might think, he said, “ Of course, stupid question.
Just do what you think best. ” In getting to know him, I found the
concept of writing anonymously on his part intriguing, and I decided
to do the same.

I spent many hours with him, simply observing what he did

throughout his day - to - day routine. My hope was to see the end result
of where he was by virtue of where he came from. I wanted him to
reveal as much as possible. He stressed that I “ make sure people realize
how easy this is. ” Later, I understood he was joking. I think he wanted
me to remember that the facts are the facts and that to pontifi cate on
their nature from a constant point of view might lead the reader to
believe that eventually everyone could understand. Time after time he
would explain in great detail his pet peeve. To him, most people who
write books about trading try to make it all seem ridiculously simple
to the common reader. They run around claiming that their method is
easy to use and understand, and in the end really do a disservice to the
entire industry. Trader X believes that these authors offer these overly
simple solutions in hopes of encouraging the most ignorant lay person
to open an account and use their approach, buy their system, subscribe to
their newsletter, and so on, and in the end waste more money and time.
But Trader X did the same thing; he wasted years believing there really
was a magical solution. “ Boy, if I had a rocket launcher, ” he would say,
quoting Bruce Cockburn.

Trader X told me about the brief period in his life when he

attempted to “ teach ” trading. He said it was a truly frustrating expe-
rience. Unlike other guys out there, he was brutally honest with his
students, telling them the specifi c steps and actions they would have to
take in order to succeed in this business. He was also blunt about the

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t h e a r t o f t h e t r a d e

potential risks. He mentioned that of all his students, only two stood
out in his mind. One man decided that trading wasn ’ t for him. Trader
X explained to me that he believed that man really understood himself.
Trader X went on to explain that to discipline one ’ s desire for profi t in
such a way as to completely stay out of the markets until one is ready
is a true mark of success that can be applied to any fi eld. Trader X also
mentioned that this student would likely know how to time his trades
by waiting for the best point to execute. He said there was another
side of the coin too — this man tended to hesitate at the best point to
execute. Furthermore, as a “ rookie ” trader, this man would often miss
the bulk of a market move and have a tendency for lower profi ts and
a high degree of regret in his thinking. This would have a tendency
to come out as “ rushing to the next trade, ” which would then create
losses. Therefore, his results would probably have been net losses, at least
for a period of time. For this man to realize the potential and stay out
completely demonstrated a keen awareness of his own state of mind.

“ It ’ s probably good that he chose to stay out, ” Trader X told me. “ If

he would have committed to trading, he probably would have done it
so well he would have gotten it all. There would have been none left
for the rest of us to get. ” Quite a frightening thought. Trader X believes
that student will succeed at anything he fi nally decides to do, but he
doesn ’ t believe that the man was “ scared off. ”

The other individual he could remember from his teaching days

was a guy he still knows well. In fact, this is someone Trader X consid-
ers one of his best friends. This man always tells the truth. “ Tells it like
it is, ” as Trader X likes to explain. While writing this book, Trader X
never hid his losses or mistakes from me. During those times, he would
call up his friend and they would spend time talking on the phone.
Frequently, his friend would help him clarify his thinking. It was fasci-
nating to watch and be part of.

After a string of losses, his friend commented, “ You are an unin-

fected carrier of brilliant thinking. ” Trader X confessed, “ At the time he
was right. ” Trader X also respected the fact that his friend had an unwa-
vering commitment to learning the true nature of price action. Here
is a classic Trader X explanation about his friend:

“ This guy started

with a clean sheet of paper. He threw everything he had learned up to
that point out the window. He started with one - lots. He asked himself

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the hard questions. If he had losses he always asked himself where his
personal point of view caused him to hurt himself. I never heard him
say once that it was the market ’ s fault. He never blamed anyone or
anything. He kept asking where the loser was and he was determined
to never be that person. ” From Trader X this type of compliment is
extremely rare.

He summed up his “ teaching ” experience this way:

You can ’ t teach trading. You can only provide a means of help-
ing someone discover what trading really is. People I would
attempt to teach the markets to never could grasp the concept
of being the loser. They didn ’ t want to accept that all these price
tics were really people ’ s beliefs. They all wanted to fi gure out
what “ the market was going to do next .” They didn ’ t believe
that the charts or the numbers were just clues to what people
were thinking about. They thought that if X happened, then Y
must be next. They thought that there was some constant that
they could fi nd. They simply didn ’ t believe it was the study of
how they personally interpreted what they saw. They refused
to accept that if they were thinking like every other loser; they
were going to be the next loser. They never could understand
that what they thought about didn ’ t matter. They never would
look inward and admit to themselves fi rst, “ I am the loser. ” It
would not fi t in their head, no matter how I tried to reach into
them, that every loser is thinking about the price, not what that price
really represents. Trading is not about the price.

Trader X continued:

Every one of them saw the markets as prices going up, then
prices going down. They never could grasp that people believe
one thing, now they believe something else. They couldn

’ t

accept that if what they believed was different than what was
actually the belief structure of the market, they would always be
in the wrong spot. They thought trading was about buying and
selling something. They would never understand that trading is
really about anticipating where you take a stand by saying to
everyone who is in the market, “ I don ’ t think you can continue

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t h e a r t o f t h e t r a d e

to believe what you believe anymore, you will have to get out
about here. ” When I would explain to them or show them how
that fact was disclosed by these things (I would show them a
chart and the volume and open interest), they would always
say something like: “ But such and such number was bullish/
bearish. ” “ Such and such report is coming out Friday. ” “ The
indicator such and such was bullish/bearish.

” “ The trend is

such and such. ” “ This is how Ed Sekoyta trades. ” “ This is what
Peter Stodielmayer says. ” It was always some argument that was
attempting to validate their current thinking. Worse yet, they
wanted to simply

add what I showed them to their current

arsenal of tools. It simply wasn ’ t possible to them that all that
really didn ’ t matter; only what the market participant believed
about all that. Or what he had already believed about that and
now he must make a new choice. All of which means believe
something else.

After I was full of information for the millionth time, Trader X

backed off and completed his thoughts on the matter:

They all thought you could fi gure out where “ the market would
go next ” by somehow combining and dividing all of the previ-
ous prices. When that didn ’ t work, but my trades in the same
market from the same side did, they thought I had some secret
I was holding out on. They would always ask, “ How did you
know that would happen? ” When I would tell them, “ I didn ’ t
know. I only guessed based on what I had come to know, ” they
thought what I did was simply guess and therefore I really had
nothing of technical value to offer them. When I would do it over
and over they concluded I was some mystic or something. It was
really frustrating. That frustration spilled over into my trading as
losses. When I realized this was one of those constant things in
the business that would never change, I quit trying to “ teach. ”
I was content to just take their money by outtrading them.

Day after day, even while we worked on this book, Trader X would

consistently take money from the markets. Watching him work fasci-
nated me. We would sit for hours in front of the trading screen and

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139

discuss everything from philosophy to Shakespeare, from the space
program and the design of aircraft to alchemical history, and the trends
in social thought from medieval times to the present, and he would still
pull money out of the markets. He would be watching his computer
screen and explain to me precisely what was happening.

Here is an example of one of his typical explanations: “ Now watch

this, that is the last bunch of losers getting out. There they are, that ’ s
their stops liquidating with the loss. Right now they are all sitting
in their offi ces saying ‘ I knew I should have waited. ’ They can ’ t stand
that so they will try to get it back. That means the angry ones will
do the same trade from the same side in about an hour or so, espe-
cially if prices move back to their original entry. ” He would continue,
“ Okay, the winners are probably thinking I have to do something right
here, they probably will move their stops up. The pit wants those stops.
When they force the market into those stops, the losers will jump on
those prices. Their thinking is probably, ‘ I ’ m gonna miss this trade if
I don ’ t, ’ but the pit needs their blood to get out. Once that happens
the market will come right back. This is free money, I ’ m getting in. ”
Since I ’ m not a trader, most of what he said wouldn ’ t make any sense
to me. He told me, “ Those that trade will understand. ” Then he added,
“ Most of them will think I ’ m guessing. ”

His daily trading routine has absolutely no set pattern. Sometimes

he won ’ t go into the offi ce for days. If the currency he was trading
would make some huge move and he missed it, Trader X would look
me in the eyes and say in the most deadpan manner, “ You ’ re right. The
market has completely run out of opportunities. ” Sometimes he would
come in, sit for a few minutes, execute a trade, liquidate, and then leave.
Sometimes that whole process would be less than

20 minutes. Still

other times he would work straight for 24 hours trading up a storm.
I once made the mistake of asking him

“ How did you know that

would happen? ” He looked at me truly bewildered and fi nally said, “ Et
tu, Brute? ”

Trader X then offered this explanation: “ Look, I have trained myself

to observe what is happening. When I turned the screen on and saw
that it was all in play I simply took the money that was there to get. If
the whole process would have took 48 hours that ’ s how long I would
have been here. ”

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t h e a r t o f t h e t r a d e

I fi rst met the author at a downtown trader hangout called the

Cactus Cantina. It ’ s on Wells at Van Buren, in Chicago. It was a Friday
and the place was packed. I assumed that everyone in the business of
trading was there. Not having been intimately exposed to the markets
before, I found the conversations going on around us fascinating. It
was all about what the bond markets were doing, why soybeans were
climbing, who just got his “ dick slammed in the drawer ” trading the
S & P 500 Index, and so on. A mutual friend who is not in involved in
trading introduced Trader X to me. When I asked our mutual friend
how he had become acquainted with Trader X, he replied, “ We met
at a night club. He was on a date with a female body builder. ” I soon
discovered that aside from the markets, Trader X is almost exclusively
focused on women. Specifi cally, Trader X is focused on women and
“ walking the edge ” as he calls it. Simply put, he runs on two tracks,
women and trading.

On our fi rst meeting we talked for a moment or two, exchanging

the basic pleasantries. Initially he was very guarded. Later he told me
that he had to assume I would be one of those individuals who had no
clue. Once he understood I was completely open to him and his ideas,
Trader X let his guard down, but never completely. As the conversation
slowed I began to ask him about the trading business. “ What do you
want to know? ” he asked. “ Well, my fi rst question is what do all these
people do? ” His immediate answer was, “ They are attempting to profi t
from price action.

” Then he added,

“ But most of them don

’ t know

how to do that very well, if at all. ” I replied, “ They seem to be discuss-
ing things with some authority. ” Trader X quickly said, “ Of course they
are, ” and said nothing more. I asked if it was okay to start taking notes.
“ I hope you don ’ t get writer ’ s cramp, ” he said. “ But let ’ s not do that
now. You may not want the job anyway. ”

His reply intrigued me more. I knew right then, I would be ghost-

writing this book.

That was the beginning of our relationship. As we talked that night,

Trader X struck me as someone who knew exactly what he was capa-
ble of doing. I didn ’ t know it at the time, but I was to discover that
statistically he is among the top in his fi eld. He could be considered
one of the best traders in the world. After getting to see both his life
and his business, I found out that his results are impressive to say the

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141

least. Almost everyone I know would have quit and done something
else long before succeeding at his level in the trading business. Using
the documentation he was willing to show me, and after doing inde-
pendent research on my own to verify what he told me, I learned
that he is able to out perform approximately 93 percent of those who
compete in the markets.

After seeing his point of view and understanding what he has per-

sonally experienced, I can understand why he would choose to do it
another way; that is, to never put himself in a position of working with
people who would attempt to control his activity, process, or the way
he trades. Due to his willingness to take adversity head on, and the
high demands he places on those he chooses to work with, Trader X
appears enigmatic.

When we went to work on his manuscript, I suggested that he

include more detailed information on his trade results. He had some very
insightful comments on my recommendation. “ First, ” he said, “ The world
is full of skeptics. Most people won ’ t believe the numbers. The results
will always be ‘ too high ’ or ‘ too low ’ to someone. People in this business
never believe you are doing as well as you claim anyway. Second, I ’ m
not doing this to sell books, trading systems, or expect people to believe
what I know is the gospel. Third, every time I start talking my gains
I start losing. ” Enough said. I had the opportunity to observe him trade
and I can tell you he knows exactly what he is doing.

Trader X is a full-time trader, working from a small offi ce in the

fi nancial district of downtown Chicago. At the time of this writing, he
is trading in the cash currency markets. He consistently told me, how-
ever, that it didn ’ t matter which market you traded in. They were all
fundamentally the same. The basic skills can be applied to any market.
The chapter on regulation (Chapter 6 , The Trading Police) will shed
some light on why he trades almost exclusively in FOREX today. He
trades completely alone without a staff of any kind. At the time of this
republication, Trader X does not trade for a client base anymore, pre-
ferring instead to provide market analysis to those individuals who
subscribe to his commentary. Currently, he is not registered as a Series
III commodities broker at any fi rm; although those who know him
are constantly asking him to work with them through their fi rms. He
believes people want him to work with them because they think he has

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t h e a r t o f t h e t r a d e

some kind of “ secret ” about the markets. He also believes that they too
somehow wish to have access to the “ secret .” Trader X ’ s eloquent reply
to all this was, “ In the land of the blind, the one - eyed man is king. ”

As I began assisting him in completing this book, Trader X insisted

that I spend time observing his personal life and his relationships. He
believes everything in his world either helps or hinders his trading.
Trader X is single and living alone. He is 47 years old at the time of this
republication. He has never married and has no interest in marriage.
When I asked him why, he said, “ I ’ ve never met a woman worthy of
my affection. Bill Gates will be selling apples on a street corner before
that happens. ” Quite a pithy answer. He dates several different women
and is always in the company of females. I ’ ve personally had the pleas-
ure to meet many of the women he dates, and they all were excep-
tionally unique combinations of intellect and beauty. Most women are
attracted to his mind and the way he views life. He is not particularly
attractive to look at, but that doesn ’ t matter to the women who fi nd
him interesting. In fact, I ’ ve seen him talk to a woman in a bar for a
few moments and then proceed to have her on his arm the rest of the
night. He has no children (to the best of his knowledge), but as he says,
“ It ’ s not from lack of effort. ” In one respect he is completely unique
with regards to women. Every woman he is dating knows about all the
others. He never hides anything. All of the women he dates know they
will always be competing for his attention. For some reason, they all
accept this situation. I guess they see it as a personal challenge.

Trader X says that he has never been in love. To him this isn ’ t a

problem, but he is sure it will happen when the timing is right. Trader
X is not looking for love, but he believes it is looking for him. The
“ love relationships ” all his friends indulge in are great entertainment
for Trader X. He literally howls with laughter when one of his friends
starts or ends a relationship with someone else he knows. He fi nds
all the fi ghts, disagreements, and power struggles to be one predict-
able mess. Trader X always asks his friends to explain their reasons for
bonding in the fi rst place. “ Watch the fi reworks with those two, ” he ’ ll
say, while getting a personal chuckle from the frustrations of others.
“ Neither one of them knows what they are doing. ”

Women who date men for their money are a constant source of

humor to him. Trader X loves to watch the dysfunctional behavior both

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143

parties exhibit. It still amazes him that men are that stupid and that
women think they can hide their true motive. Sometimes he makes bets
on who will leave fi rst or cheat fi rst. Sometimes the bet is how long it
will take to reach the guy ’ s credit limit. He really does view relation-
ships and women as a kind of tinker toy set. His point of view can best
be summed up by his view on monogamy, or as he calls it, “ monotony. ”

“ Fifty - two percent of all marriages end in divorce. Of the other 48

percent, statistics show half of these are unhappy, but they stay together
for some reason. In addition, statistics also show that 66 percent of all
women who are married, seriously dating, or engaged to be married
are only with that guy until someone “ better ” comes along. Seventy -
fi ve percent of all men and women cheat. This means that your odds
of a successful marriage, not necessarily a happy one (an important dis-
tinction), is easily three or four to one.

“ Those are rotten odds. Every one of those people believed it

couldn ’ t happen to them. There are better odds at a craps table. I

’ d

rather be the guy everyone ’ s leaving the husband for . . . I guess that
makes me every man ’ s nightmare. ”

His parents are still alive, but no longer married. His father has

remarried, but his mother has not. I think the majority of his dis-
taste for marriage comes from the fact that he is from a broken home.
“ Those two should probably never have been together, but here I am, ”
he told me. He believes a lot of the credit for how far he has gone
in the markets goes to his mother. “ She absolutely supported me. She
was behind me 100 percent. There were times when I would have quit
except mom said give it one more try. I think moms never get enough
credit for the support they give their families, ” he related. He has two
younger brothers and a younger sister. He is very proud of his sister,
who is a world class athlete. “ She has had some great opportunities to
really use her talents, ” he says. Of his two brothers, one is an expert -
rated chess player. He has beaten a world - rated grandmaster once, and
could easily play chess full

- time on the worldwide tournament cir-

cuit. His other brother owns a computer consulting company. He was
also one of only a handful of men ever hired at a prestigious Big Eight
accounting fi rm who didn ’ t have a four - year degree. This brother fi n-
ished his college education while working in their consulting depart-
ment. It seems that Trader X comes from a talented family.

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t h e a r t o f t h e t r a d e

The early years of Trader X ’ s family life included regular church

attendance. By attending church so regularly with his family, there is no
doubt he has developed deep spiritual beliefs, and has strong feelings on
key moral issues. I asked him point - blank about his religious orienta-
tion. His answer was, “ Confused. ” Today he shuns church involvement,
but respects those who attend. He says that the sick belong in a hospi-
tal. I personally fi nd this a narrow point of view and not generally in
keeping with his other world and life views. We spent time discussing
his views on religion, and here is what he had to say, “ There is religion
and there is faith. Jesus Christ hated religious people. He called them
‘ whitewashed tombs. ’ They look great but are full of dead men ’ s bones.
Most churches are full of so many religious people and religious teach-
ing that you can ’ t get to the real issues of faith. Basically, they make a
religion out of Christ when He was something much more signifi cant
and full of much more common sense. If you take Him at face value
He doesn ’ t fi t with what people expected. So they ‘religiousfi ed ’ Him.
I don ’ t think if He were around today He would spend a whole lot of
time at the churches that are named after Him. If He wouldn ’ t, what ’ s
the point in me going? ”

I think it was his religious training that taught him the importance

of integrity in every area of life. Throughout this book you can see that
many of his choices, commitments, and frustrations were over what
he perceived to be a failure in human character. Trader X has made
a very clear and conscious decision not to follow suit. He seems very
concerned with what is “ right. ” Although he is absolutely certain that
he knows what “ right ” is, Trader X allows others to disagree with his
point of view. This is true in all matters of philosophy, business, arts,
sciences, and the like, with the exception of trading. When someone
will disagree with his hypothesis or assessment of the particular mar-
ket in question his answer is always, “ Take the other side of my trade
then, pinhead. ” I ’ ve discovered that people rarely argue with him twice.
I believe this is because they view him as overly opinionated.

Trader X has absolutely no interest of any kind in professional ath-

letics. He won ’ t go to sporting events. Somebody asked him to take a
free ticket to a Chicago Bulls play - off game, which is quite a prize in
Chicago. His answer? “ I ’ d rather die from paper cuts. ” No matter where
he is, if the conversation should turn to sports, he will go completely

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Insight into the Person of Trader X

145

silent for long periods of time. Some people interpret this to mean he is
uninterested. But what is really happening is that he is listening intently
for clues as to what motivates people to form the opinions they do and
spend their time the way they do. He does this in any conversation, but
even more so with people who follow sports. Trader X truly believes that
sports are a complete waste of time. At the same time, it is then surpris-
ing that he values his sister ’ s choice of profession. While he supports his
sister fully, it is a riot to hear him talk about how stupid it is to “ bounce
a ball on a hardwood fl oor. ” Sometimes for fun he will join conversa-
tions about sports. It can be very interesting to observe the conversations
between himself and others knowing what his real motivation is.

For example, recently a local professional baseball player scored a

new record for home runs in one season. The discussion between him
and a few friends was very animated about how many total home runs
the ballplayer would eventually end up with, if the team might make the
World Series, things like that. Right in the middle of the conversation,
Trader X jumped in and said, “ Do you think this makes it any easier
for any of you guys to get laid? ” The conversation came to a grinding
halt. “ What does that have to do with anything? ” one of the guys asked,
slightly miffed. “ Do you want to get laid more? ” he asked again. “ Sure, ”
the guy said. “ How about making more money? ” Trader X asked. “ Well
yeah, but what does that have to do with Sammy ’ s record? ” the guy
asked, a bit upset by the logic being thrown his way. Trader X then
posed this question, “ Well I was just wondering, since no matter how
many times this guy hits a ball with a stick of wood, you aren ’ t going
to get more of what you want, why would you waste your time count-
ing? ” At times he can become very exasperated with the whole sports
thing. I once saw him grab his head and yell, “ Will this drivel never
end! ” He then left the room.

Although he exercises every week and takes care of his health, he

smokes and drinks more than some. When I confronted him on this
contradiction of maintaining your health while doing unhealthy things,
especially since he has no use for sports, he had an interesting answer;
“ Hey, what ’ s the point of looking good and feeling good if you aren ’ t
going to enjoy your body? Just because I work out doesn

’ t mean

I ’ m going to deny myself some pleasure or my whole life is going to
revolve around watching a bunch of guys bounce some ball, or hit

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t h e a r t o f t h e t r a d e

some ball, or chase some ball like a stupid Cocker Spaniel. I don ’ t think
those guys realize how dumb they look. It makes me sick these people
get paid the money they do. ”

After saying all of this, he then looked at me rather sheepishly and

added, “ The fact is, I would love to have some accounts from those
guys. They have all kinds of cash they don ’ t know what to do with.
Plus, they would think I ’ m some kind of guru, which isn ’ t true, but
they would show me off to all their friends, invite me to all their par-
ties. I would have unlimited access to all their women, not the wives,
the hangers - around women, I mean. Imagine the hot tub scene in that
crowd. ” I have to admit Trader X would frustrate me to no end some-
times with his nearly constant focus on females.

Trader X is a private pilot and has a close friend from college who

is also a pilot. They regularly fl y up to Wisconsin for three to four hours
and play blackjack at the Indian casinos. Trader X tends to walk out a
winner more often than not. His friend usually loses. I am told that
they have complex conversations about their results on the fl ight back.
From what I ’ ve seen at private blackjack parties and the stories he ’ s told
me, Trader X seems to have a thorough grasp of probabilities and card
play. Personally, I believe playing cards is a kind of laboratory experi-
ment for him. When we have discussed cards, he makes it very clear
to me that gambling is gambling, but trading is art. He gets very angry
with people who think trading is gambling. Once at a black - tie event,
Trader X was introduced to a prominent local bank president. When
asked about what he did for a living, his answer was a short, “ I am a
trader. ” “ Oh, you are a professional gambler, eh? ” the bank president
replied with a smile, obviously trying to “ bait ” him. Trader X looked
him square in the eyes and said, “ To the uneducated and brainless lay-
man it might look that way. How long have you been shuffl ing papers
at what you do? ” The banker got the point.

Although Trader X considers himself an artist, he spends very little

time in the arts. He doesn ’ t regularly attend concerts. Unless a girlfriend
wants to specifi cally go, he rarely makes the effort. He rarely goes to art
museums, art galleries, or the theater. I just assumed he would be inter-
ested in those events given his views on trading. His response was, “ Most
of the artists out there aren ’ t really saying anything of substance. ” In my
view, Trader X is more cultured than most writers I

’ ve interviewed.

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147

He loves to read Shakespeare and has memorized large blocks of the
sonnets and the plays, but he has only seen one performance in his
entire life — Henry V. His favorite art form is the movies, old and new.
Even if he doesn

’ t like a fi lm, he will always fi nd something good

about it. “ Even a chick fl ick like Terms of Endearment, ” he told me once,
“ Nicholson was perfect. ” His taste in music is very broad. He listens
to everything from Bach to Megadeath, everything imaginable except
Marilyn Manson. “ What happened to that guy? ” he asks. He seems to
fi nd value in most kinds of expression. At the same time he doesn ’ t fi nd
much real value in most of it for himself.

Trader X studied music at school, but quit altogether when he

realized he could learn just as much by listening and reading on his
own. “ Most people with degrees end up working for those without
degrees, ” he remarked. I then asked him directly how he knew that.
Here was his reply, “ The guys at the top always hire people who have
a degree in something besides what they do themselves, if they even
have one. Since I always was in business for myself, if I needed a par-
ticular skill I didn ’ t have to reach my goal, I would hire someone who
did. I always made more money than that guy. Trading is nothing like
the real world. Even if I had a degree, it would be of little use here. Of
what I have learned about statistics, that degree would probably be of
most use in this business. ” He then added, “ Look at what universities
do anyway. They heap scores of books on you to read. All they do is
then test you to see if you read any of it. They really can ’ t teach you to
think in the fi rst place. Just look at all the brain-dead people out there
with a degree. In the markets the test is not A, B, or C about how
well you are assimilating information. Either you get it or you don ’ t. If
you don ’ t get it, you don ’ t eat. What degree can prepare you for that?
I constantly meet people with degrees in fi nance or accounting who
want to become traders. I always ask them, ‘ Since you know what to
do with money or how to count it once it ’ s made, how much do you
know about making it? ’ You wouldn ’ t believe how many blank looks
I get. ” I believe what he is getting at is there is a difference between a
formal education and a real one.

Believe it or not, Trader X is funny, and I don ’ t mean silly adoles-

cent humor either. I mean the guy is able to joke about the circum-
stances in life that bring most other people down. He found a way to

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t h e a r t o f t h e t r a d e

interpret life from a humorous standpoint that would be insightful at
the same time, sometimes to the point of hilarity. One story illustrates
this well. I remember we were in a cab somewhere and the driver was
pulled over by a Chicago police offi cer. Most people would get frus-
trated over the delay. It ’ s a “ hassle ” to them. As the cop approached the
cab he leaned out the window and said, “ Offi cer, if I ’ m late to this
party some poor soul will never have his life changed by meeting me.
Can we just go? How much to just let us go? ” The cop smiled and
laughed. The cop replied, “ A hundred dollars. ” Trader X actually said
to the cop, “ Will you take a check? ” This kind of thing goes on around
him constantly. I think we could write a whole other book on his sense
of humor. I found working with him to be a lot of fun. Another mem-
orable occasion happened in his offi ce. I was sitting across the desk
from him taking notes as he would speak. He had positions on at the
time, so his attention would fl it back and forth between the screen and
me. There were long periods of silence as he would think. At one point
when I wasn ’ t looking in his direction, I was writing some notes to
myself, he started laughing. I looked up and he was sitting there with
his hands behind his head looking at the ceiling and just laughing to
himself. I looked at the ceiling and saw nothing. I asked him, “ What
was so funny? ” He looked at me, waved his hand in the air dismiss-
ing the question and said, “ I ’ m sorry, some are just for me. ” He really
believes that life is one big joke waiting to happen. I think a lot of his
personal success is due to the fact that he can keep a sense of humor
no matter what is happening.

Although he enjoys parties, he frequently drinks alone. He is not

an alcoholic by any means, but he seems to be the kind of person that
enjoys a drink for its own sake. He can do that anywhere. I was always
surprised to fi nd out no matter where we went or what we were doing
he always would order a Heineken. He didn ’ t always drink it, but he
always had it in front of him. Drinking seems to go hand in hand with
his social interaction, but I ’ ve seen him enjoy a roaring party and not
drink at all. Recently, to continue improving his trading perform-
ance, he has stopped drinking on Sundays and working nights. Trader
X thinks it doesn ’ t help that much, but he still maintains that choice
most of the time. He talks a lot about personal discipline and how hard
that is for him and everyone else. To him, the key to success is personal

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Insight into the Person of Trader X

149

discipline. Though he hates himself when he falls short, he never spends
any time in self - judgment. When he fails, he just gets on with life, plain
and simple. Trader X never touches drugs, but he never condemns
those that do.

“ That ’ s where they are at ” is his answer. He vehemently asked me

not to include in this book the fact that he keeps beer in his offi ce
(Heineken), but I felt it would show part of his character.

“ What

part? ” he asked me. “ The part you don ’ t want people to see, ” I told
him. Since this is in keeping with the theme of the book as it regards
self - disclosure, he reluctantly agreed to keep it in. “ I hope no one gets
the wrong impression, ” he later told me. Then grinning, he chuckled
as he said, “ After all, my analyst says I ’ m making great progress. ” His
favorite shirt is a Cactus Cantina T - shirt. On the back it says “ Don ’ t
Drink and Trade. ”

When I asked him about his hobbies he asked the qualifi er, “ You mean

besides women? ” Again the women thing. I said, yes, of course, and nee-
dled him to give me a straight answer. But in his mind, he really doesn ’ t
have any hobbies. His whole life is a hobby to him. He really believes the
sum total of life experience is to enjoy life while you are here.

That can be anything to him. One story is particularly revealing as

to what he means. He loves going to the zoo and was recently caught
sliding a slab of round steak into the snow leopard cage at the Lincoln
Park Zoo. When questioned, “ Why did you do that? ” He answered, “ I
was trying to win the leopard ’ s trust. ” When the zookeeper reminded
him you can ’ t win a wild animal ’ s trust in one attempt, he replied, “ I
know that. ” The zookeeper was slightly puzzled and then asked him,
“ How long have you been doing that? ” His answer was short. “ I ’ m not
going to tell you. ” Only after the zookeeper threatened to have him
put in jail did he come clean. The leopard and he had been “ friends ”
for over a year. How ’ s that for a hobby? He said he wanted to be a zoo
volunteer, but they wouldn ’ t commit to him being in the big cat house.
He decided to feed the cats anyway. “ I didn ’ t have to clean up the s — ,
either, ” he said. Trader X has other “ hobbies, ” but he really is afraid that
someone reading his book might put two and two together and con-
front him as the author. Very few people in the business do the kinds of
things he does. Most think he is over the edge. No one knows about
the leopard incident, so he feels safe discussing that one.

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t h e a r t o f t h e t r a d e

Trader X is an avid reader. He reads several books per month. He

has countless comics clipped from the paper all over his house. He reads
a lot of cartoon strips. He very much enjoys “ Calvin and Hobbes. ” He
reads from any genre you could think off, but he particularly enjoys
science fi ction. I remember once while observing him trade, as he was
executing the trade, he said (talking to the screen); “ Resistance is futile.
You will be assimilated. We will add your distinctiveness to our own. ”
He was quoting the Borg, an alien antagonist from the Star Trek series.
He recently confessed he wanted to read the science fi ction book
written by Leo Melamed,

but didn ’ t know where to fi nd it as it ’ s out

of print. He thought it would be interesting to see what goes on in
Leo ’ s mind. “ I think the rest of the world would like to know, too, ” he
quipped. Trader X indulges in writing poetry and, in addition to this
book, he has been working on a love story. “ But, ” as he confi ded in me,
“ I ’ m not qualifi ed to trade that market. ” His library is quite large and
he knows where everything that matters to him is in those books. On
more than one occasion we would be discussing a topic for which I
wanted to have more detail, he would think for a moment, pull a book
from his shelves, and turn to the exact page almost instantly. Trader X
has a huge amount of books on the markets. He has read every one
of them at least once. There are only a few trading books that he feels
have anything signifi cant to say and are worth keeping. He says he must
get rid of several of his books to make room for the soon to be released
Milli - Vanilli

biographies and critical discussion of their music. I think

his point was that an endless discussion of Milli - Vanilli would be of
more value than most of the existing books on the markets.

After observing Trader X and helping him to fi nalize his manuscript

I was surprised to see the depth of his thinking. He uses an amazing
amount of common sense when thinking about the most complex issues.
He seems to have at his elbow almost anything you could think of that
might shed light on whatever it is he is dealing with. For example, when
we were discussing the problem of how the regulators actually help con-
tribute to the quality of the business, he reminded me that this issue has
always been a part of everyday life under any form of government. He
paraphrased Winston Churchill as saying, “ Democracy is the worst form
of government; but so is every other ,” also, Thomas Jefferson, Elizabeth I,
Plato, and, of all people, Keith Richards of the Rolling Stones. He told

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Insight into the Person of Trader X

151

me later that he believed all life and all life experiences were variations
on the same theme. Once you know the theme, you can work back
to any solution to any set of issues no matter how complex. Trader X
did make one qualifying remark by quoting the French cynic Voltaire,
“ Common sense is not common. ” I think he believes that one reason
the markets work the way they do is because no one uses their common
sense when trading.

He seems to have an uncanny Sherlock Holmes type of ability

as well. Trader X is deeply observant of everything going on around
him, often seeing things that most people would miss. He then can
form conclusions that are incredibly accurate. One story illustrates
this point very well. We were out taking a walk in his neighborhood
one day. Approaching us from down the sidewalk was a man walk-
ing his dog. He said, “ That man is in business for himself. ” I assumed
he knew the man. As were got closer together he said, “ Hello, ” from a
distance. “ That ’ s a well-trained dog, ” he said. He and the man stopped
and talked for a moment. He casually inquired as to the man ’ s line of
work. “ I ’ m retired, ” the man said. “ I used to own a chemical company. ”
After a few more minutes, they parted. It was clear they had never met
before. I said,

“ That was pretty good.

” “ It was easy,

” he said.

“ What

tipped you off? ” I asked. “ Well, he is out walking his dog at 10:00 a.m.
on a Wednesday. If you work for someone, you don ’ t have that kind
of freedom, ” he said. I then reminded him the man could have had
the day off. He said, “ That ’ s true. But did you notice his shoes? They
were Ferragamo. Would you dress that way on your day off? Plus the
dog was less than a year old and very well trained. To train a dog that
well you have to invest a lot of time. He must have had the time to
do that. What employer would let you take time off to train a new
puppy? Also, the way he walked said, ‘ I do what I want. ’ That kind of
ambition won

’ t be happy until it has found its true expression. He

also had a very thoughtful look that suggested he was deep in thought
about something. Everyone knows that employees aren ’ t in the habit
of thinking when they are working, why would they do that on their
day off? I took an educated guess. ” “ Amazing. ” I said. “ Actually, I could
have ignored all that, ” he said and smiled. “ In this neighborhood most
people are self - employed anyway, that ’ s the only way to afford it here. ”
Either way he was right. Maybe he just wanted to impress me.

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t h e a r t o f t h e t r a d e

Trader X feels misunderstood and believes he hasn ’ t accomplished

anything particularly signifi cant. He really doesn ’ t understand the pub-
lic fascination with successful traders. The business of the markets is to
profi t. If you are earning profi ts, that ’ s your job. That ’ s nothing special.
He could never understand, for instance, why they gave medals of her-
oism to lifeguards. “ That is the job they signed on for ” he says. In his
assessment, he has simply done what it takes to understand the markets,
and simply does his job of taking profi ts. There is no mystery to him.
Why others feel the need to view the markets the way they do doesn ’ t
make sense to him anymore. Why they go looking for “ secrets ” is ludi-
crous to him. Trader X thinks anyone could perform as well as he does
if they would only change their point of view. In this way he feels a
sense of detachment from everyone else. He can ’ t connect with some-
one who isn ’ t on the same frequency, but he believes you can choose
your own frequency anytime. He is tuned to the frequency of the mar-
kets. He can ’ t understand why everyone fi nds that so signifi cant when
it is within them to do the same thing if they really want to.

Part of his reason for remaining anonymous is that he wants to

keep his thinking to himself. He doesn ’ t want to be expected to con-
tinually share his insights or endlessly discuss what he has discovered
about trading. He ’ s just telling the story of how he got where he is and
what he has learned. “ How many times do you think Neil Armstrong
could talk about walking on the moon before he freaked?

” was his

question to me. “ What ’ s he done lately? ”

Trader X really believes he has nothing new to add to the subject

of trading. He thinks the average trader is fascinated with people who
are successful in the markets simply because they aren ’ t, but desperately
want to be. It ’ s the same fascination some people have with messiah
fi gures. He feels the average person is “ on the outside looking in. ” What
he hopes to communicate is that you are really on the inside looking
out in some way. Besides, he stressed to me that he didn ’ t want to end
up like Richard Dennis or someone like him. “ Ever since he attained
the status of ‘ Trading God, ’ people won ’ t leave him alone. They totally
deifi ed him. Even his ‘ turtles. ’ They all have this incredibly pompous
air about them. People threw money at them in droves. The fact is he
(Dennis) took a hit for a huge amount of money in the last few years,
something like $ 50 million or more. So did a few of his turtles. All that

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Insight into the Person of Trader X

153

money was given to them because of the reputation at the time. How
do those clients feel about the ‘ god - ness ’ ? I never want to be in that
position. If I ever get to trade with that kind of fi repower it will only
be because I earned it from the markets or from people I have a sense
of responsibility to. They must have lost that somewhere. I ’ m not try-
ing to be arrogant or anything about what success I have earned; its
just any number of things can take it away from you. The last and fi rst
battle is always your desire to be held in high esteem — by yourself or
others. Now you have a reputation to protect, or think you do. You are
more concerned with that. That can lead to losses fast. ” Then he added,
“ Plus, I ’ m too ugly - looking for that crowd. ”

When we were discussing his motives for writing this book, his

line of thinking was very committed. He is doing this for himself. He
wanted to document the process he went through. When I discussed
marketing the book, Trader X wasn ’ t concerned with whether or not
the book sold a single copy. And he mentioned that he could care less
what people thought of his point of view on the business. He explained
to me that he wasn ’ t out to teach anything, but wanted the true student
of the markets to observe the lessons. He went so far as to carefully
explain that the business of futures, options, and FOREX trading could
be done a hundred times better. He thinks that if the right people see
the right information from the right point of view, this business could
become everything it has the potential to become. Trader X believes
there are a lot of people out there who feel as he feels.

Here are his comments on his own effort regarding this book. “ I

really don ’ t care what people think of my work. Those that create the
problems we could all do without. Who cares what they think any-
way? I went through hell to get where I am. A lot was avoidable. A lot
that happened was because of total a — holes that are in this business.
Getting rid of them won ’ t make trading any easier, just more enjoyable.
I just wish more people could see what I see the way I see it. If not
that ’ s okay too. In the meantime I wanted to share my story with oth-
ers. I hope they like it and fi nd value in my experience. ”

In closing, it has been my privilege to work with and get to know

Trader X. Working with him has been inspiring and one of the most
interesting writing projects that I ’ ve worked on. Trader X has helped
me understand trading, the people who make the markets, the nature

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t h e a r t o f t h e t r a d e

of failure and success, and most importantly I ’ ve learned things about
myself. The story of Trader X can be shared by all of us; the struggle for
success, knowing you could win or lose, the rise of purpose over adver-
sity, the quest for inner knowledge, and the passion to pay the price no
matter what. In the end, Trader X came out a winner. And when I say
winner, I don ’ t mean someone who thinks they are a winner. I mean
someone who doesn ’ t have anything to prove to anyone and knows it.
He came to understand himself, against the odds and in the kill - or - be -
killed world of trading which some consider being the most diffi cult
circumstances in which to succeed. Trader X survived and specifi cally
came to understand how to profi t at any time and in any amount he
chooses. Trader X was able to learn what he has without surrendering
any part of himself to do so. As a study in success it was truly a unique
look into the fi nancial world. It was an equally unique look into the
mind of one of its hidden best. Even with his high success rate, Trader
X lives by the axiom: “ You are only as good as your last trade. ”

So how good are you?

G hostwriter X

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155

More from the Author

or the serious student of trading, the author makes his trading mate-
rial available in audio format. It is important that the user of this
material understand that Mr. Jankovsky believes you cannot “ teach ”

trading, only provide a method to help the student uncover what trading
really is from the students own point of view. The author believes it is not
possible for one artist to teach another artist what art is, only provide addi-
tional tools for creativity. Great art comes from inside the artist and even
though two different artists might use the same paints or use the same
musical scale when creating their art, each will have a unique expression
of what art means to him or her. Great trading art can be made by anyone
and the common medium is the trading prices. Mr. Jankovsky believes it
is pointless to teach someone else how to create art exactly like he does.
The author takes the point of view that the basics of potentially great
trading art are the same for any individual; it is what that individual does
with those basics that matter. This is for the student to decide. His material
is not a “ trading course. ” It is a roadmap to help uncover the students ’ own
creativity.

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156

m o r e f r o m t h e a u t h o r

The material includes written documentation as well as audio. The

written information is a supplement to the series and should be used
while listening. The author makes it very clear that there is only one
reality the markets function under and the only pathway to permanent
profi ts is to adapt to this reality. The author also feels that about 80
to 90 percent of the people who attempt to absorb this material will
never become a lasting success at the markets. He doesn ’ t believe most
traders will easily accept what he shares. He makes this material avail-
able in hopes that those who will eventually get what they are looking
for might be able to someday discuss their art.

The Psychology of Trading

The Art of Evolving as a Trader: 12 Hours of Audio

Divided into 6 Two - Hour Sessions of Instruction:

Introduction and Interview

Setting the stage
What you will learn
What the program is not
Outline of material

Basics of the Marketplace — Understanding the Mirror

Arena of confl ict
Psychology of price movement

Basics of creating Art — Identifying Your Starting Point

Clarity of observation and the desire for profi t
Cultural myth and self - sabotage

Basics of Trader Evolution

Gains and losses
Accumulating profi ts

Requirements of a Net Winning Art Form