|
PureBytes Links
Trading Reference Links
|
Hi RT's,
I got this story from a friend. It was posted to another list. I thought it
was
good reading. It has some guideance for new traders. Enjoy.
Brent
Nice post by Gary Smith:
What have I started below in the Arthur Field thread? Another fine mess.
Sorry Arthur, you do have my apologies. You got caught in one of my bad
trading moods today. Well, this post is a long one and most likely will
draw even more flames, so here goes. It drives some of the vendors and
others crazy when I toot my horn or talk as if I'm a professional trader. I
guess it isn't politically correct to boast about your trading exploits,
just your hypothetical exploits. I struggled for so many years that I will
forever have this self image of myself as a small time break-even trader.
I spent more years than I care to remember with an account that fluctuated
between $2000 and $4500. I traded stocks, I traded options, I traded
warrants, and I traded futures. I went through the usual evolutionary
process all traders must endure. Always thinking there was some magic
formula, system, methodology, or better yet, some magical trader who had
the answers.
I wanted so badly to trade for a living. That was my dream, just as I
suppose it is the dream of many who "hang out' in this newsgroup. But I
stumbled blindly in pursuit of that dream because I never set any goals on
how to get there. That all changed in 1985. I began making money. Then
each year a little more than the previous year. In late 1986, I began
rolling my futures profits into trading mutual funds. Trading mutual funds
is no different than trading stock futures. Whether you are trading
futures, options, stocks, or funds, you still have to buy as near the lows
as possible, ride the profits for as long as you can, then sell as near the
highs as possible. It's just a matter of personal choice which weapon you
choose.
Finally, the snowball effect kicked in. The larger my capital base became
from my trading profits, the greater became those trading profits. Hope
that makes sense. I never aspired to be like Larry Williams. (who believe
it or not I like and respect) Larry will be the first to admit he is a
boom or bust trader. if I ever busted, I wouldn't be able to come back
psychologically. I was more concerned with *never* having losing months.
(I average about one losing month per 26 months) than how much I was
making. I see, read, and hear of the hot-shot traders bragging about their
big trading scores but then I always see them give it back. And please, I'm
talking about home-based traders here. I'm not talking about the CTAs,
hedge fund managers or Chicago and New York based traders.
I remember when I was thrilled to make $10,000 annually. Then I was
thrilled to make $18,000. In the mid-1990s, I got stuck for awhile in the
$40,000 to $50,000 range. I figured that was to be my destiny, which was
fine enough for me. But I broke out in 1996 making $72,000. I cracked
$100,000 in 1997 making $113,000. Last year I made $195,000. People say
"sure, but how large is your trading account now?. My response is I had
only $2200 and 13 cents in my account on March 13, 1985. That is forever
posted on my refrigerator door.
So what does it take to become a successful trader? *Extensive* academic
knowledge (like in trading books) combined with *intensive* real time
trading experiences (like in many years) Only then can you learn your
strengths and weaknesses and find out what works and what doesn't for you.
Then you can go about the task of developing your own winning trading
strategy. Yeah, you read that correctly. Developing your strategy comes
last in the equation. (By the way, paper trading and simulated trading is
worthless. Don't waste your time)
A lot of traders tell me they have spent a lifetime studying as well as
trading, yet still can't beat the game. That's where the last piece of the
puzzle comes into play. *RISK* You have to be able to assume risk as well
as manage that risk. Most traders are either too risk averse to ever
become consistent winners or conversely, they have too much of a gamblers
mentality.
I probably could be debated on this, but risk is a "childhood thing." It
may even be an innate thing. Just as I possess no mathematical skills and
thus could never become a physicist or scientist, very few possess the
proper risk skills to ever become successful traders. There are a lot of
academics and vendors who have superb analytical trading minds, yet can't
trade their way out of a paper bag. And that's not meant as a derogatory
comment.
As for my methodology, I have none. I trade pure price action. And no,
that doesn't mean I'm simply a trend trader. Nothing wrong with trend
trading except most trend followers get in too late and out too late. That
explains the mediocre performance of the CTAs and hedge fund managers since
80% of them are trend traders.
I've wondered long and hard why after so many years I suddenly began making
money so consistently. It's because I threw away the charts, oscillators,
gave up on the Gann, the cycles, the waves, Fibonnaci -everything. Now I'm
not suggesting there's anything wrong with those methodologies. They, like
me, look to trade price action. As Jack Schwager says, some of those
methodologies are probably worthless, but they seem to work because the
traders who use them have developed some sort of intuitive experience about
price. But they are looking at price through the tinted glasses of their
particular methodology. I'm successful because I look at price in it
purest form and without an intervening methodology as a go-between. Does
that make sense to anyone?
So why do I hang out here and trash some people? Because I understand
through a lot of years and hard work, the realities of successfully trading
for a living. Why shouldn't I offer my two cents worth when the blowhards
who are simply clueless start pontificating about what it takes to succeed?
Much of what I read here and places like Futures magazine and TASC about
the trading game is pure myth. It boggles my mind to find so many with no
trading expertise claim they have the answers for the newbies. And for
however much money, they will share those answers with you. And I'm not
referring to Arthur here.
One last point. I'm not marketing anything here. I've already gone on
record as saying my trading book is getting outdated and no longer reflects
how I presently trade. If I ever return to Vendorville, it will be more on
the line of a $39 book. I have a New York publisher who wants me to do
just that by detailing my trading more precisely. But here's something you
don't often read. The average trading book in its career sells between
5000 and 10,000 copies. Of course, a few can go as high as 50,000 while
others only sell 2500. Authors get between 10% and 15% of the net price.
The net price of a $39 book is roughly $20. So say I spend months writing
a book and sell 7000 copies. At $3 net to me, I earn all of $21,000. It
doesn't compute when you consider last year I averaged over $16,000 monthly
trading.
Gary Smith
|