From a veteran..
Day-trading: Not what you
think
The day-trader is a cross between an extrovert and an introvert with
both characteristics in balance.
The introvert aspect is depicted by the disciplined workaholic with a
reclusive concentration. The extrovert aspect is depicted by an aggressive, competitive,
self-motivated individual striving to be the best in a selective profession.
If you think you have that Dr. Jekyll/Mr. Hyde personality, then you are invited to explore
my world -- the world of the professional trader.
I am easy to describe. I have an insane personality that is intermittently interrupted by
craziness. Why else would anyone set up a multi-million dollar trading business in a rural
surrounding in his great-grandfather's farm house, working five 12-hour days a week as
well as a partial six-hour day thrown in on Saturday?
The intermittent craziness occurs when I try to find ways to spend the money. A true test
of your success is to make more money than your kids can spend with constant spending
influences of a "Honey, can I..." wife -- which always means get out the checkbook.
Why do I do it? It's one of the last bastions of pure capitalism. It gives the same
opportunity to a hillbilly farm boy in bib overalls living in East Sparta, Ohio, as it does to an
Ivy League university graduate in a tailor-made suit on Wall Street.
Each day I am a creature of habit, going through a daily ritual before the markets open. I
outline in detail all three possible scenarios for that day: up, down or sideways. I assign a
probability to that scenario and make a written strategy plan, which has been incorporated
into a trading fax service that is devoted to teaching people how to trade. Thus, a
disciplined trading plan is imposed on me.
Every successful trader must be flexible, alert and feisty. The flexibility must be used to shift
from being long to being short literally within seconds. The alertness is used for observing
price movements that are an aberration from the norm. Feistiness is the savvy
aggressiveness to fight back with a vengeance to regain money you lost. I don't know how
many times I've seen people lose money in the morning and quit. My most profitable days
are when I lose money in the morning and stay in because I want to get it back.
Once the trading day begins, all of my focus is on my quote screen and three markets:
S&P 500 Stock Index futures, 30-year T-bond futures and the S&P 100 Index options
(OEX).
All day long I record a diary of the trading patterns for that
day. This is a ritual I've done for 12 years, and the diaries have
been priceless. Recurring patterns are much more frequent than
people realize, and referring to the diaries has reinforced the
adage, "If you don't know history, you are doomed to repeat
it." The diaries clearly show that trading is actually a composite
of many ebbs and flows at different times of the day. They have
helped me develop the following set of daily trading rules:
1) Do not trade the last hour of the day in the S&P
futures market.
The probabilities of a successful trade diminish in this time frame due to the impulsive and
reckless buying and selling by institutions just because they didn't get their trading done
earlier.
2) If you don't like the trade you're holding,
get out.
This is where my emotions do come to the forefront because I hate to lose. Not liking a
trade simply comes from analyzing in my mind that this "hated" position has more
probability to separate me from my objective of making money and must be eliminated.
Have you ever had a feeling of relief after exiting a bad trade just because you were out of
a mess? Losing trades use more mental energy than winning ones.
A day-trader must become very mechanical, almost robotic. Many people who have come
to the office to observe my trading style have commented that I appear almost emotionless.
I believe to show emotion is to show fear: When your hand is shaking so much you can't
pick up the phone, the market senses a victim is about to be slain and goes out for blood.
This rule has evolved out of this fear factor.
3) After two hours of trading, ask yourself, "Do I feel good about my trading
today?"
Once two hours have passed in the trading day, you should have made at least two, or
perhaps more, trades but enough to evaluate what you have done. If you can answer "yes"
to the question, continue trading. If your answer is "no," stop trading. You can't bring
happiness to a "blue" day by trading. Your emotions won't allow it, and a big losing day is
likely to be the result.
September 1995 is a true example for me of turning a bad family health situation into a bad
financial situation. My father suffered a heart attack. He always was the pillar of strength to
me, and to see him in intensive care was just too difficult.
Some people drown their problems with alcohol. My escape is trading, but during that
time, my heart wasn't in it: My focus was gone; my energy level was low; my enthusiasm
was non-existent. It turned out to be the worst trading month I had had in seven years.
The person who knows you best is yourself. Listen to yourself.
4) All cylinders of the engine must be running efficiently.
Keep in mind, as your trading day progresses, what money you have made or lost. It is
much like knowing the score of a basketball game when you are the coach. Day-trading is
a job, and your paycheck is determined by your ability. You only can maximize your ability
if you have all the information you need to make trading decisions.
If your phone, quote machine or any other mechanical function of your daily routine is out
of whack, stop trading. Frustration is the best friend of a losing day. The more frustrated
you are, the less efficient your trading decisions will be, lowering the probability of a
winning day. Don't fight a losing battle; there is always another day with opportunities.
5) Have complete faith in your indicators.
This is a must for success. Many times your indicators give a buy or a sell signal, and you
don't follow it because you just don't have the confidence the signal is right this time.
Successful day-traders believe in their indicators but also are aware that nothing is 100%
foolproof.
Not taking a trade that is set up using indicators you have developed is calling yourself a
liar.
The indicator is a product of you telling yourself to do a trade. When you reject it, you are
responding by saying, "Indicator, you are not giving me a true signal." Grade yourself with
a big red "F," and go sit in the corner.
6) To anyone who aspires to become a day-trader, observe those who are
successful.
Any information you can procure on the trading philosophies, mechanics and techniques of
the professionals is well worth your while. If learning from those who have experience cuts
down your learning curve time, isn't it worth it?
I've heard people say they were going to learn by themselves. Learning for yourself will
work if you have the time and financial resources. Stubbornness and pride can be
hazardous to your wealth.
If you do pursue learning from the "masters," do not be surprised to find that there are
many different ways to day-trade profitably. Do not try to clone another individual,
because your personality is never exactly the same as his. Observe, learn and test the
waters to arrive at the confidence level you will need to achieve consistent success.
7) Day-trading is a long-term commitment.
I fervently believe it takes several years to become a true professional. Each year you
should become more consistent in your profits and enjoy more confidence in your
indicators. My final daily rule means taking every trade and dissecting it. This will provide a
roadmap for success by showing you where you have been, which mistakes you can learn
from and which situations to avoid.
Day-trading is not easy, but as a business, it can provide the American dream -- financial
independence.
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Mark D. Cook is a professional trader in East Sparta, Ohio. He has been trading for
22 years and won the 1992 U.S. Investment Championship with a 563% return.
Cook offers a fax advisory service, Mark D. Cook's Trader Fax,
markcook.com, on S&P and T-bond futures and OEX options that is
structured specifically to teach people to trade better.'It's one of the last bastions of
pure capitalism. It gives the same opportunity to a hillbilly farm boy in bib overalls
living in East Sparta, Ohio, as it does to an Ivy League university graduate in a
tailor-made suit on Wall Street. |
