DAY-TRADING: The Highs and the Woes
(Editor's note: Kramer called again. Said he was ill and would I choose a 'Best of Kramer' column to run today. I didn't believe him of course; I think he had an early morning tee-time for a round of golf. But I told him to try a high colonic and stay in bed all day. He assured me that he would.)
I thought it best that Dortmunder accompany me to my regular Saturday morning session with my shrink, the major-league malapropist and Barney Fife look-alike, doc Kronkite.
The doc desperately wanted to be a trader. Fed up with investing, fed up with seeing his AMAZON, EMC and SUN MICRO and dozens more melt like an ice-cream cone on a hot day; fed up with his long-time advisor, Mendelbaum-the-fund-manager who put him into stocks that dropped like rocks, Kronkite begged me to teach him how to trade.
I knew I’d bitten off more than I could chew. Hence my desire to have Dortmunder, the little guy with the 187 IQ who sported three-piece Savile Row suits, spoke in a clipped British accent and was my trading-partner join me in this daunting task.
Trouble was, Dortmunder didn’t like doc Kronkite. And the doc didn’t like Dortmunder. A certain savoir-faire, a deft bit of finesse on my part was clearly required.
“Dortmunder,” I said, placing a plate of raspberry scones, his favorite, which I had flown in at great expense from Bermuda, “I should like to ask of you a slight favor.”
Dortmunder cocked an eyebrow, waited. I outlined my request.
He plopped a scone into his mouth, chewed slowly, and said, “Absolutely not.”
“But Dortmunder, “ I cried. “Think of it. We have an opportunity to turn this poor fellow’s life around. He’s in a bad way. You can be Sancho Panza to my bumbling Don Quixote; you can be Professor Henry Higgins to his Liza Doolittle.”
It was this last that did it.
Still, I had severe reservations. Was it possible to teach a confirmed investor to be a successful trader? Had such a thing ever been accomplished?
When we arrived at doc Kronkite’s office, his leggy and very sexy receptionist, Miss Thelma Tushbumper, beamed. “Bless you for coming,” she said bestowing a warm kiss on my cheek. “Doctor has been distressed, afraid you would not keep your promise."
“A promise to you Miss Tushbumper is a promise kept,” I said and was rewarded with another smacker from those angel lips.
Miss Tushbumper ushered us into the doc’s office. He was lying on his lumpy leather couch, head in his hands, moaning. When he saw Dortmunder he scowled.
“What’s he doing here?” Kronkite bellowed.
“Dortmunder has graciously agreed to assist me in imparting the wisdom of the trader,” I replied. “As you know, he is my trading partner and may be able to help.”
“I don’t want his help; he’s a rogue, a mountebank, a charlatan.”
“And you’re a Freudian quack,” snapped Dortmunder.
“Am not!”
“Are too!”
This was not going well. “Gentlemen, gentlemen,” I interjected, “We are here on serious business. I suggest we proceed.”
Kronkite scowled but remained silent. Dortmunder was suddenly busy adjusting his silk tie, fiddling with his Harrow St. diamond ring.
“Doc,” I began, “How long do you usually hold a stock?”
“Months, years,“ he replied. “I sell only when Mendelbaum tells me to sell.”
“And you Dortmunder, how long do you hold a stock?” I asked the little guy.
“Depends on the market, the futures, the market internals. Sometimes I’ll swing-trade, hold from two to five days. Most times I’m in cash by the end of the day.”
Kronkite’s mouth fell open.
“And Dortmunder,” I continued, “How do you trade when the market or a stock is in a down-trend?”
“Primarily from the short side. The short side is the fine side in a down market.” The little guy could sure turn a phrase.
“Really?” asked doc Kronkite. “Don’t you get nervous when you go short? Mendelbaum told me that shorting is very dangerous.”
“I never get nervous Kronkite. And Mendelbaum is an idiot,” said Dortmunder.
“But how can you sell a good company short?” asked doc Kronkite.
“Quite easily my good fellow,” said Dortmunder.
Good fellow? Dortmunder was clearly warming to his task.
“A good company who’s stock declines by 30 or 40% in a fortnight may be a good company, but it is not a good stock,” he said.
“So all you care about is the stock, not the company?” asked the doc.
“Indeed,” replied Dortmunder.
“Ok” said the doc, “I can do that. I’m ready to trade.”
“Hold on doc,” I said. “There’s a lot more to being a successful trader.”
“What, what?” he cried.
“Doc, you have to be able to deal with stress,” I said.
“Me deal with stress? When it comes to stress I’m a specialist.”
“I know doc. But there’ll be times when a trade goes wrong and you have to take a loss; maybe six or seven times in a row. Your confidence may get shot. You might want to reach for the phone and call Mendelbaum.”
“That bum? Never. I’ll call you and Dortmunder,” he said.
“And doc, you can’t watch CNBC anymore.”
“But that’s where I get most of my tips. Maria is chock full of information,” he said.
“No doc. No CNBC, no Maria.”
“If you insist,” he said sadly.
“Another thing doc; you’re no longer an investor. No more portfolio with forty or fifty stocks. You’re a trader. You buy, you sell; you short, you cover. By the end of the day you’re mostly in cash. You begin each day fresh.” I said.
“Ok, ok, ok” he said, sounding an awful lot like Joe Pecsi in ‘My Cousin Vinnie’ and ‘Lethal Weapon 2’
“And doc,” I went on, “You make no trades for the first ten or fifteen minutes. You wait for the orders that pile up overnight to hit, for the initial excitement to abate. Then you can think about putting on a trade and immediately entering a stop order.”
“Do I have to? What if I get stopped out?” he cried.
“You take the loss doc. And you always try to lock in some profits by 11:30. That’s when we enter the Dole Drums.” I said.
“What means Dole Drums? Mendelbaum never mentioned Dole Drums.”
“Forget Mendelbaum doc. The Dole Drums run from 11:30 to 1:30 or so. That’s when a lot of traders knock off for lunch and not too much happens. But don’t worry doc, the action picks up after the Dole Drums.”
“So what do I do from 11:30 to 1:30?” asked the doc.
“Maybe you could schedule a patient or two?” I suggested.
“Of course, of course. I treat patients. I’m a specialist in treating patients you know.”
“I know doc.”
“Ok, so I’m all set. I’ll start trading on Monday,” he said, rubbing his hands together.
“You better wait doc,” I cautioned. “We have more work to do.”
“Wait? I don’t want to wait. I want to trade, just like you and Dortmunder.”
“Doc, you have to learn all about charts. You have charts of course. Qcharts perhaps?” I asked.
“What’s a chart?” the doc asked, clearly puzzled.
“It’s what traders use to trade doc. Kinda like those ink-block tests you use.
You don’t analyze a patient without first giving the ink-blot test do you doc? Same with stock charts. You can’t trade until you can analyze a chart, see the patterns. Dortmunder is a specialist in chart analysis doc.”
“Dortmunder is a specialist? Did I tell you that I’m a specialist too?”
“I think you may have mentioned it doc,” I replied.
“Wonderful. You and Dortmunder can call me Monday and tell me what to buy.”
“Gee doc, I don’t know. We’re pretty busy. Maybe you should just watch and read the posts in Seattle Bobby’s room. Lotta good traders there who share information and offer trading ideas.”
“Ok, ok, ok, I will. Thank you. And you too Dortmunder.”
‘Thank you Dortmunder?’ Did he actually thank the little guy?
“Next week, come back, same time. Bring charts. A trader I’ll be.”
“Sure doc. Next week.”
Lee Kramer |
