3 THINGS YOU MUST MASTER BEFORE YOU CAN MAKE YOUR FIRST $25 MILLION TRADING THE MARKETS
1994 I was fresh out of high school. I met with a friend who showed me option chains on different stocks. He showed me that if I put $500 into a call on a stock, it could potentially turn into $2000. He went on and on. I ate it all up. The next day I went to a local bookstore and bought my first book on trading.
I would go through the newspaper and find call or put contracts that I thought were reasonably priced based on absolutely no analysis or criteria. One of the first I bought was a call option on Bally's Hotel. I believe the symbol was BLY. And I think the strike price was 7.5.
I was successful on the trade as a result of pure luck. I recall walking down the stairs of my parent's house some $500 richer, thinking how brilliant I was for discovering such a simple way of making money.
Over the years, I derived a sense of importance from trading. I remember in 1997, I would be trading the Yen at 10pm during a BOJ intervention in the currency markets. It was me versus the BOJ. It was exciting. I was a player. At least I thought I was.
Wall Street was my favorite movie. I watched the Paul Tudor Jones documentary over 100 times. He was my idol. The video is available for viewing here. It's a classic documentary. I haven't watched it in years. If you have never seen it, do yourself a favor and spend the hour watching.
What I didn't realize at the time was that the fantasy, perception and image I created for myself as a trader was more important than making money. I was more enamored with the act than the results that were produced as a result of the act. I would come up with a successful system of trading and within months completely flip it on its head because the excitement was beginning to fade.
After I left the trading desk of Bank of America in 1998, I started making an effort to push back against my Marilyn Monroe complex. The results were astounding. I had triple digit up years in both 1998 and 1999. I didn't have a down year until 2004.
The drawdowns I have experienced in the past have all been a direct result of abandoning my ability to make money in the markets for an image of myself that didn't actually exist. It was my way of making the markets exciting and keeping the fantasy alive. I never wanted the markets to turn into just another business. I wanted the markets to be Bud Fox, Gordon Gekko and Anacott Steel. And I wanted this to be my reality ALL of the time. Blue horseshoe loves Anacott Steel 24/7.
I think that this type of showboat mentality is not the exception for those who begin a career in the financial markets, but rather the rule. Most of those who start build up a perception of themselves that is detrimental to the one essential act that matters....making money.
I still get a sense of excitement when I find an investable company that has extreme upside potential. I still get a sense of excitement when I find a chart pattern that is just begging to be offered down. I still get a sense of excitement when I find a restructuring situation that is so distorted I wonder how in the world could the rest of Wall Street be missing this?
What I don't get is a false sense of self. I don't care how the next guy made his million. I don't care what the latest hot shot fund manager is doing and how he is doing it. I don't care about periods of time where my portfolio is flat and there is absolutely nothing to do but read research and look at charts.
If you're reading this, then you are either already successful or want to be successful trading or investing in the markets. Here are 3 of the most important things you can do for yourself right now. Doesn't matter if you've been doing this for 10 months or 10 years:
Get your mind right - you gotta have mental discipline. You have to know yourself inside and out. Know what triggers your EDS and stay as far away from it as possible. The markets consistently take advantage of the vast inefficiencies that exist in the human mind. They will find your emotional weak spots and eat right through them. Become an alien.
Do your homework - Up until 2006, I went through 600 charts (give or take 100) per day. Every single trading day since 1995. 600 charts. After my 3 year break from the markets from 2006-2009, I started again. Currently I go through about 400. I've been doing that since 1994. I've easily looked at way over 1,000,000 charts in my career. No, looking at charts every night isn't all that it takes to make money. But it will help you understand price movement. Sooner rather than later you will develop a sense for things that you wouldn't otherwise have.
I also do fundamental research. Read through SEC filings. Check into activist investors and executives at companies. The homework never stops.
I haven't read a book on the financial markets in years. But I have read hundreds. Many of them cover to cover over and over again.
Find your niche - I can't stress how important finding a system that fits your personality is in the trading/investing world. I don't care if John Paulson knocks on your door at midnight offering to give you the secrets of trading in a 100 page journal he has been saving for you since 2006. If it doesn't fit you as a trader or investor, you will lose money. You have to find a system you are compatible with and can live with. Kind of like a husband or wife, without the need to check in when your away on business.
That's my freestyle flow for tonight. Goodnight.
Any questions, let me know mail@zenpenny.com
