When I lecture, I always ask investors what positions there are in trading. Most respond, “Long” or “Short.” A few understand that being flat is also a position. But what most don’t realize is that being flat can actually make you the most amount of money. It’s the only way to view the market at face value.
I have never met anyone who was long and felt the market was going down, or short and thought the market was going up. If they had, I would have asked why they stayed in their position if they felt the market was going against them. In today’s new world of electronic trading, cheap money, additional algorithms and funds, market moves are much more drastic. That’s why, under certain circumstances, being flat can be the best position to be in.
All traders go through a bad streak now and then. The key is to keep them small and manageable. I started most days in the pit flat. My thought process was there is enough to trade during the day. Staying up all night when there was no electronic system and waiting for a call from London was just throwing the dice. Once NYMEX electronic trading system was on at night, I still felt that coming in to trade after a good night sleep was more important than what I could make staying up all night. Continue reading →
Trading Tip #9 – Trading Styles: Do Not Have Just One
In the late 1980’s, my venture into the trading world began in the Gold pit on COMEX. The first day was the Friday before Memorial Day weekend. I walked in and noticed that being in the pit with a badge on was very different from stepping into it as a clerk to give your broker his position. With my heart beating out of my chest, I made my first trade. I bought one contract (100 oz.) and sold it a dime higher. I made $10. After commission, it was about $8. I realized that, during the broker training practice sessions, everyone was a hero. Once you had real money on the line, trading was decidedly different. Continue reading →
Trading Tip #8 – Recovering After Getting Your Butt Kicked.
The day after getting your butt kicked can be one of the most important trading days of your career. I am not talking about the normal, or slightly above normal, butt kicking. I am talking about one of those days that you just got hammered for whatever reason. Maybe you were stubborn, thinking “the market has to come back.” Maybe you added to a bad position and it just kept going against you. Maybe you said, “I Hope” and she wasn’t around to hear you scream her name. Or maybe, like me, you got caught on the wrong side of a world news event driven market, and the market gapped against you. Continue reading →
This goes for the all types of traders, from the smallest to the largest. Once a position is established long or short, it’s best to test and test often. Let’s go with the long position for this example. Looking at the recent move in Facebook, let’s say that Trader one is a short-term day trader who likes to be flat by the end of the day, so he/she buys 500 Facebook shares at $27.75. The stock moves to $28. I would suggest testing the market by selling just 100 shares at $28.
As President of Sterling Commodities, part of our risk management for the Clearinghouse was to go over all of the traders accounts every night. We needed to watch and analyze their trading patterns so that we could tell when it was time to talk to a trader and tell them to pull back or even take a few days off to regroup. We were able to tell when traders were about to move to the next level of trading – both in size of positions and risk tolerance – and then give them guidance. We helped them move to the next level. Continue reading →