Thursday, February 12, 2009, 07:00PM ET
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Confessions of a Trader: Chapter 2 - PsychologyConfessions of a Trader
Have you ever heard about the bagel man? The bagel man is nothing more than an example representing the common investor, the hard working 9-5er who does not live and breath the markets. It could be the pizza man, teacher or plumber. The idea is, when the average investor thinks it is time to buy a stock it is usually time to sell or short it. Why? Because half the game is psychology and the InTheMoneyStocks or ITMS Trickle Down Effect. The Trickle Down Effect refers to the passing on of information down the chain of command or investing hierarchy. Take a look at the back of a dollar bill. Note the pyramid with the eye at the top. This is a great example of how the ITMS Trickle Down Effect is setup. The elite at the top are privy to the information first. Then, it trickles down to the base or the common worker. The key here is to know it, so you avoid falling prey to it. Understanding that a stock or market is like a mad rush of musical chairs. Think of it like this. You are playing
a game of musical chairs. Every other member of the game knows what day, hour, minute and second the music will stop. Now what type of chance do you have in a game like that? The last are eliminated or in this case, lose their money. The average investor buys at the top and sells at the bottom. Sound familiar? These investors are the ones that get the information last, usually the average hard working man or woman unfortunately. This is why we at InTheMoneyStocks.com strive to teach the individual investor how to read the technicals. If you can read the technicals correctly, you bypass the chain of command and become even higher than those that have the news first or in this example, know exactly when the music will cease. Think of it this way. Knowing the technicals allows you to sit in a chair while the music is still playing and be there when it stops.
Sadly, the media keeps the news forefront and focuses the average investor on it. Of course, that is what the media is about and their job, so I cannot blame them for pushing it. In addition, we (the human race) are programmed to look for the easy money. Just like our ancestors would much rather stalk a wounded buck, no pun intended, rather than an angry bear. The easy meal is in our genes. It is only when we bypass that one facet, do we start feeding ourselves for life instead of getting one fish and eating for a day. There is NO easy money. I cannot stress this enough. If it is too good to be true, it is almost 100% of the time.
I remember it so clearly, like it was yesterday. Years ago, Sirius Satellite Radio ran from the low 2's to around $9 per share. This happened as speculation surfaced, then official news hit that Howard Stern would be joining the company. Right around the time the announcement was made, my fellow traders and I went down for a bagel around lunchtime. Conveniently, a truck drove from office building to office building selling snacks. As I was ordering my bagel with cream cheese, the bagel man said I should invest in SIRI. I smiled, raising my eyebrow in a way that conveyed some doubt yet avoided any discussion as my focus was on my food. While walking back to the office, I turned to my trader friends and said, "It is done. Short SIRI." I think it currently trades for $.14, post merger with XM Satellite Radio.
The problem was that the news had already been factored in. Every last buyer had bought except for the average investors like the "bagel man". Once he bought it, once your broker called you and pushed you to buy it on the hyped news who was left? Everyone was in that wanted to be and for a stock to continue up, there must be new buyers. More importantly, the big money like hedge funds had already loaded up months prior as they already knew the news and were now selling it to the bagel man. All of a sudden, a lack of buyers and institutional selling creates downward pressure. It is sad to say, but we trade/invest in shark infested waters. As a trader/investor, if you do not understand the rules, you will be eaten alive.
Understand this folks. If you are hearing the news in your office or from a family member, it is either old news that is already factored in, or it is insider news and you or someone else could be going to jail if you act on it. That is as simple as it gets. Either way you will end up regretting your decision. Any tip should be disregarded. If you are hearing it, ten thousand traders with billions more dollars already know it and have acted on it. If you buy now, you are generally the sucker who they are selling to.
I am telling you truthfully, the average investor and even the newcomer to my trading chat room will often be the best contrarian indicator in the world. Far better most of the time than any technical tools I have ever seen. Here is a short true story as an example. November 2008 was truly awful for the markets especially following October. We saw the markets literally collapse as the financial crisis and economic recession took hold. One Saturday I was doing my food shopping at a store that specialized in vegetables and fruits. As I was searching for some nice ripe mango's, a daughter, middle aged was talking to her elderly mother. They were next to me picking out some oranges. The daughter was telling her mother that they must pull the mothers annuity immediately because these financial products would soon have no value and they would lose their whole investment. The signal had been given. That Monday I told my partners and we started buying. Sure enough, from the November lows, th
e market has risen 15-20%.
Keep your ears open. Use this knowledge wisely. When the public or average investor speaks, go the opposite way on the trade. It is truly an amazing indicator.
Back to my life as a trader.
I lived in a dorm my freshman year at college. There were three of us in a two person tiny room because of over crowding for the first semester. I still remember vividly my two room mates. A kid from Turkey who had a scholarship for swimming and another one from Queens who had transferred. Very tight quarters, but for the most part we did not care.
Not more than a month into college I opened my first trading account. I still remember it vividly. Etrade. I paid $19.99 per trade back then. Crazy to think a trade could cost that much.. My parents had consented to allow me to put $1,000 dollars into the account. It took some convincing for sure as they were not exactly the investment savvy types. In my family it was more looked upon back then as being a black art, something mysterious that was risky. I knew my mom feared me being part of the greed driven masses in the capitalist system that spawned Enron and Madoff. She would constantly tryto push my career towards an eco friendly or teaching career. Once I had opened my Etrade account I was ready to go. Having no idea what I was doing I found a stock I liked and went all in. I still remember the company to this day. Pharmaceutical Product Development, symbol PPDI. My entry price was around $12. For the life of me I cannot remember the reason why I bought it now. My first real trad
e! Here we go! Let's make some money.
One day passed, it went down. A week past, it went down further. After a month? It was down to $8. What was I doing? You have to be kidding me!
One evening I sat down at the computer and started doing some research on Yahoo! Finance. I came across the profile page and it had an email for the companies investor relations division. I was upset, I was trying to make money and all this stock did was go down. I wrote an email explaining my disappointment in the company in somewhat harsh but proper terms. No cursing, no flying off the cuff, just expressing pure disappointment at me loosing, what to me was a decent amount of money. Also, my ego was hurting. I sent the email that evening, crawled into bed and forgot all about it by the next morning. The stock continued down into the sevens.
One morning I crawled out of bed,. Still in night attire I went into the communal bathroom tobrush my teeth. One of my room mates came with the portable phone telling me there was a phone call. I picked up the phone, mouth full of toothpaste and said, "Hello?" Sure enough, the CEO of PPDI was on the other line. He attempted to reassure me, the whole time my mouth dripping of toothpaste as it hung open in astonishment. He asked me some questions, to which I barely answered. He reassured me on my investment and said he was confident in the stock. I hung up. Truly unbelievable. Here I was, not even 20 years old and the CEO of a publicly traded Nasdaq listed stock had called me. I guess it goes to show you that they do not know who you are and you never know who could call. Little did he know that I held under 100 shares of his company and was a college kid in my pajamas with a mouth full of toothpaste.
Sure enough, like the best indicator out there, his call to me signaled the bottom. PPDI began to move up. I broke even and ran like the wind out of that investment. Funny to look back on it today. It went to 40, split and then went to 40 a few more times with multiple splits. That was my first real investment experience and things were only going to get more interesting. The tech bubble was as big as could be and my learning curve was about to get a major shock.
Confessions of a Trader
By: Anonymous Trader
Wednesday, February 11, 2009, 07:00PM ET
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The Obama Effect... Will It Help?I still remember hearing about this charismatic up and coming politician named Barack Obama years ago. An African American man who could speak like few in the past and charm the pants off the public. I liken his speaking talent and charisma to Bill Clinton who was able to slide through many a "sticky" situation and come out one of the most popular presidents ever. Granted, he presided over one of the greatest expansion and wealth building economies in history as well. Many will debate whether or not the economic expansion was his doing or possibly a result of Reaganomics years before. In any case, President Obama has the power to raise us up, make us want to be better, makes us want to unite. He has already put a stop to the pay raises in the White House, gone huge lengths to reduce the bipartisan politics. The American public is tired of the rich getting richer and politicians that disagree not on a basis of their own beliefs but because they are on opposite sides and thus must. This is uplifting for me to see and I truly hope it continues.
Barack Obama is facing one of the worst economic situations since the Great Depression. There is no real doubt in my mind it could be that bad should action not be taken. Action has been taken. The printing of trillions of dollars as the bailouts flow like water under a bridge. A small trickle now the gushing Mississippi. The big question to me is, when do we, the United States public have to pay the piper. As of now, banks are not lending even with the bailouts, however, that will change in time. When they do start lending, it is imperative that the Federal Reserve clamp down on the excess money and quickly. Ben Bernanke spoke about this over a weak ago and admitted they have pumped trillions into the economy. However, he noted that inflation would remain muted due to the lack of bank lending and the commodity collapse. I agree with this. Near term you will see inflation stay low but only until banks begin to lend. At this point it is imperative that the Federal Reserve be ahead of the curve and start raising rates to restrict and pull back the excess money. In addition, I believe it will take much, much more. If not? Hyper inflation will be here in full force.
When has the Federal Reserve actually shown they are ahead of the curve? Never, in my opinion. This is what worries me so much. Believe it or not I don't even fully blame them for never being ahead of the curve. Why? Because while the Federal Reserve is supposed to be independent from the government, rhetoric and politics, they always get caught up in it. Do not think the president does not have the Chairman of the Federal Reserve on speed dial.
Knowing this, I have little faith that within a few years, we will face an even worse situation. Hyper inflation. Dear readers, think about this. Most Americans have already lost half their value in their pension and other retirement vehicles not to mention half the value in their houses. So let us say someone had one million in retirement savings. It is now worth five-hundred-thousand-dollars after the stock market collapse. That amount of retirement savings could buy... let us say, half a million apples. Hyper inflation hits and all of a sudden that amount of money can only buy a quarter million apples or less. So within the span of 5 years you have cut the retirement savings in real terms by three quarters. From one million to just one quarter of a million dollars. That is scary. Of course there are countless other problems as well. States are running billion dollar deficits. California may have to file bankruptcy...that is if the government does not bail them out too. Pension are under funded and let us face it, what tax revenue will the government get in the next few years? Sales taxes are slumping as consumers are not spending, unemployment is rising which means no tax on income and everyone has huge losses from the last year in their portfolios. I just do not see an easy fix unfortunately.
I am for Obama. He is the right man to lead us through this mess because he is uniting the country and the world. This is a global issue and we need the world for once on our side. The mess we have dug ourselves will cause more problems down the road I fear. We need a leader who is able to inspire us and keep us together as we find out the hard way there is no quick fix. Yes, near term his stimulus package will have an impact but all these stimulus packages are really just creating more dollars. The more dollars there are the less each one is worth. Simple economics here. Supply and demand.
There are ways to protect against hyper inflation. The end game and the only way to help the United States clean up this mess maybe a new currency even... However, that is for another time.
So I say lead us forward President Obama, I am behind you. But just in case all this does not work? I am preparing myself for hyper inflation!
By: Gareth Soloway
The Leader In Market Technical Guidance
Tuesday, February 10, 2009, 07:00PM ET
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Confessions of a Trader: Chapter 112.31.08
Confessions of a Trader
I write of my experiences not for glory, ego or profits, but to describe the pain and pleasure in the life of a professional trader.
Most individuals in this world will never know the rush of adrenaline in being a day trader. Upon buying a large block of stock and knowing that every tick up or down in the next couple seconds will dictate a day at work. A day where you may either make more money than 99% of the worlds population or lose more money than 99% of that same population spends per month in bills. To describe the feeling to a non trader is like explaining love to someone who has never experienced it. They will never quite get it. They may nod and smile, but let's face it, they are just humoring you. How do you explain to someone that after a while it is a video game? That losing or making just $5,000 in a day is just another day at the office. I feel like half of them look at me and do not fully grasp that I can actually work for negative dollars. Think about that concept. Traders can go to work and can come home with less than they left the house with. Losses happen. You grow to accept them and move on. In fact, the great traders actually accept it and move on seconds after it happens. Granted, they cut their losses quickly. This enables them to move on to the next trade more easily.
The video game aspect fascinates me. Am I trading real money? God knows if I ever had to take out ten one-hundred dollar bills and hand them to someone it would literally depress me. But here I sit, taking or giving that every other day like it is no big deal. I wish to convey so many lessons, so many rules I have picked up throughout the years. I promise I will. These confessions will tell the tales of profits and losses and tricks of the trade. I intend to take you on a journey from the past to present as I learned how to trade profitably.
I once read about a study on day traders. This study found a commonality between those that were good day traders and those that were classified as psychotics. Years ago I found this amusing. Today perhaps more interesting and plausible. There is something to be said for an individual that can sit behind a computer, massive amounts of data streaming through and study charts, ticks, candlesticks, in order to jump in and out scalping pennies in seconds but making thousands. It is in reality almost comical to think about what a day trader does yet I would not change it for the world. The freedom, the passion the unknown. To never know what will happen tomorrow, whether or not you will make money or lose. To be able to literally trade for the first half hour of the market, hit a few trades dead on and walk away with a weeks pay. To sit all day doing nothing and then in a split second a trade pops up and snooze of a day turns out to be Christmas and New Years all rolled into one. Granted, it goes both ways and trust me when I tell you that I have experienced both. But is it really that crazy of a job? I love a quote from the movie Con Air for that exact reason. Steve Buscemi who plays Garland 'The Marietta Mangler' Greene says...
"What if I told you insane was working fifty hours a week in some office for fifty years at the end of which they tell you to &$#@!! off; ending up in some retirement village hoping to die before suffering the indignity of trying to make it to the toilet on time? Wouldn't you consider that to be insane?"
Sadly, in these woeful economic times this rings with more truth as the automotive industry, financial firms and world lay off people by the tens of thousands.
As I begin Chapter 1, I aim to tell you about some of my experiences along the road to becoming an accomplished trader. First off, let's be honest, the stats are not favorable to someone succeeding as a trader. Something like 5%-10% will make it. The rest will lose their money and go back into the monotony of the common work force. Whether or not you make it as a trader depends on so many variables it is almost impossible to count. These will be covered in depth in the coming weeks.
Trading seemed to have been ingrained in my psyche since I was in grade school. I collected everything I could. Baseball cards, basketball cards, coins. I had price guides for them all and followed the monthly prices like it was a ticker in a news paper.
As a young man I got interested in trading in high school. A classic case of joining the newly formed Investment Club. We played one of those news paper investment games and the seeds were planted. I had no clue what I was doing back then but it was fascinating to watch the markets and “guess” at the direction a stock would move. After joining the investment club, there was not one day I did not pick up the paper and look up and down the quotes page. Eying what went up and down, within months I knew every stock by the symbol in the paper. Someone could throw out two, three or four symbols and I could rattle the name off like it was my own name. I had no clue at the time what a day trader was but I did know whatever I ended up doing, it must involve stocks.
I continued to paper trade using the popular Yahoo! Investment Challenge during school/market hours. Having fun watching my fake $100,000 account as it went up and down each month. I found that even the fake dollars, as my account value increased was intoxicating and addicting. I must have looked suspicious and had this strange intense look on my face because more than once the teachers would check what I was doing, suspecting the website I was looking at so intensely was pornography.
College came quickly, my knowledge of stocks still limited to symbols and the idiotic basics of what the media and financial world made us believe was important in choosing an investment. The late 90s were upon us, my first trading account would be opened and I was about to get a unique phone call from the CEO of a publicly traded large pharmaceutical company...
Chapter 1: Words of Wisdom
No Trader Ever Went Broke Taking A Profit - Never let greed take over. Any profit is a good profit. Do not be afraid of what you will not make, instead be afraid of what you will lose.
By: Anonymous Trader
Monday, February 09, 2009, 07:00PM ET
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InTheMoneyStocks.com's Chief Market Strategist Calls Financial Collapse in 2007!
InTheMoneyStocks.com's Chief Market Strategist Nick Santiago Calls The Financial Collapse in a radio interview on August 2007.
With the DOW near 14,000, the bulls on the run, our chief market strategist lost a few friends when he spoke of the issues plaguing the market back in 2007. Speaking specifically about the future of the market, how investors should be in cash .... not banks, sub prime, prime, auto industry, or even money markets. (August 25, 2007)
"Alex, glad to be here. Its Inthemoneystocks.com, we formed this company earlier this year basically to give the small investor a chance. Because as you see what's going on out there, many, many people were looking at these headlines saying "Dow 14,000" and they had no idea what's about to come..." (Nick Santiago, InTheMoneyStocks.com)
"You have a crisis, its not just sub-prime, its also prime, its also these collateralized debt obligations, these derivative products that were created. " (Nick Santiago, InTheMoneyStocks.com)
"It doesn't look good for the us dollar. The outlook for the us dollar in the next 3-5 years is not very good, its very grim." (Nick Santiago, InTheMoneyStocks.com)
"We do not say pull out of the stock market. We trade both sides of the market. As traders we are neither bull nor bear. We follow the money flow. If we see the market about to make a move down as we did about a month ago we will alert our subscribers, guys lets get short this market lets play it to the downside and we all made a lot of money...." (Nick Santiago, InTheMoneyStocks.com)
"Look at Country Wide Financial, look at Citi Bank these companies have big, big liabilities on their hands and I believe they are in a lot more trouble then is being led on to the public." (Nick Santiago, InTheMoneyStocks.com)
"Right now I believe that most people should be basically in cash, trading very very lightly. Foreign assets is probably a better play the American assets at this time. I believe even that, you may have to be very careful because this is a global economy now. You've been hearing that story for quite a long time. Many of these markets are very very extended. Gold has out paced the Dow, gold is up 300 percent since basically 2003. So if that is not telling us something I don't know what is? I believe gold might fall a little more but you may want to get a hold and buy some gold if you see gold dipping here." (Nick Santiago, InTheMoneyStocks.com)
"At this point I don't like anything in the market accept being in cash." (Nick Santiago, InTheMoneyStocks.com)
"Even Money Markets are not even safe these days." (Nick Santiago, InTheMoneyStocks.com)
"Look at our US car market, Japanese cars are kicking the butts of the American cars and frankly they make a better product..." (Nick Santiago, InTheMoneyStocks.com)
"This country is very very leveraged we have a huge trade gap deficit with china..." (Nick Santiago, InTheMoneyStocks.com)
Nick Santiago, InTheMoneyStocks.com (August 25, 2007) (http://mp3.wtprn.com/Ansary/0708/20070825_Sat_Ansary.m3u 33:40)