The Part-Time Trader (5 page)

“MDAS—Med Assests, Incorporated” and it would proceed with the stock quote for the particular company.

Then I would actually start getting personal with the automated quote service.

“No! I said M . . . B . . . A . . . H, you piece of trash,” in my lame attempt to hurt the feelings of the voice recording.

“NOK—Nokia Corporation,” it retorted.

Literally, this would continue for the next five minutes or so until I got a stock quote and my focus would become how many fractions of a penny had the stock gone up or down by since the last successful quote attempt. On this particular occasion, my stock was up, not overall—just on the day. That made me feel like a successful trader for the current day at hand, and I proceeded back to the booth after a 15-minute absence.

I would repeat this cycle 10 to 15 more times throughout the convention because my mind could focus only on what MBAH might be doing. The process of dialing the phone number was exhilarating. What if it rallied a half penny's worth since the last time I had phoned in?

More times than not, I would be disappointed. I was essentially immersed in a legal gambling habit known as “penny-stocking.”
While I thought I might have some great skill set in finding the right penny stocks to trade, all it took was one broken link in the chain, and the strategy went to trash on me, and weeks of gains vanished in the blink of an eye.

After moving beyond the penny stocks, I quickly began formulating ways to manage my risk better. It simply wasn't enough to find a decent stock pick. I needed to be able to manage risk on the stocks that failed. This was the point where I had come to grips with my own fallibility as a stock picker.

I would never get them all right, and sometimes I would not even get the majority of my stock picks right. If I was to become a successful part-time trader and eventual full-time trader, then I needed to pay more attention to mitigating risk than worrying about the possible profits that could be made (sometimes those profits were a mere fantasy not embedded in reality).

Let's face it, profit opportunities will ultimately come. Even if it is through pure randomness, if you trade stocks, you are going to have some winning stocks, no matter how green or new you are to the practice. Once I came to realize that trading stocks is much more about the skill of handling losses than some rare ability to cash in on outsized gains, or being some “genius stock picker,” I was able to take a positive step forward in becoming a better trader with the ultimate goal of detaching myself from the rigors of the corporate world.

But it wasn't full steam ahead from there. I would subscribe to various newsletters, from sub-$10 trades that borderline killed my account when the stocks would report earnings, to a newsletter that claimed to have the greatest stock picks, the latter of which would provide four or five trades per day, and would report to you only the highest price the stock hit that day, not the price at which he actually sold the stock. Essentially, he was helping me with only 10 percent of the trade, and as long as it went $0.01 over the entry price at some point, he would dock the stock a winner.

When I subscribed to these newsletters, I would literally get to work and have to start putting in my alerts for the day based on the entries that were posted. One way to create havoc in your work and trading balance is to introduce day trading to it. Unless your job involves sitting at your desk and doing next to nothing, then you should go ahead and rule out day trading as your preferred trading strategy. These stocks that the newsletter would put out were often in the $3 to $5 range. He would give the picks, and it was my job to figure out when to get out of them. To think I could actually get work done was a pipe dream. I would have to work through lunch and stay a while afterwards just to make sure I put in an honest day's work.

Once the market opened at 9:30 A.M., you can bet I was glued to my quote feed and streaming charts to see the action and which stocks I was jumping into. The worst was when someone would schedule a meeting in the morning and basically thwart any ability to successfully manage those trades. But don't underestimate my own foolishness—I'd still put my orders in and pray to God that any orders that were filled would somehow be profitable by the time I came back into the office. To put it mildly, those stock picks weren't so great and represented an attempt at a shortcut in my learning curve at ultimately becoming a full-time trader.

Other problems existed where I would get so pumped up about a myriad of books that I would read, that upon completing them, I would try to mimic their trading system or strategy and instead of duplicating their successes, I would simply further delay my own development. I found myself trading options, futures, exchange-traded funds (ETFs), and stocks. I had experimented with literally every kind of trading vehicle while working full-time.

Ultimately, I would get nestled into a trading groove that would not seek to hit home runs every time at bat, but instead I would look to make steady and consistent gains over the course of a myriad of trades. My obsession was no longer with finding great stock picks but finding excellent risk opportunities.

I did not want to diddle-daddle in a stock in hopes that it would eventually work out. Instead, I wanted trade setups that offered a quick way of knowing whether the stock would go in my favor or not. If the stock worked out, I'd stay in. If not, the stop loss I set made it to where I would quickly realize whether the trade would work to my benefit or not. Therefore, I wasn't going to hang around for long as my stops would do the work, if the trade moved against me.

One thing is certain—I have literally traded in every office environment humanly possible. I have worked in my own personal office, which is obviously ideal; I have shared an office (not ideal); I have been in a cubicle; and even shared a cubicle. Heck, there was one time where my desk was located in in the middle of a common area, surrounded by seven offices staring directly at my computer screens. More challenging aspects of trading occurred when I was traveling in excess of 25 percent of the time. But nonetheless, it is possible to do so.

There was one particular time where I actually came back from a conference an hour away, and the next day at work, I could not even find where my office was. The brilliant manager thought it could not wait one more day and decided to move my office down the hall to be paired up with someone else. Exhibiting her lazy managerial skills, she actually managed to throw away a number of important documents, none of which was more personal to me than my college diploma that was lying on my desk because I had been waiting for the special-ordered frame to arrive in the mail. Her reasoning for doing so was since everyone had already gone home for the day, she did not want to haul everything down the hall to my new stomping grounds.

Trading at work no doubt added a heap of stress to my life. I knew that if I did not figure out how to do it, I would never have a way out of this job that was sapping the very life out of me. Since the stock market trades only from 9:30 A.M. to 4 P.M. Eastern, I really didn't have a choice but to figure out how to balance the two.

Now if you go into your boss's office and say, “Hey, boss man (or boss woman, as was often the case), I just wanted to run by you the idea of my trading throughout the day while on the job. I'm going to get all my work done, but a lot of my time will be spent staring at my computer screen watching stock prices,” I am pretty sure your boss is going to puke all over your idea. In fact, you will likely add yourself to the fast-track demotion list. That is because perception is reality to the boss.

You tell him you are trading, and he is going to assume you are not a “company man.” You are not supposed to have career aspirations outside of your job. Outside aspiration is not something that corporations like to compete with. The dirty little secret that corporations never like to admit is that 80 percent of their workers hate working for them. They do it out of need, not desire. I have met people who will tattoo their favorite football team on their back, despite their performing in the cellar of their league. There was even an individual who tattooed the Mitt Romney campaign logo despite Romney's losing in the 2012 election. But tell me one person that has ever tattooed the logo of the company for which they work on any part of their body.

The point is that most people look forward to Fridays, holidays, and retirement, not Mondays or the end of vacations. Corporations as a whole put forth the image to their employees that there is no greater experience than working for them with unbridled loyalty. So don't go parading to the boss man that you have interests outside of work, or drawing up the plans that will allow you to live independent of anything they can offer. If someone told me just that, it would be music to my ears. To them, it is treason.

I learned that I would have to trade below the radar because the moment that my trading became known would also be the moment that my trading plan came apart. I walked on pins and needles. If someone asked me about the stock market, I would give them a response that was equal to “What's that?” And trust me, that wasn't easy to say.

I loved talking about stocks. When the market was tanking over 300 points on the Dow and folks around me were freaking out about it, I wanted to stand atop my desk and let them all know that I was making money while they were all losing it. I wanted to give them all a 101 lesson on what shorting a stock meant and why they should have been doing it at the same time I was.

Instead, I simply shared in their agony and agreed with them that it was probably the fault of day traders or state some other popular generalization, such as “I guess it's time to get out!” I did this for years on end, up until I gave them my two-week notice. Then everyone just assumed that I was going to learn how to trade stocks, unaware that I had been doing it since I was just 11 years old in various shapes and forms.

There were a couple of people through it all that I did ultimately trust, but I was limited in what I told even those individuals. One person who was closing in on retirement did not really need his job any longer and was a short-timer with one foot already out the door. I'd go by his office all the time and talk about the trades I had on, as did he, and what he was thinking in regard to market direction and areas of improvement in my own trading. I always picked up interesting tidbits on trading, as he had practically seen it all—some of which I still hold very dear to this very day.

One particular tip he brought my attention to was the amount of trading that took place on the first trading day each month. Often, this day brings huge price swings in excess of 1 percent in the major indices due to the huge influx of funds receiving new money and trying to position themselves accordingly with the fresh capital injection they received.

What is even more interesting is that the first day of the month is often streaky, meaning it is often easy to decipher what will occur based on what took place over the past four to five months of price action on those first-of-the-month trading days that preceded the current one. In particular, when there is a strong uptrend intact, almost every month will result in large gaps up on that first day of the trading month, as shown in
Figure 2.2
.

Figure 2.2
Gaps On the First Day of the Trading Month

Chart courtesy of StockCharts.com.

One of the traits you do not want to possess when trying to advance your part-time trading career is to take on more than you can do. Early on, I figured if I could trade bigger and be successful at doing so, I could shave some years off of my career in the corporate world. This was a big mistake. Early on, I was trading only one or two positions. I had a basic understanding of technical analysis, but I had not gotten to the point where I would “count the cost” before I entered a trade, meaning I did not weigh the risk of losing or being stopped out of a particular trade setup, as well as being stopped out of that position and simultaneously being stopped out of all my other positions as well, which can happen from time to time.

On one particular occasion early on in my trading career, I was trading with only a few thousand dollars. I had been on an incredible win streak, and like most newbies to the craft, I assumed that I could keep that going on indefinitely, because somehow, in my mind I had convinced myself that I had “arrived.”

Rather than be wise with my capital, I thought it would be more prudent to increase the amount I was trading with. So I took the capital I was currently trading with and found the means to double it from some of the money in my savings account. I was excited! I had a whole new world of trading before me—more positions I could apply my stellar technical analysis to and more positions I would profit from. Taking a loss never entered my mind. Instead of trading two or three stocks, I took on seven new positions, which up to that point was something I had never done before.